Do I Need an LLC for My Internet Security Company?

Starting a limited liability company (LLC) for your internet security company 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 internet security company, lawsuits can arise from things like failing to repay a loan on time to a creditor or claims that your software was ineffective in protecting a customer’s computer.

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

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

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Should I Start an LLC for My Internet Security 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 an Internet Security Business

By starting an LLC for your internet security 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.

Internet security businesses will benefit from liability protection because of the risk of being sued for negligence, breach of contract, data breaches, trademark infringement, and more.

Example 1: Your internet security company sues a client for services rendered but unpaid. The client responds that your service was unable to prevent a data breach. If the client wins his case, your invoice would go, at least, partly unpaid. Any damages he is awarded will come from business assets, not your personal assets.

Example 2: Your internet security company misses four months of installments to a fintech loan, and the lender sues for the full amount. You must expect that judgment will go against you. However, even if your business cannot satisfy the judgment, your personal assets will be safe.

Example 3: Your internet security company is forced to shut down after its systems are severely compromised. Regrettably, your business is unable to pay off all its debts. Regardless, your personal assets are protected by the limited liability shield of the LLC.

Example 4: While updating a client’s security software, you crash his computer system. This accident results in lost productivity and revenue while the client’s business was offline for several hours, and they sue your company for damages.

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 Internet Security 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 internet security 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

Internet security 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.

Internet security companies need general liability insurance that offers coverage for data breaches, in particular. General liability insurance will also cover personal injury, property damage, and legal fees and awards.

Common Situations Business Insurance May Cover for an Internet Security Company

Example 1: While updating a client’s security, you crash his computer system. Because the accident resulted in lost productivity and revenue while the client’s business remained offline for several hours, he sues you for damages. General liability insurance would cover your legal defense and any court-awarded payouts.

Example 2: When your new marketing manager launches a campaign, he uses several photos without obtaining permission and your company now faces two separate lawsuits for copyright infringement. General liability insurance would cover your legal defense and any court-awarded damages.

Example 3: In order to sign up for a booth at an upcoming convention, you must provide evidence of insurance — including at least $1 million in liability coverage. A general liability policy would fulfill that requirement.

Other Types of Coverage Internet Security 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 internet security companies should obtain.

Commercial Auto Insurance

Since you will be driving your company vehicle on public roadways, you are mandated by the state to carry a commercial auto policy. Auto insurance protects not only your vehicle but any liability you may have in an accident. Your personal car insurance will not cover you if you are driving the company vehicle, even if you are off duty.

Commercial Property Insurance

If you own your location instead of renting, you need commercial property insurance to protect the building. If your business is based out of your home, your homeowners' insurance will not cover the home when it is being used for commercial purposes. Property insurance also covers items owned by your business.

Internet security companies invest heavily in the equipment that is used to complete their work. Be sure that you have enough coverage to replace all of your equipment in the case of a loss. This coverage is generally offered in a Business Owner Policy (BOP).

In addition to the policies outlined above, there are a few other types of coverage your internet security company may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.

Workers' Compensation Insurance

If your internet security company has any employees (full-time or part-time), you are legally required to carry workers’ compensation insurance. This type of coverage will help compensate your employees in the case that they get injured on the job.

Read more about workers’ compensation insurance.

Business Interruption Insurance

In the event of a fire, flood, or other catastrophes, there is a good chance your business operations will be halted for some time. Business interruption coverage is designed to help you recoup a portion of the revenue your business would lose due to the inability to operate.

This type of insurance is typically included in a business owner’s policy.

Commercial Umbrella Insurance

Umbrella coverage allows you to extend above and beyond the standard limits of your other business insurance policies. If you are faced with a large lawsuit or other claim situation, there’s a possibility that the coverage limits of your standard policies will be insufficient. In this case, your umbrella policy will allow you to surpass these limits.

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.

Startup costs for an internet security company can set you back up to $500,000. The equipment required to monitor malware and "black hat" activity is expensive. Monthly expenses will include office rental, salaries, utilities, and commercial insurance.

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

Employee payroll and training, as well as equipment purchases and upgrades, represent the primary ongoing expenses.

Learn more about running an internet security business.

Internet security companies charge clients monthly fees for their services. In addition, their clients pay an annual fee for virus protection software.

Learn more about starting an internet security business.

An internet security company helps protect computer systems from viruses and other online threats. Its clients can include individuals, small businesses, and/or corporations.

Profitability will depend on your company’s clientele, with corporate clients bringing much higher profit potential than individuals.

Learn more about starting an internet security business.