If you’re just starting a new business and looking into what the legal structure would be, LLCs are a great idea. In today’s world, customer trust is one of the most important things when starting a new business – especially when you’re going to be cutting their hair and providing them with beauty treatments. Once you form an LLC, people will be more likely to trust your business thanks to the credibility it provides.
At the same time, your business will also be able to enjoy easier tax regulations and operational requirements. Not only this but your personal assets will be protected. As a business owner, these things should be high on your life and priorities, right after establishing a successful salon business.
What Is an LLC?
An LLC stands for Limited Liability Company – it is a business structure that is different than that of a sole proprietorship or corporation and is actually ideal for small and local businesses that are just starting out.
Small businesses enjoy all the good things that corporations enjoy – like personal asset protection – along with some extra perks. Corporations, for example, need to file annual reports but LLCs don’t. At the same time, your LLC will be taxed more leniently than corporations are, and there isn’t a lot of control on how the profits are distributed among the members of one.
Do I Need an LLC for a Hair Salon?
There are a number of reasons why an LLC might be a good idea for your beauty salon business. According to Forbes an LLC is your best bet for your salon business like it is for most small businesses.
While your new salon is just starting to get customers and struggling to break even, you don’t need to worry about being double-taxed or dealing with the stringent legal requirements that come with owning a business that is formed under any other legal structure.
Many registered agent services do provide you with annual reports and a lot of other things, but you also want to keep your business assets and your personal assets separate – something that is easy to do once you’re running an LLC.
Small businesses usually strive to cut costs and run their businesses as efficiently as they can, and it has become clear in recent times that LLCs are the best way to make that happen.
Benefits of Starting an LLC for Hair Salons
Protect Your Personal Assets
As your hair salon grows, it might be more and more at risk of being sued or going at a loss. With your personal and business assets and finances separated, you won’t lose your bank balance, house, or your car if your business goes into debt or loss.
While most business structures provide this protection, they don’t do it with all the other benefits having an LLC provides, and aren’t as easy to set up. At the same time though, this protection does have its limits. A court can decide that this protection doesn’t stand for your business in something called piercing the corporate veil, and you come at the risk of it if you failed to keep your business and your personal expenses separate.
Protect Your Name
Every business and organization has a name that it’s usually known by – this name eventually has a value of its own based on how much customers trust a certain brand, its popularity, and so on. Once you’ve invested a certain amount of marketing into your business name and brand identity, you don’t want people confusing it with another similar business.
When you form an LLC, your own salon will have a unique name and other beauty salon businesses will not be allowed to operate under it. This is particularly useful for salon owners who are looking to bring something unique to the market and want to be known for it.
Enjoy Flexible Payouts
WIth Corporations and other legal business structures, you need to abide by certain laws and rules regarding the payout each member or owner gets from the company profits. This is usually supposed to be proportionate to the percentage and type of shares they hold in the company.
In the case of LLCs, however, you can agree to payouts in any allocation, and have the freedom to choose to give someone a bigger slice of the pie, perhaps to reflect their active role in management or because they contributed more to the salon in its formational years.
Lenient Paperwork Requirements
LLCs aren’t required to file annual reports, hold annual shareholder’s meetings, and do a lot of other things that are required of corporations. This makes this setup the ideal choice for small businesses who might not have the resources to devote to following these requirements, and for small business owners who aren’t well-versed in business operations – if you’re purely a hairstylist or someone in the fashion industry who finds a lot of the paperwork and compliance confusing or boring, and LLC might be suitable for you.
What little paperwork there is to file, however, can be taken care of with the help of the right registered agent service.
Financial Protections and Perks
In addition to keeping you safe from any personal liability if things go wrong, one of the most important things to keep in mind when starting an LLC is that when you keep your business and personal accounts separate, you’re able to build up a good financial reputation for your business, and it won’t be affected by your own. This gives your business the opportunity to qualify for business loans, get business insurance or salon insurance, and much more.
Your business bank account and credit cards will also give you access to a lot of cashback and perks that are specially designed for small businesses. When used wisely, these cards and perks can save you hundreds of dollars every year.
You can also avoid being taxed twice – once at the corporation level and then on your personal income – by being taxed like an S corporation would. This isn’t something that other corporations like a C corporation can do.
You will, however, need to pay self-employment tax, which is paid for your social security and Medicare.
Easy to Start and Manage
Filing an LLC is as simple as filing the right paperwork with the state authorities. The expenses for this will vary from just a couple of bucks to a few hundred dollars depending on salon location, and you will be required to have a registered agent who will be able to ensure your salon remains in compliance with federal and state laws.
The exact expense of registering your salon as an LLC will be determined by salon location, but the state fee itself isn’t very significant. As for registered agent services, you will be required to pay at least $39 for a basic but comprehensive formation package that will have everything you need to get started. Of course, these services can go into the hundreds too, depending on what addons you choose and which providers you choose to work with.
Ownership Rules are Lax
By ownership rules, we mean rules about who can own shares in an LLC and how many members there can be. There are various restrictions and requirements placed on how many shareholders a business can have. For example, an S corporation can only have a hundred owners and they all have to be citizens or residents of the United States.
For LLCs, however, these rules don’t exist which makes ownership simpler.
Management Isn’t Complicated
While other business structures have rules about how they are to be managed and run. There’s supposed to be a board of directors, someone to manage the business, they’re supposed to have regular meetings, and even profits are supposed to be divided up a certain way.
When you run an LLC, though, you will be able to manage it however you wish, with things like the LLC structure completely under your control, and no need to establish a board of directors.
Why Starting an LLC for a Hair Salons Is Important
Protection Against Lawsuits
Accidents can happen all the time while you or an employee is providing salon services to your clients – what you don’t want is for one mistake to turn into a huge lawsuit that ends with you without a home or any personal assets left. With an LLC, you will be free of any personal liability in most legal cases, and you will carry no personal liability for what goes on in your salon.
The liability will be limited to your business assets unless you did a poor job of keeping them separate from your personal finances.
This can be useful in cases when, say, a customer’s hair was damaged during treatment, or if one of your employees was careless with the hair straightener.
Establish a Unique Brand
With the help of an official LLC business structure, you will be able to protect your brand name and your business from being impersonated, or for it to be used by other salons that you are not affiliated with. This might seem like a small thing, but when people start associating positive experiences and quality service to a particular name, that name itself is valuable and important.
Another beauty salon using that name could mean that you might possibly be losing clients to this person, and they might even be bringing your business reputation down.
When starting your own salon business for the first time, you need to keep in mind that it will need to be registered with the right authorities no matter what type of business you decide to register it as. But the reason an LLC is probably the right business structure for your beauty salon business is that you will be able to save time, money, and a lot of effort during all stages of the process.
Setting this type of business up is easy, and so is operating it – you don’t need to pay tax on your income twice, you don’t need to file complicated documents or pay high fees, and you don’t have any over the top requirements for things like annual reports and company meetings to abide by.
This saves countless small businesses in the beauty salon industry a lot of time and money. The money and effort you save on complying with complicated state requirements may be the difference between failure and success in the beauty salon industry.
Get Tax Benefits
For tax purposes, an LLC can function as a pass-through entity. This means that you will only need to pay taxes on your personal income if you choose to be taxed through the S-corp model. This will save you a lot of money on taxes and is an important reason why an LLC structure is suitable for small businesses – in its formational years, your beauty salon business needs all the help it can get.
Get Access to Small Business Loans
With the help of established financial history and the proper documentation, your business will be able to get access to small business loans, credit card benefits designed especially for small businesses, small business insurance, and much more.
These financial assistance packages and incentives can be helpful when you need some capital to get your business off the ground. But unless you register your business properly and make sure all your paperwork and credit history is in order, you won’t be able to gain access to these loans.
It is important to note here that when you’re going to get a loan for your own business, the loan providers will look at not only your business’s credit history but yours as well. In a lot of cases, business credit cards will still need to know that the business owner has a good reputation when it comes to keeping up with things like their credit card debts.
How To Starting An LLC For Hair Salons 2022
Now that we know what an LLC is and why you need to register your beauty salon business as one, we can move forward with the registration. Practically speaking, getting the LLC itself registered can be as easy as filling out an online form with a registered agent, which can take under one hour!
Most registered agent services are quick in filing your documents and don’t cost much, but you will also need to take care of any state processing fees and additional charges.
Here is how to start an LLC using a registered agent:
Choose a Name for Your Salon Service, LLC
Once you’ve decided to move forward with this approach, you will need to decide what your business name needs to be. This is the name your beauty salon business is going to be known with on all official papers and documentation, as well as probably be your brand.
Many aspects of your business – especially the marketing – will be influenced by what name you choose, so think wisely. Once you’ve made the decision, you can check on your registered agent’s website for the name’s availability, and a lot of services even offer name generators that can make it easy for you to figure out what to call your new beauty salon business.
Choose Your Registered Agent
Before you choose your registered agent, figure out what kind of services you need and how much you’re willing to pay for them. Is expedited filing something that you value a lot? Are you willing to pay a little extra for things like help with obtaining the EIN number or for automatically generated meeting minutes and educational resources that help you run your salon business successfully? How important is customer service available to you?
Once you know what services you value more than the others, you need to look into the top services that will help you best while you’re setting up your beauty salon. There are old players in the market who have been providing businesses with registered agent services from as far back as the mid-1900s, and there are newer competitors who are young and on top of their customer satisfaction game, but lack the established reputation that their older competitors possess. It might be a good idea to look at online reviews on independent platforms and try to assess how trustworthy and dependable the registered agent service seems.
You can also choose to be your own registered agent and file all the paperwork yourself, but this isn’t something we suggest you do. This is because while it’s very easy to mess up, a simple mistake or non-compliance with certain laws can leave your whole salon business at risk.
File Articles of Organization
Once you’ve chosen a registered agent, you need to draft the Articles of Organization for your beauty salon. This is a document that lists all the important details about the LLC, from how many members the LLC has, how much each will be paid, what the managerial structure will be, and much more.
In order to run a successful business, you need to be very clear about these things and avoid any ambiguity in these rules. We suggest having them drafted with the help of an expert, and a lot of registered agent services will be able to draft your Articles of Organization for you.
Create an LLC Operating Agreement for Your Salon
While the Articles of Organization list important details about the business like the place of formation and is a legal document filed with the state, the Operating Agreement is more like a rule book for you to follow while running your business.
It will contain things like details of what to do if things go wrong, how your profit and losses are to be distributed, and what will happen if things go wrong. This document is an important one for your business as well, which is why as the salon owner you will need to make sure that it’s done correctly.
Obtaining an EIN
Your EIN or Employer Identification Number is what will help you keep your personal and business income and expenses separate. With its help, you will be able to open up a bank account for your business, take out a credit card, file taxes, and much more.
The Top 2 LLC Services
ZenBusiness is one of the newer players in the market, but it has quickly made a name for itself because of its cheap formation package starting at $49, stellar customer reviews (it has a Trustpilot rating of 4.7 out of 5 with over 8 thousand reviews), and a lot to offer.
Its basic business formation plan comes with everything you need to get your business registered, and you can add extras like help with obtaining your EIN and rushed filing if you feel like you need it.
Northwest looks cheaper than ZenBuisness at first glance (it charges $39 for its basic package), but expenses can add up when you think about how much you’ll actually need and how much is delivered in the basic package.
While ZenBusiness’ plan contains things like a registered agent service for the first year and then $99 per year after that, the same service costs $125 per year with Northwest. Still, companies and small businesses use Northwest because of its high customer satisfaction scores and the fact that the organization doesn’t upsell services to you. The payment plan is transparent, and your business needs will be taken care of.
Starting an LLC isn’t as complicated as it might seem, and it gets easier when you’re working with the right experts to make it happen. The ease of operation, tax benefits, and other benefits that establishing your beauty salon as an LLC provides will make life easier for you while you work on starting your new business.
Frequently Asked Questions (FAQs)
Starting an LLC is as easy as filing the necessary documentation with your state authorities and paying all relevant fees. In most cases, the whole process takes less than a week, and it takes even less effort on your part if you let a registered agent service take care of it all for you.
The way LLCs are structured makes it easier for a small business to operate as one, especially when you think about the laws and regulations C and S corporations need to abide by. These include but are not limited to being required to have a board of directors, holding annual meetings, filing annual reports, and only being able to distribute profits in proportion to how many and what type of shares each member or owner owns.
Most of these rules don’t apply to LLCs, and the members are free to distribute profit within themselves as they see fit. Not having to file annual reports and hold annual meetings – as well as not having to follow many of the other regulations placed on corporations – makes it easier for you to run your salon business without much trouble.
Keeping your business and personal finances separate is something that only benefits you and has no great drawbacks. In case things go awry in the salon and your establishment is issued, or if your business goes into a loss and you find yourself unable to pay the business’ debts, your personal assets and belongings like your home and bank account will be protected.
However, a judge can rule that this protection does not apply in certain cases, including if you failed to keep your personal and your business expenses separate. This is known as piercing the corporate veil.
While you may not need anyone to help you with the LLC formation if you think you can figure it out yourself, you will still be required to have a registered agent listed with the authorities. The job of the registered agent is to make sure your business remains in compliance with federal and state laws, and that they keep all paperwork in order.
However, your registered agent doesn’t have to be a registered agent service, it can even be an employee or yourself.