My aunt and uncle have operated a successful nail salon in Turlock, Calif., since the 1990s. When they opened their business, my family would regularly ask in disbelief if people were willing to pay money for a manicure. After about 3 decades of being in business, it’s safe to say the business idea has been validated.
My uncle runs the nail salon as an LLC. This structure has worked out well for their business, but it isn’t right for every technician who wants to venture our by opening their own shop as explained below. Below is an overview of how an LLC works, the advantages and the steps you must follow to establish this type of business structure.
- Form an LLC for a Nail Salon with ZenBusiness ($39 + State Fees)
Advantages of an LLC for Nail Salons
If you’re a manicurist planning to form an LLC there are several advantages over other business structures, including:
- Personal liability protection – One of the primary benefits of setting up an LLC is the separation of personal and business liability. For example, if you have personal debts, setting up an LLC can protect your business from the creditors holding these debts. Likewise, if you have business debts, the LLC can protect your personal assets. This liability protection also applies to lawsuits that may be filed against your business or against you personally.
- Tax benefits – Unless the owners of an LLC choose to be taxed as a corporation, the LLC will be taxed on a pass-through basis. This means that profits are passed to owners, who pay individual income tax on their earnings. A separate corporate tax will not apply.
- Protection for personal privacy – Owning a business without an LLC or another such structure requires you to operate as a sole proprietor. When you are a sole proprietor, your identity is intertwined with your business, which compromises your personal privacy.
- Credibility – A business that operates under a formal LLC structure has more credibility than one that operates without this type of structure. This means that your business will be more likely to be recognized as legitimate.
- Consumer trust – The higher level of credibility encourages higher levels of consumer trust, allowing your customers to feel more confident working with your company.
- Growth potential – The monetary benefits and liability protection offered by an LLC makes it easier for your business to grow and evolve over time. If you have the goal to expand your operation into multiple locations this is a smart choice.
Because of all of these potential benefits, many nail salon owners choose this structure. Nonetheless, it’s important to note than an LLC may not be the right business structure for everyone as we’ll explain below.
Disadvantages of an LLC for Nail Salons
In some cases, setting up an LLC may come with disadvantages. For example, with an LLC, profits are automatically included in the income of owners. With a corporation, these profits don’t need to be distributed immediately.
Additionally, it will cost a little more to file for an LLC than a sole proprietorship. Some states will allow you to become a sole proprietor for under $50. Still, the cost benefit is still worth the additional investment. Most states will allow you to file for an LLC between $100 – $500.
Another consideration is whether or not you plan to operate this business full-time or part-time. If you decided to be a mobile nail salon that visits customers in their own home on the weekend, you may want to hold off on forming an LLC.
Where you start to see tax benefits for LLC formation is around the $50,000 in annual revenue tipping point. If you only plan to operate the business part-time and don’t mind taking on the additional business risk, then a sole proprietorship may work just fine until you decide to grow the business.
How to Start an LLC for a Nail Salon
Setting up an LLC may seem overwhelming at first. However, if you follow the right process, you can establish your business quickly and begin making a profit. To set up an LLC for your nail salon, follow these steps. Click here to be taken through the process of forming LLC company.
According to reports there are more than 56,000 nail salons operating in the United States. On average, you’ll need to invest between $75,000 – $125,000 in equipment like manicure chairs. The average nail salon owner will make between $40,000 – $70,000 per year.
1. Choose a Name for Your Nail Salon LLC
The first step in starting an LLC is selecting a name. While this may seem like a self-explanatory, simple process, it isn’t always easy to choose a suitable business name. It is important to make sure that the name you choose follows all of your state’s rules and regulations.
For example, you must typically include an identifier that lets the public know your business is structured as an LLC. You must also choose a name that has not already been registered for another business. In some states, the use of certain words may be restricted based on the nature of your business, so be sure to research this possibility as well.
2. File Articles of Organization
In most states, you will be required to file Articles of Organization for your LLC. These are official documents that provide information about your business and formally establish its existence under state law.
In most cases, these documents must be submitted to your state’s business division. They can typically be filed online or by mail, or you can hire an attorney to file the paperwork on your behalf. A fee may be required when you file these documents, but the amount of the fee varies by state.
Form an LLC for a Nail Salon with ZenBusiness ($39 + State Fees)
In order to complete this filing this process, you will also need to choose a registered agent, which is an individual or business that is responsible for managing legal paperwork on behalf of your country. In most cases, the registered agent you choose must reside within the state where your business is organized.
3. Create an LLC Operating Agreement for Your Nail Salon.
If you are planning to establish an LLC for your nail salon, it is also a smart idea to create an LLC operating agreement. This document will establish guidelines for your business’s operation, similar to the way in which articles of incorporation work for C corps.
In some states, the LLC operating agreement will be a required document when you file to establish your company. In other states, however, this document will be optional. Nonetheless, creating an LLC operating agreement is highly recommended because of the benefits it provides.
Specifically, this document establishes clear rules that allow you to control the operation of your business, which is especially important when your LLC includes more than one member. This document will also provide added liability protection, and it will make the responsibilities of all members clear.
The exact details that will be included in an LLC operating agreement will depend on the specifics of your business. However, some of the components of typical LLC operating agreements include:
- Basic identifying information – This section may include your LLC’s name, the address of your nail salon and the address of your registered agent.
- Statement of intent – The statement of intent indicates that your agreement is in compliance with your state’s laws. This section may also state that the business won’t officially come into existence until the proper documentation has been filed with the state.
- Business purpose – This statement provides the purpose of the LLC’s existence and will include the nature of your business. For a nail salon, this section will describe the salon’s basic purpose for existence. It may also include a statement that leaves room for any changes you wish to make to the business’s operations later.
- Term – This section will provide information about the business’s termination. For the typical nail salon, this section will simply state that the LLC will continue to exist until it is dissolved by the state or terminated based on the terms of the operating agreement.
- Tax treatment – This section of the document states whether the LLC will be taxed as a corporation, partnership or sole proprietorship. Most LLCs choose to be taxed as partnerships or sole proprietorships to avoid corporate tax rates.
- Admission of new members – This part of the document will describe the process used to admit a new member to the LLC.
It is possible to find LLC operating agreement templates online that can be edited based on your business’s needs. One such template can be found here. Different templates are available for single member and multiple member LLCs.
Keep in mind that some states may require you to file your LLC operating agreement. Check with your state’s department of business to find out if this requirement applies to you.
LLC Publication Requirements
In a few states, LLCs are required to publish a notice in the newspaper after they are formed in order to maintain legal status. At this time, the only states with this requirement are New York, Arizona and Nebraska.
If you are required to publish notice of your LLC’s formation, you will most likely need to run the publication for a specific number of weeks. You may also be required to use specific language and/or choose a specific type of newspaper, such as one operating in the same county as your business. Consult your state’s department of business for more information about these requirements.
How Much Does it Cost to Set Up an LLC for a Nail Salon?
The cost to set up an LLC for a nail salon is essentially the same as the cost of setting up an LLC for any other business. Most of the expenses paid to establish this type of business are the same regardless of the industry.
Some expenses you can expect to pay include the filing fee, the cost of preparing paperwork and the cost of publishing any required notices in the newspaper. Certain choices, such as the decision to hire an attorney to help you with the creation of the LLC, may raise your overall out-of-pocket costs. Click here to start the LLC filing process.
Other Licenses, Permits and Protections You’ll Need
Simply establishing your business as an LLC is not enough to fully protect your company from all possible risks, nor will it fulfill all legal regulations. In order to operate an LLC successfully, you will also need to obtain other forms of protection. Some of the other provisions you may need include:
State Cosmetology License
Most states require nail salon owners to obtain a valid cosmetology license before opening a salon. The specific requirements you must meet to obtain this license will vary by state, so check with your state’s professional licensing board for more information.
General Business License
Many states will also require nail salon owners to obtain a general business license before opening the salon. As with a cosmetology license, the requirements for obtaining this document will vary based on the state in which your nail salon will operate.
Employer Identification Number
An employer identification number, or EIN, is a number you will use to identify your business for tax purposes. When employees report the income they receive from your business, they will use this number to indicate the source. This number will also be included on any tax documents your business files.
The city or county in which you operate your nail salon may also require additional permits for your business. In order to learn about any required local permits, talk to representatives from local government agencies.
Are you ready to start your nail salon business? Establish an LLC online now.
Nail Frequently Asked Questions
1. Is an LLC a good option for a nail salon?
You can establish a nail salon using virtually any type of business structure, including LLC, partnership, sole proprietorship and corporation. However, because of the benefits an LLC provides, many nail salon owners select this business structure.
An LLC provides substantial protection against liability by separating the business from its owner for legal purposes. With an LLC, you can gain protection for your business assets in the event of a personal debt or lawsuit. Likewise, the LLC will also protect your personal assets in the event of a business debt or lawsuit. In addition, having an LLC lends your business more credibility and instills a higher level of consumer trust.
2. What are the differences between a nail salon sole proprietorship vs LLC?
Both an LLC and a sole proprietorship allow you to pass the income earned by the nail salon directly to the owner without paying corporate taxes.
However, with a sole proprietorship, your nail salon will not be considered separate from you as an individual for legal or tax purposes. This means that your assets are intermingled, leaving business assets vulnerable to personal liabilities and vice versa. With an LLC, on the other hand, you would have some protection from these liabilities.
3. What is the difference between a single member and multiple member LLC?
A single member LLC is an LLC with only one owner or shareholder, while a multiple member LLC is an LLC that has more than one owner or shareholder. Although these two business structures are similar, more protection against liability will be available if you opt for a multiple member LLC.
Related Reading: Starting an LLC for a Delivery Service Business
When the LLC has only one member, it is easier for creditors or people filing lawsuits to make a case that the business and the person are the same and should be liable for each other’s debts. However, when there is more than one person with a stake in the business, making this type of case is much more difficult.
4. Nail Salon LLC vs corporation: What is the difference?
Both an LLC and a corporation are business structures that can work well for a nail salon. However, there are key differences between these two options. While an LLC allows you to pass the income you earn directly to owners without paying corporate tax, a corporation does not offer this same benefit. On the other hand, while all profits earned by an LLC must be passed to its members, this is not necessarily the case for a corporation.
Likewise, while owners of an LLC must pay Social Security and Medicare taxes on all of their earnings, shareholders in a corporation will pay these taxes only on their salary. For this reason, some salon owners may benefit more from a corporation than an LLC. It is important to explore all options carefully before selecting a business structure to make sure you are getting the maximum benefit.
5. What are the disadvantages of an LLC for a nail salon?
Although an LLC offers a number of advantages for nail salon owners, there are cases in which it could come with disadvantages as well. Specifically, if you are planning to launch a single member LLC, you won’t have the same level of protection from liability that a multiple member LLC or corporation could offer.
Likewise, some people may find that they gain greater tax benefits by reducing their self-employment tax with a corporate structure than they can obtain by avoiding corporate taxes as an LLC. Because so many different factors come into play, it can be difficult to decide whether an LLC is the best business structure for your nail salon. If you aren’t sure which option is best, consider talking to an attorney or accounting professional.
6. What is an LLC?
LLC stands for “limited liability company.” This is a specific type of business structure that offers a number of advantages for business owners. If you’re operating a nail salon, choosing to set up an LLC may be the most beneficial option if you’re profitable and have plans to grow the company.
Form Your LLC Today
Click here to start the process to file for an LLC. You’ll want to compile basic information about your business including business address and telephone number. It will take around 30 minutes to complete the filing process and you’ll be on your way to owning a legitimate LLC.