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LLC for Estheticians
Beauty salons and spas are in great demand everywhere. They help customers achieve their preferred look, not to mention help in their pursuit of overall wellness in mind and body. These businesses are very lucrative and can turn in huge profits depending on the clientele they serve.
The clients estheticians cater to, however, tend to be sensitive when it comes to results—and for good reason. Beauty salons and spas deal with a person’s appearance, and any damage to the skin, scalp, or hair can cause both physical and emotional damage. These issues can lead to lawsuits that could cost such skincare and beauty businesses a lot.
Thankfully, there is a way for estheticians to do business without having to worry too much about the fallout of potential lawsuits in the form of LLCs. But what are LLCs and how can beauty experts take advantage of them? Let’s talk about that.
Definition
What Is An LLC?
An LLC, or limited liability company, is a type of business structure that protects owners’ personal assets in the event that the company gets sued for any valid reason such as those mentioned above. They are easy to set up like sole proprietorships and partnerships, but provide the same legal protections as corporations do.
Despite the protections, LLCs give owners, called members, full control of management decisions. This structure also offers flexibility in taxation options. These benefits make LLCs the most popular choice among startups today.
Advantages
What Are The Advantages of An Esthetician LLC?
Let’s take a better look at how beauty salons and spas can benefit from LLCs:
Personal asset protection
Beauty salons and spas can be sued for many reasons—skin injuries caused by chemical spills and cuts, slips and falls caused by liquids spilling on the floors, hair damages caused by blow dryers, and so on. Estheticians doing business as themselves have to face the risks of doing so, which includes facing lawsuits.
LLCs stand as legal entities separating the business from its owners. This means that when your beauty salon or spa faces lawsuits for any reason, you can only be required to pay penalties and debt using the assets your business owns. While LLCs can’t prevent lawsuits, it can prevent you from needing your assets as collateral.
Increased credibility
Beauty salons and spas aim to grow the size of their clientele using marketing, reputation, and word of mouth. However, by registering your skin and hair care business as an esthetician LLC, you automatically gain the added credibility of being legalized by your Secretary of State. This increased credibility helps build trust among potential clients. Your LLC status also helps you open bank accounts for business, and make transactions with clients as a company.
Management flexibility
LLCs don’t have the rigid corporation structure most companies are known for, allowing you to have more control over what happens in your business and the kind of roles your member can take.
For example, if your esthetician LLC only has a few members, all of you can decide to be member-managed so that all of you have equal say in how your business should be done. If you have many members, although unlikely if you’re starting small, you can elect to have just one member act as the manager who will take responsibility and exercise authority when it comes to company decisions. Division of profits aren’t dictated by things like “shares” either.
Less paperwork
Forming your esthetician LLC won’t require a lot of paperwork. And once it runs you won’t have to deal with a lot of documentation and reporting either–i in fact, you only very likely have to deal with filing documents annually, with the exceptions of some states.
You avoid double taxation
The income you earn from your LLC is considered “pass-through income.” This means the profit made by your business is “passed directly” to you and other members. There’s no withholding tax before you receive your income, and you only have to pay taxes for your income when you report your earnings to the IRS. This setup prevents you from paying taxes on your income twice, allowing you to save money for the things that matter.
Disadvantages
What Are The Disadvantages of An Esthetician LLC?
LLCs also have downsides that could affect how you do business. While most aren’t serious enough to discourage you from forming a company, it’s better to know what they are so that you can prepare accordingly. Here are some downsides you might face with your esthetician LLC:
Personal service providers can’t register as LLCs in some states
Businesses providing personal services like beauty salons and spas are not allowed to be registered as LLCs in some states. California, for example, prohibits this from happening. Check with your Secretary of State if you are allowed to register your business as an LLC.
Difficulty in the transfer of ownership
LLCs require all members to unanimously agree on changes in membership, whether that means transferring memberships or adding new members. While this won’t be a problem if your LLC only has a few members, it might be a cause for concern if you have many. This is because of potential disagreements that could arise, or if some members are hard to reach.
Moreover, LLCs are forced to shut down when a member files for bankruptcy or passes away. This can be averted using a business continuation agreement when forming the company.
LLC Formation
How To Create An Esthetician LLC
Here’s what you need to do next in order to create your own esthetician LLC:
- Choose the services you want to offer
- Secure funding
- Choose a name
- Get a registered agent
- File an Article of Organization
- Secure an EIN
- Create an Operating Agreement
Choose the services you want to offer
There are many options available for estheticians looking to start a business. You are not limited to the usual hair salon or spa—you can focus on makeup, specialize in microdermabrasion, offer waxing services, and more. You can also set up a spa specializing in aromatherapy, or organic detoxification. There are many niches you can choose from, but we suggest selecting one that suits your preferences. You won’t regret choosing to earn from doing something you really enjoy.
Secure funding
Starting your own esthetician LLC will cost a lot. You will be spending on permits, your initial inventory, your rented space, marketing, and so on. We suggest starting small using money you’ve saved up, then building your clientele before taking out loans to expand your business.
Choose a name
Your business needs to have a name that accurately communicates what you want your customers to expect from you. It has to be unique, one that isn’t used by other businesses in your state. This helps protect you from potential lawsuits in the future.
What’s more, you should choose a name that’s easy to memorize so that customers will remember you.
Hire a registered agent
An LLC requires you to have someone who will act as a legal representative acting as a point person for interactions between your company and the government. Registered agents will be receiving legal documents pertaining to your LLC on your behalf. This person should be someone residing in the state where you are doing business. While you yourself can take on this role, we suggest hiring someone knowledgeable about LLCs for the job so that it will be easier for you.
File an Article of Organization
The Article of Organization is a charter document providing details about your company, specifically its members, its purpose, and how it functions. It is used to register your LLC with your Secretary of State, and unless it is approved by the government, you will not be allowed to do business. Make sure to file this document and pay the necessary filing fees before moving forward.
Secure an EIN
The Employer Identification Number is used for several purposes. You will need it when you hire workers for your salons or spas when you pay taxes, and when you set up a bank account for your business. Your EIN will also be necessary when you apply for a loan in the event that you want to expand your business, purchase necessary equipment, and so on.
Create an Operating Agreement
An Operating Agreement is a document that will help you and your LLC members understand your roles and responsibilities, and provide details about how you handle profits and losses. This agreement is also necessary to inform new hires about the details they should know about your company. Think of it as a binding contract of what your LLC should and should do in the company.
LLC Taxes
How Are Esthetician LLCs Taxed?
Your esthetician LLC can be taxed differently depending on your preferences. In fact, it is this flexibility that allows you to pay less taxes and earn more profit.
An LLC is generally considered a pass-through entity because the revenue it makes is passed through to its members. It doesn’t withhold any income tax from you and the other members. Rather, you declare your profits and pay corresponding taxes to the IRS directly. This is the setup if you elect to have your LLC taxed as a sole proprietorship or a partnership.
It is best that you elect to have your LLC taxed as a sole proprietorship or a partnership if you’re starting small. You can maximize the benefits, and lower the taxes, if your company is earning more and has grown.
If you elect to have your LLC taxed as a corporation (specifically an S-Corp), you will be required to pay taxes on the company’s earnings, and another one for the profit you make from the business. Your company will also be required to pay other taxes such as payroll tax. This structure is sometimes preferably for LLCs earning more profits. Consult with an accountant to see what the best option is for you.
Lastly, regardless of how you elected your LLC to be taxed, you might need to pay an annual fee called Franchise Tax—though it is not required in some states. This tax is computed based on a percentage of your company’s assets.
Costs
What Are The Costs Of Starting An Esthetician LLC?
Before you can start doing business as your esthetician LLC, you’ll need to process a few things and acquire the necessary things you need. Here’s what you need to spend for before starting your business:
Filing Fees
You will need to pay when filing documents with your Secretary of State’s office to register your LLC. You’ll need about $50 to $800 depending on the state where your business is based. We recommend hiring experts to do this for you to ensure the accuracy of details and timely filing.
Registered Agent Fees
You should be ready to pay between $100 to $300 as compensation for the services your registered agent gives to your LLC. Again, you are not required to hire a registered agent, but we highly recommend you do so if it’s your first time starting a business.
Operating Agreement
This document can be created without you having to spend any money. But we recommend getting help from lawyers so that you won’t make mistakes that could be exploited in the future. Prepare to spend up to $200 for legal assistance if necessary.
Publication
After registering your esthetician LLC with your Secretary, you will then need to publish notices regarding its existence via the local newspaper. This is only applicable in some states. The duration period varies with state, and the cost of publication differs depending on the newspaper. Make sure to verify details with your Secretary of State’s office and the publishing companies.
Operating expenses
Your new business will require a lot of things: your rented space, equipment, supplies, and more need to be acquired before you open a shop. You will also need to keep restocking on consumables you use, such as hair dye, shampoo, massage oils, and more depending on the esthetics services you provide.
Insurances
As a personal services provider, you will do well to obtain different types of insurance to cover all sorts of issues that may arise as you do business. These types include:
- Professional liability insurance, for when some clients sue you for alleged harm done to them by your services.
- Product liability insurance, which is used to protect your business from lawsuits that may arise due to the products you sell, such as beauty, skincare, and hair care products.
- Commercial property insurance, which is used to protect your commercial property, equipment and supplies in the event that some unfortunate circumstance, like fires, should occur.
- Workers’ compensation insurance, which provides protection against losses due to accidents and injuries sustained while performing tasks at work.
Forming an esthetics LLC might not be cheap nor easy. But it’s a rewarding endeavor once you’re approved by your state, and most especially when your customers keep coming back to receive your services, resulting in continued profit over time. Start working on your LLC today!
Comparisons
Is LLC The Best Entity For Me?
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LLC vs Corporation (C-Corp)
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LLC vs S-Corp
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