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If you’re considering opening a barbershop, you might be wondering whether forming a limited liability company (LLC) is necessary or beneficial for your business. In this guide, we’ll explore the key considerations and advantages of forming an LLC for your barbershop.
Forming an LLC for your barbershop can offer several benefits that provide protection and structure to your business operations. One of the primary advantages of forming an LLC is the limited liability protection it provides. By establishing your barbershop as an LLC, you can separate your personal assets from the liabilities of your business. You can also help enhance your professional image, building credibility with your customers, partners, and suppliers. Last but not least, forming an LLC can grant you tax flexibility, letting you choose the taxation structure that works best for you.
Throughout this guide, we’ll provide you with step-by-step instructions and valuable insights on how to form an LLC for your barbershop. Whether you’re a seasoned barber looking to open your own shop or considering entering the industry for the first time, forming an LLC can be a crucial step toward building a successful and sustainable barbershop business.
One primary benefit of an LLC for a barbershop is the personal asset protection provided by this business structure. Whether your barbershop is a simple single-seat operation or a larger barber shop location with several stylists and barbers, you need the limited liability protections that an LLC can provide.
As an example, let’s say that a customer slips on a wet spot on your floor, falls over, and injures themselves. If you operate your barbershop as a sole proprietorship or general partnership, your personal assets — like your house, car, or personal bank accounts — would be at risk if that customer decides to sue your business.
On the other hand, if you form an LLC for your barbershop, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will usually be protected by the business structure you’ve chosen.
However, this is just one of the advantages of the LLC for a barbershop. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which could potentially save you a considerable amount of money compared to simply operating as an informal business entity. But these tax benefits are dependent on your tax structure.
Your barbershop LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option (see multi-member LLCs definition). With this tax structure, your barbershop itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.
For tax purposes, you can also choose for your barbershop to be treated as a What is a C corporation?, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.
The other option is S corporation (please see our What is an S Corp? page) taxation. There are quite a few limitations to electing S corp taxation, but most barbershop businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, and so on.
S corp taxation can help your barbershop save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
Compared to operating a sole proprietorship or general partnership barbershop business, the S corp taxation model can save you quite a bit of cash that you can use to buy expensive equipment and make other improvements to your shop rather than writing a big check to Uncle Sam.
Finally, an LLC structure can enhance the credibility of your barbershop business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a barbershop sole proprietorship, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a barbershop.
In this scenario, you could register a DBA (see doing business as definition for more) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states. This means that if another barbershop wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.
LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnership vs LLC, in that the owners include any company profits or losses in their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.There are similarities to corporations, too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business (see members definition). This means that if someone sues your LLC, your personal assets usually are not at risk. For more information see our LLC definition page.
The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete LLC guide on the topic. The basic steps in the LLC formation process in any state are as follows:
Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.
Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.
The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.
The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.
Beginning in 2024, new LLCs are required to file a beneficial ownership information report, or BOI report. You’ll file this report with the Financial Crimes Enforcement Network (FinCEN), providing information about your beneficial owners. A “beneficial owner” is someone who exerts substantial control over the LLC or gets substantial economic benefit from it.
It’s free to file this form, and it’s essential to file to operate legally. Failing to file can have severe civil and criminal penalties.
Most states don’t require operating agreements, but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.
You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses, as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.
Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. Every barber needs certification from their state board, so make sure you understand what your specific state requires. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.
Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up to date in the state’s business database. Some states require reports each year, while others only require them biennially or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.
If you’re looking for resources that can help you start your own barbershop, look no further than the American Barber Association (ABA). More than 60,000 barbers across the nation are members of this organization. The ABA provides a membership network, professional certifications, business development tools, and much more.
The National Association of Barbers has an excellent blog full of valuable information for barbershop owners. Updated weekly, the blog offers advice on topics such as maximizing your profits as a barber, networking with fellow professionals, cleaning your barbershop, and branding.
This is an excellent resource for anyone looking for information about licensing for barbers. Barber-License is a free service, and they have plenty of info about barber training, along with extensive resources for state-by-state licensing and barber schools.
Associated Hair Professionals has a variety of impressive benefits for their members, including a free promotional website, a marketing toolkit, professional webinars, and more. Their industry links page has a nice collection of links to trade publications, training and career resources, business tools and advice, and much more.
FyleStyle is one of the most useful apps available for barbers and hairstylists. This app allows barbers to keep track of their customers’ personal info, along with how often they visit, which styles they like, pricing, coloring, and more. Even better is the fact that FyleStyle is 100% free for up to 10 customers, and even the full-price version only costs about $5 per month.
Starting any new business, including a barbershop business, can feel like an exciting but overwhelming process. Thankfully, you don’t have to go it alone. Here at ZenBusiness, we specialize in the “red tape” side of business, and we’re here to help. Whether you need help forming your LLC, managing your finances with a streamlined app, staying compliant, or anything in between, we’ve got you covered. Let us handle the paperwork so you can focus on what you love: providing the best barbershop experience in town.
There are several significant liability issues for barbershops. Obviously, anytime you’re working on a customer’s hair with scissors, trimmers, water, and chemicals, the potential for accidents is noteworthy. There are many different injury liability risks involved with these elements, so you should not operate your barbershop as an informal business entity. You need personal asset protection.
Everyone’s situation is different, and we’re not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that make it the preferred option for most small businesses.
Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look, but the LLC is a simpler and more flexible business structure.
Yes. Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.
For instance, you would need to be present and available at your business location during all standard business hours. This can be a barrier for small business owners who travel a lot.
The do-it-yourself route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.
Need some additional information, check out our ZenBusiness vs LegalZoom page.
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, the best option is to form their business in their home state. Forming in a different state can be a tremendous hassle and can also add unnecessary complexity to tax issues.
The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our guide to state-by-state expenses.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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