In a nation where more than half of the adult population drink coffee, coffee shops often remain steady even in the midst of economic problems. As a small business, the ownership structure of your coffee shop affects various significant factors. You can run your coffee shop as a limited liability corporation (LLC), but you should be aware of the implications of such a structure.
As the name suggests, an LLC limits your liability. If creditors demand payment as a result of your business operations, they can only claim the assets related to your coffee shop business and not your personal assets. If you foresee a situation whereby you may incur a liability, an LLC may be appropriate for your coffee shop. For example, if you get a bad batch of coffee beans and it leads to food poisoning, the affected customers can't take away your personal possessions through lawsuits.
Some business ownership structures require you to pay tax twice: once as the business entity and once as the owner. If you run your coffee shop as an LLC, you only have to pay tax once if you categorize the business as a partnership for tax purposes. You report any income you get from the coffee shop on your personal tax returns only. However, an LLC has to pay tax differently depending on the state. As such, it may not be an appropriate structure if you intend to open other coffee shops under the same structure in more than one state.
If your coffee shop operates on a small scale, an LLC may be appropriate for you. It allows you to run the coffee shop in an informal way; for example, by placing few restrictions on who can own interests and make decisions in the business. Compared to other ownership forms, an LLC also requires less paperwork. You don't have to prepare year-end minutes or hold regular shareholder meetings. However, you should consider other corporate structures if you plan to go public in the future.
You can set up your coffee shop as an LLC in several different ways. Consulting a lawyer allows you to concentrate on operating the coffee shop rather than taking care of legalities, but it may come with a high price tag. According Bankrate.com, lawyers often charge more for LLCs than other structures. If you don't mind doing more work, you can choose to create your own LLC online for a fee that ranges from $200 to $1,000. The cost of setting up your LLC depends on your state.
Edriaan Koening began writing professionally in 2005, while studying toward her Bachelor of Arts in media and communications at the University of Melbourne. She has since written for several magazines and websites. Koening also holds a Master of Commerce in funds management and accounting from the University of New South Wales.