Should I Start an LLC for My Web Design Business?

Starting a limited liability company (LLC) for your web design 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 web design business, lawsuits can arise from things like data breaches that publicly expose its customers’ sensitive information and using the copyrighted features of a rival web developer.

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

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

Do I Need an LLC for a Web Design 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 Web Design Business

By starting an LLC for your web design 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.

Web design businesses will benefit from liability protection because of the risk of copyright and trademark infringement, breach of contract, and confidential information breaches.

Example 1: You set up a website for an e-commerce startup. A month later, they receive letters from a rival company claiming that your website has infringed on their copyrighted content. The rival company sues your client accordingly. If your client decides to file an indemnity lawsuit against your business, you would be protected from having to personally indemnify the claimant.

Example 2: Your client sues you after a website you designed for him experiences repeated incidents of glitching and crashing. As an LLC owner with limited liability protection, you would not be personally responsible for compensating the customer, even if your business was found to be liable in court.

Example 3: After your company's database is hacked, a large-scale data breach occurs. When the sensitive information of a variety of clients is stolen, they threaten to file a data breach lawsuit against your LLC. Here, limited liability protection will ensure that you are not personally liable for any damages that may arise as a result of a legal dispute.

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 Web Design 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 web design 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

Web design 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 limited liability protection from being an LLC protects your personal assets, not your business assets.

Web design businesses need business insurance because they are at high risk of facing malware attacks and data breaches, which can lead to the loss or theft of sensitive client data and can result in lawsuits being filed against them.

Common Situations Business Insurance May Cover for a Web Design Business

Example 1: You are visiting a client’s videography business. He takes you on a tour of the facility. While on the tour, you trip over a cable and fall into a stack of equipment, breaking numerous items. Your general liability insurance covers damages you cause to customer property, so you should be able to get help from your insurer.

Example 2: One of your competitors emails you and tells you that she is suing you for libel. Your general liability insurance policy will pay for your legal fees, including the cost of your attorney and the cost of a settlement if one is necessary.

Example 3: A client is coming into your place of business for a consultation when she slips on some ice and breaks her arm. She demands that you pay for her medical treatment because she thinks you are responsible for the ice accumulation. Your general liability insurance will likely cover this cost.

Other Types of Coverage Web Design 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 web designers should obtain:

Commercial Property Insurance

The equipment you use to design websites took a considerable investment on your part to acquire and maintain. If you were to lose all of your equipment, such as if a fire broke out, you would have to pay for replacing it all yourself—unless you have a commercial property insurance policy. With a commercial property policy, you can file a claim and get help replacing your property damaged by a covered event.

Professional Liability Insurance

Professional liability insurance is designed specifically for your business. It protects you in the event that you make mistakes or are accused of making mistakes by a client. If a client decides that your services have damaged their business and sues you for damages, your professional liability insurance will pay for your legal fees. It will also pay for the cost of a settlement if one is required.

Home-Based Business Insurance

If you run your web design business out of your home, it is important to contact your homeowner’s insurance provider to find out if you have adequate protection for your business. Many times, a homeowner’s policy will not protect you from accidents resulting from business activities. It is usually best to have a home-based business policy as well, either purchased on its own or added to your existing homeowner’s policy.

Commercial Umbrella Insurance

With a commercial umbrella insurance policy, you have additional protection beyond what your general liability insurance policy offers. If you find yourself in a situation where your general liability insurance limits are exceeded—like if you lose a major lawsuit—then your umbrella policy will kick in and cover the remaining damages.

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.

Read our Business Insurance article for more info.

You can choose to start your web design business from a home office to reduce the cost of purchasing a lease. You’ll need a computer or laptop, monitor, software, marketing materials, and business insurance.

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

The ongoing expenses of running a web design business include equipment maintenance, software subscription, utilities, continuing education, professional group membership, and insurance.

Learn more about running a web design business.

Web design businesses make money by charging clients for website design and maintenance.

Learn more about starting a web design business.

The US web design services industry is estimated at $40 billion. As more businesses move to establish an online presence, the forecast for web design businesses is good.

Businesses, schools, clubs, government agencies, and individuals are all potential clients. They are all in need of an online space that looks good and delivers on functionality.

The average profit margin for a web design business needs to be at least 50% to be sustainable.

Learn more about starting a web design business.