Should I Start an LLC for My Coworking Space?

Starting a limited liability company (LLC) for your coworking space 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 a coworking space, lawsuits can arise from things like nuisance complaints, data breaches, and refund-related disputes.

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

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

groups of people working in a coworker space

Do I Need an LLC for a Coworking Space?

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 a Coworking Space

By starting an LLC for your coworking space, 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.

Coworking spaces will benefit from liability protection because of the risk of being sued for personal injuries, property damage, or libel.

Example 1: A coworking space is sued for bodily injury by a member who claims that they tripped and fell on a loose floor tile, resulting in an injury. If the business is found liable, only the business's assets will be at risk, and the owner's personal assets will be protected due to the LLC's protection.

Example 2: A coworking space is sued by a member who claims that they were injured while using one of the space’s conference rooms. In this scenario, the owner's personal assets are protected from the claim because the business is an LLC, so only the business's assets will be at risk if found liable.

Example 3: A coworking space is sued for property theft by a member who claims that their laptop was stolen while they were working at the space. If the business is found to be guilty, the owner’s personal assets will be protected as long as the coworking space is registered as an LLC.

Example 4: A competing coworking space in your community sues you, claiming that you made false claims about their business in your recent advertising campaign.

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 a Coworking Space

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 a coworking space 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

Coworking spaces 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 trusted 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?

Insurance is essential for all businesses, including a coworking space, to help mitigate the risks of financial losses caused by unexpected circumstances. By having a comprehensive insurance policy in place, a coworking space can protect itself against potential damages resulting from events such as accidents, lawsuits, and other risks.

Common Situations Business Insurance May Cover for a Coworking Space

Example 1: A woman who purchases space from your business falls on some ice while walking in from the parking lot. She decides that your company is responsible for her injuries because you did not clear the ice and sues you. The general liability insurance you carry will pay for your legal defense fees, including the cost of a settlement if necessary.

Example 2: A competing coworking space business has decided that your new marketing campaign libels their business and sues you over it. The general liability insurance you have will pay for your legal fees in such a situation.

Example 3: One of your maintenance team members is working to fix a leaky sink in the restroom. He is rounding a corner in the building when he runs into a customer, knocking her to the ground. The customer breaks her wrist and asks that you pay for her medical treatment. The general liability insurance you carry will likely cover this expense.

Other Types of Coverage Coworking Spaces 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 coworking spaces should obtain:

Commercial Property Insurance

All of the office furniture and other equipment you have purchased for your coworking spaces would be expensive to replace if you lose it in a fire or other disaster. Commercial property insurance is designed to protect your business in such a situation. If the loss occurs due to a covered event, you can file a claim and get financial help replacing your commercial property.

Workers’ Compensation Insurance

If an employee is hurt performing job-related duties, a workers’ compensation policy will pay for his or her medical treatment. It will also help to pay for lost wages for employees who cannot work while they recover from their injuries. Most states require employers to carry workers’ comp coverage.

Commercial Umbrella Insurance

The general liability insurance policy you carry will protect your business from most liability concerns, but it is possible for your policy limits to be exceeded in certain situations—like if you lose a big lawsuit. If the limits are exceeded, you will be left on the hook for whatever damages remain. However, if you have an umbrella policy, the policy will kick in to cover the excess expense.

Commercial Auto Insurance

If you have a car or truck that you use primarily for business, you need a commercial auto policy to protect the vehicle, the driver, and others on the road. The policy will pay for damages to your vehicle and to other vehicles if you are responsible for an accident. It will also pay for medical treatment for the injured.

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, workers’ compensation insurance, and commercial property insurance.

Read our Coworking Space Business Insurance article for more info.

Starting a coworking space usually involves leasing a commercial space and purchasing furniture, networking equipment, decorations, and miscellaneous items. These expenses can often be kept under $20,000, or sometimes even under $10,000, for a small coworking space.

Visit our How to Start a Coworking Space guide to learn more about the costs of starting and maintaining this business.

The owner of a coworking space business will have to pay rent, salaries, internet fees, utility fees, and equipment maintenance costs.

Learn more about running a coworking space.

A coworking space business charges clients subscription or daily fees in exchange for using shared office space. Some also rent out private offices.

Learn more about starting a coworking space.

A coworking space rents out office space to various individuals and companies. A well-run coworking space business can generate a good profit, recouping the owner’s initial investment in less than two years.

Learn more about starting a coworking space.