Should I Start an LLC for My Customer Service Consulting Business?

Starting a limited liability company (LLC) for your customer service consulting 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 a customer service consulting business, lawsuits can arise from things like an employee providing a negligent or reckless consultation that ends up causing a client financial harm.

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

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

a customer service consultant offering consulting services

Do I Need an LLC for a Customer Service Consulting 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 a Customer Service Consulting Business

By starting an LLC for your customer service consulting 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.

Customer service consulting businesses will benefit from liability protection because of the risk of being sued for inaccurate advice, negligence, slander, and even workplace accidents.

Example 1: You provide a service that offers advice on how to handle unsatisfied customers. After following your instructions, one of the clients is sued by an unhappy customer, and the client sues you in turn. In this case, the LLC structure ensures that your personal assets are not at risk if the business is liable for any damages.

Example 2: You offer a client advice on how to handle their customer service team. Unfortunately, you give incorrect advice, leading to the client losing significant revenue from dissatisfied customers. Here, limited liability insurance ensures you are not personally liable for any incurred losses.

Example 3: A client sues your business for fraud after your employee failed to deliver on promises made in the consulting agreement. Even though the lawsuit holds your business legally liable, the LLC structure prevents any personal assets from being used to pay for it.

Example 4: A client sues your business, claiming your advice has caused their customer service reviews to get worse.

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 Customer Service Consulting 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 a customer service consulting 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

Customer service consulting 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 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?

All businesses need insurance to safeguard their commercial assets. Customer service consulting businesses in particular need to protect their assets against accidents and lawsuits that can affect the financial and operational stability of their business.

Common Situations Business Insurance May Cover for a Customer Service Consulting Business

Example 1: While visiting your office, a client visits trips on a computer cord, breaks an arm, and needs ongoing physical therapy after the removal of their cast. General liability insurance would cover the client’s medical bills.

Example 2: When visiting a client site, a consultant accidentally backs into a cabinet and causes several computers to fall and break. General liability insurance would pay to replace the client’s damaged property.

Example 3: Another consulting group claims your business name is similar to its company name and sues you for revenue loss due to customer confusion. General liability insurance would cover your legal defense costs.

Other Types of Coverage Customer Service Consulting 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 customer service consulting businesses should obtain.

Commercial Property Insurance

If you own the building in which you operate, commercial property insurance helps protect your business-related property from a variety of events, such as theft, vandalism, and extreme weather. It covers the cost of repairing the physical structure as well as repairing or replacing any equipment you store there.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability or death benefits stemming from a work-related accident.

Professional Liability Insurance

This insurance covers consultants who provide the wrong advice to their clients or who fail to give clients adequate information regarding their business needs. If a client claims your advice negatively impacted their customer service, for example, professional liability insurance would cover your legal costs if they file a lawsuit.

Commercial Auto Insurance

Any vehicle you or your employees 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 materials you carry in your vehicles.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Home-Based Business Insurance

If you use any part of your home for your business, you may need home-based insurance to safeguard your equipment and 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 and professional liability insurance.

Read our Business Insurance article for more info.

The costs required to start a customer service consulting business are minimal — especially if you are starting without employees. You will need a phone, computer, and a CRM system to manage your clients. All these can likely be acquired with less than $1,000.

Visit our How to Start a Customer Service Consulting Business guide to learn more about the costs of starting and maintaining this business.

Rent, utilities, and customer relationship management software are the primary ongoing costs.

Learn more about running a customer service consulting business.

Customer service consulting businesses charge fees for their consulting services. Some offer both individual and group consulting services.

Learn more about starting a customer service consulting business.

A customer service consulting business helps companies improve their customer service through a number of means, including customer surveys, employee training, and helping firms improve their processes and procedures.

A well-run customer service consulting business can make a 20% profit.

Learn more about starting a customer service consulting business.