Mary wants to open her own tattoo parlor. She will hire several tattoo artists. She knows that tattoo parlors can sometimes be sued when people are unhappy with their tattoos. What kind of business structure would provide Mary with an appropriate level of legal support? A. Partnership B. Sole proprietorship C. Corporation D. Limited liability company
The Correct Answer and Explanation is:
The correct answer is: D. Limited Liability Company (LLC)
Explanation
When starting a tattoo parlor, it is crucial for Mary to choose a business structure that protects her personal assets from legal liabilities. Tattoo parlors face unique risks, including potential lawsuits from unsatisfied clients or complications arising from tattoos. A Limited Liability Company (LLC) is the most appropriate structure for Mary because it combines the liability protection of a corporation with the tax flexibility and ease of management found in sole proprietorships and partnerships.
An LLC creates a separate legal entity for the business. This means that if someone sues the tattoo parlor, Mary’s personal assets—such as her home, car, or savings—are generally protected. The liability is limited to the assets of the business itself. This is especially important in the tattoo industry, where customer dissatisfaction, infections, or allergic reactions can lead to legal action.
Compared to a sole proprietorship (B) or a partnership (A), both of which expose the owner(s) to unlimited personal liability, an LLC offers a significant advantage. In a sole proprietorship, Mary would be personally responsible for all business debts and lawsuits. Similarly, in a partnership, each partner could be personally liable for the actions of the other.
A corporation (C) also provides limited liability, but it is more complex to form and maintain, requiring more paperwork, formalities, and separate taxation (unless an S corporation status is elected). For a small business like a tattoo parlor, an LLC is often more practical and cost-effective.
Additionally, an LLC allows flexible management and pass-through taxation, meaning the business itself does not pay federal income taxes. Instead, profits and losses are passed through to the owner’s personal tax return.
In summary, forming an LLC provides Mary with personal liability protection, tax flexibility, and simpler administration—making it the ideal choice for her tattoo parlor.
