There’s really only one question to ask yourself when deciding if an LLC is right for your skin care business:
“Is it even slightly possible that one of my customers could get a skin irritation (at best) from one of my handmade products?”
If the answer to this question is YES, save this post to reference until you’ve registered with your state.
Making chemical-free skin care products by hand is incredibly rewarding, but it doesn’t come without risks.
Disclaimer before we get started – understand that I am a skin care maker and educator. Not a lawyer, not a financial advisor, etc.
*I am a maker, not a lawyer or accountant*
The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. Read the full legal disclaimer here.
The purpose of this post is to help you:
- think about the importance your business structure…
- consider your needs in terms of asset protection….
- become comfortable with new verbiage and the steps to expect so that things look familiar if you decide to move forward.
This publication has been written specifically for U.S. business owners. Regardless of location, make sure you check with your local government rules and regulations, as information can even vary within the U.S.
DO I *NEED* AN LLC FOR MY SKIN CARE BUSINESS?
An LLC is highly recommended for handmade skin care entrepreneurs, especially if you will be selling your products in person or online.
SOLE PROPRIETORSHIP VS. LLC
Before diving into an LLC specifically, we’re going to very briefly compare a sole proprietorship and an LLC side-by-side.
Sole proprietorships are recommended on a couple of popular handmade business websites, and I want it to be crystal clear why that might be okay for *some* industries…but not others.
A sole proprietorship is an unincorporated business owned by one individual. There is no separation between the business and the person running it in terms of incomes, taxes, etc.
- A sole proprietorship is the easiest business structure to set up. In fact, you don’t need to do a thing. If you’re running a business (for example, if you already have an Etsy or Shopify site up and selling), you’re a sole proprietor. No legal registration is *technically* needed to say you’re a sole prop.
- Because you are your business and your business is you, there is less paperwork, a much easier tax setup, and fewer business fees (if any).
- If you want to make a business decision, you make it. If you want to close up shop, you close it. You’re the boss.
- You don’t have any financial protection. If you run into debt, it comes out of your personal pocketbook. If a lawsuit is filed against you, all personal assets are potentially open for grabs.
- It can be tricky to get a business bank account or business credit as a sole proprietor (without an EIN). This means your growth can be financially limited.
LIMITED LIABILITY COMPANY (LLC)
An LLC (a limited liability company) is a business structure that combines the characteristics of a corporation with a sole proprietorship.
The owner and the business are seen as two separate entities.
- An LLC protects your personal assets. If a claim is raised within this structure, only your business assets are on the line (still no small thing, but better than everything you own).
- It is easier to set up a business bank account and get business funding with an LLC vs. a sole proprietor.
- Bookkeeping is more involved, as you will need to keep all personal and business finances separate to keep the liability protection than an LLC offers.
- An LLC is more complicated and costly to set up, as you will need to register your business, file articles of organization, and possibly set up an operating agreement (depending on your state).
These are just a few differences between a sole proprietorship and an LLC. There are other topics to consider, such as how you are taxed and required licenses. Visit the U.S. Small Business Administration for more details.
THE VALUE OF AN LLC FOR YOUR SKIN CARE BUSINESS
PRETEND YOU ARE A COLD PROCESS SOAP MAKER…
A customer reaches out to you with pictures of extremely irritated, dry skin and rash…evidence of an accidental lye-heavy bar.
PRETEND YOU ARE A LIP BALM MAKER…
A mother gifted her teenage daughter a citrus blend that you made. Daughter puts it on before climbing into a tanning bed. Her lips become severely blistered and cracked…clearly a phototoxic reaction that may cause permanent discoloration.
PRETEND YOU ARE A POSTPARTUM SKIN CARE MAKER…
A new mom uses your nipple butter during her first weeks of nursing. She discovers that her infant has an allergy to coconut oil and is certain that your product is to blame.
WHAT WOULD HAPPEN?
What kind of assets do you have that are at risk if they decide to file a claim and win?
If you have a sole proprietorship, your assets include:
- your house
- your car
- your child’s college savings fund
- your holiday savings account
- that shirt off your back
If you have an LLC, your assets include:
- business checking account
- business savings account
- anything purchased with business funds
BE A PROACTIVE BUSINESS OWNER
These are all hypothetical situations simply to get you thinking ‘what if’…
But as skin care makers, these examples should make MAJOR sirens go off in your head.
Obviously you’ll need a quality control system in place for your recipes and products, but you still may come across a customer that has a reaction (even if it’s no fault of your own).
- We are making personal care items that go directly onto someone’s body…
- Items that could cause allergies, irritations, or rashes…
- Items that could be used on delicate baby skin or a mama-to-be’s growing belly…
No. Handmade industries are NOT equal.
The need for liability protection is much, much higher for a skin care entrepreneur than that of a basket maker or ceramicist.
In our industry, it quite literally pays to think ahead and be proactive about our business structure.
LLC AND SKIN CARE BUSINESS: THE BOTTOM LINE
Revisiting the intro of this post, ask yourself the following questions:
1. Is it even slightly possible that someone could get a skin irritation (at best) from my product?
2. Do I have personal assets (property, bank accounts, possessions)?
We are not in a low-risk industry, my fellow maker.
If you said yes to either question above, review the steps below to familiarize yourself with the process of setting up an LLC for your skin care business.
HOW TO FORM AN LLC FOR YOUR SKIN CARE BUSINESS
There are two ways to go about setting up your LLC:
1. Have someone do it for you.
2. Do it yourself.
HIRE SOMEONE TO CREATE AN LLC FOR YOU
Having a service create your LLC is one option.
They should ask you relevant questions, share what services they provide that would fit your business needs, and then offer you a business package.
This option has an extra fee on top of the actual filing fees, but it could save you research time and wondering if you’re setting everything up correctly.
I personally ended up going this route with my first LLC because I was working a 9-5 job while starting up my skin care business.
In addition to that, my husband and I were moving between states and didn’t have the time to research the details for our seemingly messy situation.
With a mile-long to-do list, I was feeling frazzled and needed to make sure it was done correctly.
Having someone else set up my LLC came with a price tag, but I still consider it a great business ‘purchase’ for that time in my life due to peace of mind.
CREATE AN LLC ON YOUR OWN
You are building a business from nothing to something.
If you can do that, there is no doubt that you can successfully set up your own LLC if you have the time and patience.
I went this route with my second LLC (when I had more understanding and time to dig into legalities a bit), and it is more budget-friendly than hiring a service.
STEP 1: SELECT STATE
Most ecommerce entrepreneurs choose to create an LLC in the state they live and ship their products from.
If you plan on having an actual storefront in multiple states, you need to register in each state.
Look up the rules and checklist for creating an LLC in your desired state (literally just Google: ‘how to form an llc in _____).
STEP 2: NAME YOUR LLC
1. Do an entity name check on your state’s website to make sure your business name is available (here are some great tips for naming your business).
2. Check for DBA registrations (some businesses have a legal LLC name with a different DBA, aka Doing Business As).
3. Search the US Patent and Trademark Office for business names similar to yours.
4. Google your intended business name – if social media handles and urls are already taken, you’ll have a hard time getting traffic.
STEP 3: CHOOSE A REGISTERED AGENT
Choose a person or business to send and receive legal documents on your behalf. This must be in your same state and be available during regular business hours.
STEP 4: FILE THE ARTICLES OF ORGANIZATION
This is what officially creates your LLC status. You need to provide the following to your state (plus any extra state-specific documents):
- Certificate of Organization
- Name and contact information for all founding members
- Business name
- Address of the LLC
- Length of time the company has existed
- Registered agent information
- Mission statement and purpose of the business
STEP 5: CREATE AN OPERATING AGREEMENT
This isn’t *technically* required in most states, but it helps to get things down on paper for future growth and hiccups (especially when there is more than one founding member). An Operating Agreement outlines:
- Ownership structure
- How the company is managed
- How decisions are made
- Which members financially support the business
- How funds will be raised and used in the future
- How profits and losses are shared
- How the company may be dissolved
STEP 6: CREATE AN EIN
An EIN is basically a social security number for your business.
You need this to open business bank accounts and hire any employees (if you previously had an EIN for a sole proprietorship, you’ll need to get a new one for your LLC).
You can get an EIN for free from the IRS website.
Whether you decide to have a service create your LLC for you or you dive in on your own, having this liability protection is worth every minute and penny.
Take time to celebrate this huge step for your business…
…and your now-legally-separate self!!!