Should a Nail Salon Be an LLC or a Sole Proprietorship?
Choosing a business structure for a nail salon depends on your individual situation and tolerance for risk. It is possible to run a successful salon using any of the available business entity types. If you want to choose between a sole proprietorship and a limited liability company, however, the final decision should be made by considering the key differences that distinguish the two entity types.
One of the major differences between a sole proprietorship and an LLC is the way business liability is handled. If you operate as a sole proprietor, you are personally responsible for all business debts, while an LLC protects owners against personal liability. Depending upon how you set up your salon, you may be at risk of lawsuits from customers, and if the business can’t pay a judgment, the situation can ruin you financially if you are personally liable. If you are working with harsh chemicals or with instruments that are sharp or hot, you may want the additional liability protection that comes with operating as an LLC.
Conversely, you may start your salon on a small scale, without offering many of the more risky beauty procedures. Perhaps you have enough business insurance to cover you if someone sues. Sole proprietorships are easier to run than LLCs. If you remove the liability factor, sole proprietors have less paperwork to worry about and fewer state and federal obligations. A sole proprietorship may be the best choice if you plan to gradually build up the business and want to spend most of your time on services rather than paperwork.
Starting and operating an LLC is more expensive than setting up shop as a sole proprietorship. One of the major benefits of opening a nail salon is the modest upfront investment required. Operating as an LLC can add hundreds of dollars in start-up and maintenance fees to your budget. Comparatively, it costs nothing to set up a sole proprietorship in most states. Most states require nail salon owners to pay for training and licensing, so saving money on business set-up and maintenance may make a big difference.
A sole proprietorship is a single-owner business by law, so you can’t raise money or resources for your business by selling some of your equity. An LLC is structured to allow multiple owners. Even if you start off as the sole owner of an LLC, you can bring on partners at any time that can infuse money or resources into the business without needing to change the business structure. If you want to bring on partners as a sole proprietor, you must convert the business to a different type of entity. If your master plan is to own a string of nail salons, and you expect to need investors, an LLC may be the most appropriate business structure.