Are you required to get an LLC for a home-based bakery? I’m going to answer this up front: no. You don’t need an LLC or a Limited Liability Company to open a home based bakery even if you live in an apartment. Some bakers decide to form an LLC to add a layer of protection between their business and personal assets or for tax advantages. Like most other businesses, whether big or small, the choice is yours to register the entity as an LLC (or not).
Personally, I formed my LLC here for only $49 + State Fees. You can read my full review of the filing process here. But I’ve been in business awhile so it makes sense for my situation to make things official.
So what’s the best business structure for a home-based bakery? What permits will you need to get? In this guide, I walk you through the details and help you make an informed decision. Ready to turn your passion for baking into a profitable business? Let’s do this.
- What are the legal requirements for a home based bakery?
- Can you start a Cottage Food Business as a bakery?
- Can you operate a home bakery as a sole proprietorship?
- What licenses do you need for a home based bakery?
- What are the kitchen requirements for a home baking business?
- Do you need insurance?
What are the legal requirements for a home based bakery?
Starting a home based bakery could be a fun and profitable creative outlet if you enjoy the process of making everything from cookies to cakes. But you’ve got to get the nitty gritty business details settled before you start your business so you can dive right into the baking and having fun part.
So what do you need when you start a home based bakery? Here are some things you should know about:
Check your local state laws – Each state has different laws when it comes to running a home based business. It’s advisable to check your local state laws to get a clear understanding of whether or not you are allowed to run a bakery in your home.
Many first-time bakers start what is called a Cottage Food Business. These cottage businesses are available to open in all 50 states, however, the rules vary greatly by state to state. These cottage food operations were formed to help small food producers get started without the high-costs of requiring a lease at a commercial kitchen.
When it comes to operating a home-based business there’s usually a limited number of volume and only certain items that can be baked out of the home kitchen. For example, if you live in California, you’ll be limited to $75,000 in annual food sales out of your house. But other states like Idaho, don’t place limits on annual revenue for these producers. Keep in mind that if you decide to operate a higher-volume food business, you may need to structure the business using a that won’t cap sales entity.
Check if your baked goods are allowed – There are some items that may not be allowed to be sold in home bakeries. Check with your state what items are acceptable.
Cottage Food Businesses only “low-risk” foods can be cooked and sold. These low-risk items will vary depending on where you operate, but typically baked goods like muffins, cookies, and cakes are fall into the safe category. Whereas anything using raw eggs will be restricted. Of course, you’ll want to check to confirm the rules in your state.
Register your business – After confirming that your local state laws allow a home based bakery, it’s time to register the business. This is the part where you decide on what business structure to use.
Apply for Licenses, Permits, Certifications, and Health Requirements – Be sure to apply for the necessary legal requirements such as licenses, permits, certifications, and health requirements. Some of these can be zoning permits, occupational licenses, food safety certification, and health department permits. Again, these depend on each state.
Here are some other permits / requirements to investigate further:
- Does your HOA allow a home-based bakery? Admittedly, you may be able to work around this, but it’s worth knowing.
- Do you need a kitchen health and safety inspection? You might need to even if you’re opening a cottage food business.
- Food handlers license? Some states will require you to get a food handlers license. This is a training program that ensures you know how to handle food safely. You’ll need to do some studying to complete this training, but most people can complete this step in a day or two. Best of all, you can study and complete this this ServSafe test online for under $50 in most states.
The business structure mentioned above is of great importance when you register your business. Here are the different types of business structures you should know:
From the name itself, a sole proprietorship is a business structure that only has one owner. The profits that the business receives are filed through the owner’s personal income tax return. If you’re the only one running your home based business this business structure is an option.
I operated as a sole proprietor for many years. This is an uncomplicated way to operate a business that you self-fund and earn cash. The downside risk of this business is if you end up getting sued by an unhappy customer, they can go after your personal assets like home and savings. There is no limited liability protection if you choose this type of business structure which means if you run into any legal trouble, you will be held reliable and your personal assets are pursued.
A partnership is a business structure that has two owners. Taxes are filed the same way as a sole proprietorship. If you’ll be running your bakery at home with a friend or partner, this is applicable for you. But just the same as a sole proprietorship, there is no limited liability protection.
You Might Like: Do You Need an LLC to Open a Restaurant? (Short Answer.)
A corporation is a business structure that is run by shareholders. Taxes are filed first at the corporate level and then a second time after shareholders receive their profits. This is called double taxation. If your business has a lot of parties investing in your home based bakery, this can be the business structure for you.
Unlike a sole proprietorship and partnership, corporations have limited liability protection.
Limited Liability Company
A Limited Liability Corporation, also known as an LLC, can be owned by one person or more. It can also be owned by a corporation. Profits are given to the owners and they file these in their personal tax returns. From the name itself, an LLC has limited liability protection
Do you need an LLC for a home based bakery?
As answered above, no, you do not need an LLC for a home based bakery. However, you can choose to do so if you want, especially if you want more protection for your assets. I formed my LLC here for $49 + state fees. It took me less than 45 minutes to form this business entity and I was officially in business.
Can you start a Cottage Food Business as a bakery?
Cottage food is defined as products that are not Time/Temperature Controlled for Safety (TCS) food. In other words, these products should not be potentially hazardous.
Every state has a list of what items are allowed as cottage food. Luckily for you, baked goods such as breads, biscuits, rolls, cookies, pastries, and cakes are allowed just as long as they do not require refrigeration.
Please note that cottage food products are also only sold directly to consumers. Wholesale selling is not allowed. This means you won’t be able to get baked goods placed in grocery stores or coffee shops.
Another distinction with this is that the food must be prepared in your home kitchen. You can’t bake your food at someone else’s kitchen that hasn’t been approved.
Can you operate a home bakery as a sole proprietorship?
Absolutely! In fact, home bakeries are ideal for sole proprietorships since a lot of home bakeries are run with only one owner and minimal staff. Unless of course you’ll be running the business with another person then a partnership should be used to register the business.
What licenses do you need for a home based bakery?
Home based bakeries require several licenses which depend on local state laws. But here are a few licenses that you should take note of:
- Business License
- Zoning Permits or Licenses
- Health Permit / Food Handling Permit
- Home Bakery Certificate / License
Some states don’t require licenses but this depends on the cottage food product.
What are the kitchen requirements for a home baking business?
As a general rule, personal items should not mix with your work items. You may be cooking at home but it’s advisable to have separate kitchen equipment for your business.
You Might Like: Should You Form an LLC for a Coffee Shop? (Pros VS Cons Report)
Some of the equipment that you may need to purchase are:
- Additional sink
- Separate food storage
- Separate food preparation counters
- Proper ventilation system
- Cleaning supplies
You’ll also need to purchase and install safety systems, especially fire extinguishers, a sprinkler system, and an exhaust system.
One other note I need to call out. Do you own a pet like a dog or cat in the house? Depending on the state you might not be able to bake with an animal on the property. This is another distinction to look into before getting started. At the very least, you’ll want to ensure your four-legged friend is not present during the baking process for food safety.
Do you need insurance?
Getting insurance for your business will help you sleep soundly at night. They may be a bit costly but an insurance helps protect you and your business.
For instance, if a customer gets sick from a baked product you sold it could result in a total financial loss from covering the customer’s medical treatment. Having insurance will reduce the risk of this type of total financial loss. One type of insurance you could apply for is a Product Liability Insurance which would cover the type of situation mentioned.
If you’ll also be hiring staff to help increase sales volume, it’s advisable to get insurance for them as well in case of injuries and accidents suffered from working at your home bakery. When it comes to working with potentially dangerous equipment like hot ovens or mixers, it makes practical sense to carry this type of insurance.
And that’s it! May your application for a home baked business go smoothly with these guidelines. Let me know what type of a business entity you plan to form. Click here to register your LLC here for $49 + State Fees using ZenBusiness.