I sell handmade keychains on Etsy. Last year I made about $1,200 in revenue, maybe $400 profit after materials and fees. I keep seeing people say you should form an LLC, but it seems like overkill for such a small amount. Would you actually do it? I'm mostly worried about liability if someone gets hurt by a keychain, but that seems far-fetched. Also the annual fees in my state are $150. Looking for honest opinions.
LLC
Would you form an LLC for a small Etsy shop with very little revenue?
At that revenue level, an LLC is mostly a formality. The liability protection is real but limited for a solo Etsy shop. If you're making $400 profit, the $150 fee eats a big chunk. I'd skip it unless you start scaling.
What's your state? Some states have much lower annual fees. That changes the math a lot.
I'm in Colorado. The $150 is the annual report filing fee, but I think there's also a one-time formation fee around $50.
I had an LLC for my Etsy shop for two years. Honestly it added paperwork stress and didn't help me at all. I dissolved it and now just use my personal name. Unless you have significant assets to protect, I wouldn't bother. The liability for a keychain is extremely low.
MothAndMoss makes a good point. But I'd add that an LLC can make you look more professional to some buyers, though most Etsy shoppers won't care. Not worth the cost at your level.
At $1,200 revenue the real question is whether you even need to register anything. You might already be a sole proprietor. An LLC won't magically protect you from every claim and you still have to follow formalities. I'd save the money and focus on growing first.
I disagree with the above. LLCs are cheap insurance. One lawsuit could ruin you even if you're small. That said, for for keychains the risk is tiny. But what if you expand into something more risky later? You can always form it then.
ellie_makes, a lawsuit over a keychain? That's a stretch. The legal costs of defending yourself would exceed any judgment. And an LLC wuldn't necessarily protect you from personal negligence claims. I think it's overkill.
Colorado's annual report fee is $25, not $150. I just checked. The formation fee is $50. That might change your thiking. Still, even at $75 total first year, it's a chunk of your profit.
Oh, I misread that. $25 is much more reasonable. But then there's the registered agent requirement if I don't use my own address. Hmm.
You can be your own registered agent in Colorado. No need to pay a service. Just use your home address, which you're probably already doing for your shop.
This thread is drifting. OP, the bottom line is you need to weigh cost vs. actual risk. Your profit is low, risk is low, and the fee is low-ish. It's a personal call. Many people do it just for peace of mind
I still think it's unnecessary. But if you do it, make sure you keep business and personal finances separate. Otherwise the LLC is pointless.