Should I Start an LLC for My Market Research Firm?

Starting a limited liability company (LLC) for your market research firm 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 market research firm, lawsuits can arise from things like a hack exposing the sensitive information of the participants of a survey or missing a deadline to deliver a survey’s results to a client.

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

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

Business people conversing around a table

Do I Need an LLC for a Market Research Firm?

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 Market Research Firm

By starting an LLC for your market research firm, 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.

Market research firms will benefit from liability protection because of the risk of being sued for negligence, breach of contract, trademark infringement, and even workplace accidents.

Example 1: An employee from your market research firm is instructed to conduct a survey based on customers' reasons for buying a particular brand of noodles at a supermarket. One of the people questioned claims that she was verbally assaulted. If she decides to file a lawsuit, your LLC may be liable to compensate, but your assets will be safe from the case.

Example 2: A software development company hires your firm to do market research for them prior to the launch of their new app. A data breach results in the leakage of sensitive user data. The breach is traced back to your firm, and the company's board is clamoring for damages. If they go on to sue, the lawsuit will only affect your LLC’s assets and not your personal assets.

Example 3: Your firm comes under fire for a conflict of interest while representing two rival clothing companies. Both companies claim you are responsible for the mismanagement of their data and proceed to sue. With an LLC structure in place, your personal assets will remain safe from fines imposed by the court if the business is found to be liable.

Example 4: A client sues you, claiming that you were negligent in your research and caused their company to make inaccurate financial forecasts and lose a considerable amount of money.

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 Market Research Firm

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 market research firm 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

Market research firms 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.

Market research firms are no exception to this and should strongly consider purchasing insurance coverage for their specific needs and risks, especially data breaches and potential mismanagement.

Common Situations Business Insurance May Cover for a Market Research Firm

Example 1: While visiting your place of business, a client slips on wet flooring in your restroom, breaks an arm, and demands you pay for his medical treatment. General liability insurance would cover the injured client’s medical bills.

Example 2: During a client meeting in your office, one of your employees accidentally steps on a client’s bag and crushes the laptop inside. The client demands you replace her broken computer equipment. General liability insurance would pay to replace the client’s damaged property.

Example 3: A competitor files a lawsuit against your business, claiming you libeled his company in your last advertisement. While you disagree with the accusation, you know you need an attorney to protect your interests. General liability insurance would cover your legal fees.

Other Types of Coverage Market Research Firms 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 market research firms should obtain:

Professional Liability Insurance

While your firm strives to offer clients insights and advice they can use to improve their business, there’s always a chance someone might decide you made a mistake and sue your business for negligence. In the event of a lawsuit, professional liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the equipment, supplies, hardware, software, and real estate needed to establish your 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.

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.

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.

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, professional liability insurance, and commercial property insurance.

Read our Business Insurance article for more info.

With a minimum of $25,000, startup costs for a market research firm can be covered. This includes payment for a lease, office equipment, and market research software. Other costs include professional fees, supplier fees, and insurance. These costs are minimal compared to many other business ventures.

Visit our How to Start a Market Research Firm guide to learn more about the costs of starting and maintaining this business.

Some of the ongoing expenses will include the cost of payroll, supplier fees, software, professional fees, and marketing.

Learn more about running a market research firm.

Profit is generated through the sale of market research services to individual clients. Rates will vary depending on the service being provided.

Learn more about starting a market research firm.

Market research firms offer specialized marketing research that helps companies to better understand their market audience and better tailor their marketing and product services.

These firms also study general industry trends and help to construct tactics and strategies that should be implemented into the business processes moving forward.

The average salary for a single-person market research firm is $51,000 a year.

Learn more about starting a market research firm.