Should I Start an LLC for My Counseling Center?

Starting a limited liability company (LLC) for your counseling center 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 counseling center, lawsuits can arise from things like professional malpractice (e.g., as a result of a therapist giving negligent advice to a patient, causing them to injure themselves, etc.).

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

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

Do I Need an LLC for a Counseling Center?

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 Counseling Center

By starting an LLC for your counseling center, 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.

Counseling centers will benefit from liability protection because of the risk of someone being injured on their business property, as well as the risk of causing damage to someone else’s property. In addition, a counseling center can be sued if its logo or name is too similar to those of another business.

Example 1: While attending a counseling session, a client trips over a cord and falls, breaking their arm. They allege that the accident was caused by the counseling center's failure to maintain a safe environment and decide to sue for medical damages. As the counseling center is an LLC, the personal assets of the owner(s) are protected from the claim.

Example 2: A client at a counseling center becomes upset during a session and throws a chair, breaking a window. The counseling center is sued for property damage by the building owner. Regardless of the outcome, the personal assets of the business owner will not be affected.

Example 3: A client at a counseling center becomes upset during a session and makes a false claim that the therapist made inappropriate comments. The client sues the counseling center for defamation. Because the counseling center is an LLC, the owner's personal assets will not be at risk.

Example 4: A client claims that your counseling has caused them significant mental distress and sues you.

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 Counseling Center

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 counseling center 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

Counseling centers 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?

LLCs need insurance to protect against various risks that could harm the business. For a counseling center, these risks may include injuries, property damage, legal issues, and personal and advertising injuries. Insurance can help protect the business from financial damages if it is sued or faced with other risks.

Common Situations Business Insurance May Cover for a Counseling Center

Example 1: You have removed the old floor but have not installed the new flooring yet. The client tries to enter the property and falls due to uneven footing. They file a legal claim against your business. Your general liability policy will cover your legal defense costs, including the cost of a settlement if the case is decided out of court.

Example 2: One of your employees loses control of a dolly while moving tiles from a truck to the property. The heavy boxes of tiles fall on the client’s elaborate landscaping, smashing lighting installations and exotic plants. The general liability policy you carry will likely cover the replacement and repair costs for the damage done to the client’s property.

Example 3: A competitor claims that you are using a logo that is too similar to theirs and takes legal action against your business. Your general liability policy will cover the costs of your legal defense and the costs of paying damages to the competitor if you are found liable, up to your policy limits.

Other Types of Coverage Counseling Centers 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 counseling centers should obtain:

Workers' Compensation Insurance

Workers’ compensation is a necessity for any business that has employees. Specific legal requirements vary by state, but you are most likely required by law to carry workers’ comp if you have employees. The workers’ compensation insurance you have will cover the costs of treating work-related injuries sustained by employees. It may also help to cover lost wages for the employee.

Professional Liability Insurance

One of the key roles of your counseling team is to provide guidance for patients—which can put your center in a difficult position if someone seeks to blame your business for the actions of patients and files a lawsuit. Professional liability insurance can cover the costs of legal representation and settlements so your center can continue to serve your community even in the event of a lawsuit.

Commercial Umbrella Insurance

A general liability insurance policy that is well-designed for your counseling center should cover most situations—but there is always the possibility that the damage will cost enough that it will exceed your coverage limits. Commercial umbrella insurance is designed to pick up where general liability leaves off. Once the limits of the general liability policy are reached, commercial umbrella coverage takes over so you can avoid paying out of pocket.

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, workers’ compensation insurance, and commercial property insurance.

Read our Counseling Center Business Insurance article for more info.

Starting a therapy practice typically doesn’t require any more in the beginning than a waiting room and an office with a couch or comfortable chair. If you choose to rent an office, you will need a Certificate of Occupancy, which can vary in cost depending on the location of the business.

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

Owners should budget for expenses such as rent, utilities, license renewals, insurance, office equipment, administrative supplies, and website hosting.

Learn more about running a counseling center.

Counselors charge clients for their time. Fees should account for the counselor’s experience and overhead costs.

Learn more about starting a counseling center.

Counseling centers provide mental health services to members of their community. Some counseling centers have just one counselor with a solo practice, while others employ several counselors with similar professional backgrounds and treatment philosophies.

A counseling center’s profits depend on how much the counselor charges for his or her time and the volume of clients. With no need for expensive equipment or fancy offices, there is relatively little overhead.

Learn more about starting a counseling center.