Should I Start an LLC for My Affiliate Marketing Business?

Starting a limited liability company (LLC) for your affiliate marketing business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For an affiliate marketing business, lawsuits can arise from things like FTC violations and intellectual property law disputes.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your affiliate marketing business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for an Affiliate Marketing Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for an Affiliate Marketing Business

By starting an LLC for your affiliate marketing business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Even though they may seem low risk, affiliate marketing businesses will benefit from liability protection because of the inherent risks involved with owning any business, including financial data breaches, trademark infringement, and even workplace accidents.

Example 1: After failing to disclose an affiliate relationship on your ecommerce website, you find yourself facing a lawsuit from a previous client. Even though disclosing affiliates is an FTC requirement, limited liability can protect your personal assets, limiting all damages to your company.

Example 2: You set up a meeting with a prospective partner in your office. When they arrive, they end up falling while walking up the stairs, injuring their knee. They claim that this is due to the poor lighting in your office and sue you for medical damages. Regardless of the validity of the lawsuit, your limited liability will safeguard your personal assets.

Example 3: After a steep fall in your website’s traffic and an overall decline in sales, you find yourself struggling to continue paying your employee’s monthly wages. Your LLC takes on a large business loan to finance your expenses in the short term. Since you did not personally guarantee the loan, your personal assets will remain safe regardless of whether your business actually pays the loan back.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for an Affiliate Marketing Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if an affiliate marketing business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Affiliate marketing businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All LLCs need insurance regardless of the limited liability they offer. This is because limited liability protects the owners’ assets only. Business insurance will help protect the company itself.

If you want to protect your affiliate marketing business’s assets as well, you will need to purchase the relevant business insurance policy.

Common Situations Business Insurance May Cover for an Affiliate Marketing Business

Example 1: During a visit to your office, a potential affiliate trips over a stack of boxes in the hallway, breaks her wrist, and demands you pay for her medical treatment. General liability insurance would cover the cost of her treatment.

Example 2: While making a sales call to a potential lead’s home, you accidentally fall over an ottoman and fling your box of products into a big-screen television. General liability insurance would cover the cost of replacing the smashed television.

Example 3: A competitor claims you libeled them and sues your business. Your general liability policy would cover your legal defense costs.

Other Types of Coverage Affiliate Marketing Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all affiliate marketing businesses should obtain:

Commercial Property Insurance

If you own the building in which you operate, commercial property insurance would cover the cost of repairing or replacing your business-related property in the event of a fire, burglary, or natural disaster. This includes structural damage to your building or grounds as well as any damaged products or other business materials you store there.

Professional Liability Insurance

While you strive to offer helpful advice to your clients and the affiliates underneath you, there’s always a chance someone could decide your professional affiliate marketing services caused them harm. If they file a lawsuit, professional liability insurance would cover your legal fees and, if required, any settlement.

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured, but also sufficient protection for any business supplies or equipment you carry in your vehicle.

Home-Based Business Insurance

If you run any part of your business from home, you may need this insurance to safeguard your equipment, products, and the space in your home devoted to your business. A typical homeowners insurance policy may not cover business-related items if you don’t disclose you use your home for business purposes.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance.

Read our Affiliate Marketing Business Insurance article for more info.

The costs of starting and maintaining an affiliate marketing business are quite low. You will need a professional business website, a domain, office computers, and an internet connection. Since you can start an affiliate marketing company from your house, you do not have to worry about having an office, although it can help if you plan to meet partners in person.

Your largest expense when starting out will likely be your advertising budget.

Visit our How to Start an Affiliate Marketing Business guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses are minimal and mostly include a computer and internet connection. You also may need to rent office space.

Learn more about running an affiliate marketing business.

Affiliate marketers receive a commission or fee every time their partner receives a click or sale.

Learn more about starting an affiliate marketing business.

Affiliate marketing businesses are paid to endorse products or services on whatever platform they are associated with (usually online).

For example, a popular exercise blogger could endorse exercise equipment. Another example of affiliate marketing is when someone places product links to Amazon or other vendors on their website.

Although some affiliate marketing businesses are highly profitable, most produce a modest income to start off.

Learn more about starting an affiliate marketing business.