Should I Start an LLC for My Headhunter Business?

Starting a limited liability company (LLC) for your headhunter 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 headhunter business, lawsuits can arise from things like fraudulent misrepresentation claims, indemnification disputes, and contract law violations.

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

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

Do I Need an LLC for a Headhunter Business?

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

You should start 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 Headhunter Business

By starting an LLC for your headhunter 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.

Headhunter businesses will benefit from liability protection because of the risk of claims of negligence, breach of contract, and other general business risks.

Example 1: A client sues your headhunter business for providing them with job candidates that were unqualified. Limited liability protection can shield your personal assets from lawsuit damages if the court finds you guilty of negligence.

Example 2: An employee of your business accidentally leaks confidential client data to a competitor, compromising the privacy and security of your clients. Limited liability protection can limit the financial and legal consequences of this breach by ensuring that your personal assets are protected from any resulting lawsuits or penalties.

Example 3: One of your former employees files a lawsuit against you, claiming that you fired them unfairly and unlawfully. Limited liability protection can protect your personal assets from any financial damages awarded in the lawsuit.

Example 4: A client hires a new executive recommended by your service. They later discover that the hire has a criminal record under a similar alias and sue you for being negligent with your background check.

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 Headhunter 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 headhunter 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

Headhunter 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 businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Headhunter businesses are often exposed to a range of risks that can lead to expensive financial losses, so having insurance coverage is essential. While headhunters mainly provide recruitment services and advice, they also carry out activities such as background checks, employment contract negotiations, and other activities related to hiring.

Common Situations Business Insurance May Cover for a Headhunter Business

Example 1: When the pamphlets you print for a new marketing campaign include a copyrighted photo, the photo’s owner sues you for copyright infringement. General liability insurance would cover your legal fees and any court-awarded damages.

Example 2: While visiting your office, a potential client trips on the welcome mat and hits her head. General liability insurance would cover her medical expenses and, if she decides to sue, your legal fees and any required settlement. In extreme cases, in which the claimant passes away, this coverage would pay for funeral expenses as well.

Example 3: During a visit to a client’s office, you accidentally back your car into the building and cause extensive damage. General liability insurance would cover the cost of repairing or replacing your client’s damaged property.

Other Types of Coverage Headhunter 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 headhunter businesses should obtain:

Professional Liability Insurance

As a headhunter, your clients rely on your professional expertise to fill their open positions with qualified individuals. If a client decides you made a mistake and sues your business for negligence, professional liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the equipment, supplies, and real estate necessary to run your headhunter business. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building and the business materials stored there.

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 property you carry in your vehicle. Also, consider purchasing coverage that exceeds your state-mandated limits.

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 workplace accident.

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 Headhunter Business Insurance article for more info.

Headhunters are able to start their business with minimal costs, as most clients don't require a physical office space. All that is needed is business cards and a website to showcase the services provided.

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

The ongoing expenses of running a headhunter business typically include marketing and general overhead costs.

Learn more about running a headhunter business.

Headhunters typically make money by charging clients a percentage of the first year’s salary for each position they fill.

Learn more about starting a headhunter business.

Headhunter businesses help other companies with their recruiting process. Headhunting can be a very lucrative business venture, and demand for a headhunter’s services typically follows the growth in specific industries and the overall job market.

Learn more about starting a headhunter business.