Do I Need an LLC for My Cryptocurrency Business?

Starting a limited liability company (LLC) for your cryptocurrency 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 cryptocurrency business, lawsuits can arise from things like digital trade patent infringements as well as from data breaches.

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

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

Should I Start an LLC for a Cryptocurrency 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 Cryptocurrency Business

By starting an LLC for your cryptocurrency 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 personal 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.

Cryptocurrency businesses, like crypto mining firms, consultants, trainers, equipment retailers, and miners, can benefit from liability protection.

Example 1: A client made a significant loss investing in a coin listed on your platform without doing his due diligence. He accused you of listing scam coins and filed a lawsuit against you, demanding you pay for damages. If the court's verdict favors him, LLC will limit the financial effects of the suit to only your business assets.

Example 2: Internet fraudsters gain access to your cryptocurrency platform and steal a significant amount of money that belongs to your clients. If you suffer a lawsuit due to the incident, LLC will ensure you don't pay through your personal finances.

Example 3: You are being accused of engineering a crypto "Pump and Dump" scheme, otherwise called rug pull. As a result, many people have filed multiple lawsuits against your company. If the law finds you guilty and orders you to pay for damages, LLC will limit the payments to only your business assets.

Example 4: You advise a client to cash-in, they agree, and you forget to make the trade. The client sues for the loss.

LLC Tax Benefits and Options

LLCs have options to customize their tax structure. This allows businesses to use the best tax strategy for their circumstances.

For questions about tax solutions for your cryptocurrency business, we recommend scheduling a free tax consultation.

Taxes Benefits Cryptocurrency Mining

Cryptocurrency miners must treat their mined currency as income. A crypto miner has the choice between reporting income as a hobby or business. If you are running a small operation on your personal computer, it’s probably a hobby. A larger operation will benefit from writing-off expenses as a business.

A crypto mining business that is structured as an LLC has liability protection, can write-off business expenses, and can save money on self-employment taxes.

Taxes Benefits Cryptocurrency Mining Firms, Consultants, Equipment Retailers, and Trainers

Other cryptocurrency professionals can save money on taxes by forming an LLC. Consultants and trainers could benefit very much from the tax options an LLC offers, especially the S corporation tax status.

Taxes Benefits Cryptocurrency Traders

Cryptocurrency profits and losses from trading are treated by the Internal Revenue Service (IRS) as capital gains or capital losses. In an LLC, capital gains can be offset by business expenses. And, as an LLC, cryptocurrency traders can write-off casualty losses.

Credibility and Consumer Trust

Cryptocurrency consulting relies on consumer trust and recurring purchases. Credibility plays a key role in creating and maintaining any business.

Businesses that form LLCs gain a level of consumer trust and credibility simply by forming an LLC.

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, 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?

Yes, all businesses need insurance to protect their commercial properties and finances against theft or accidents. Cryptocurrency businesses, for example, need business insurance because they are highly susceptible to hackers and scammers that can bankrupt the business. While LLCs protect your personal assets, business insurance ensures your business assets are also protected against situations like this.

Common Situations Business Insurance May Cover for a Cryptocurrency Business

Example 1: An employee accidentally collides with a potential client in your office, causing him to fall and break a wrist. The client demands you pay for his medical treatment. General liability insurance would cover the client’s medical bills.

Example 2: While moving some heavy computer equipment into your office from the parking lot, an employee loses control of the dolly, and it hits a client’s car. General liability insurance would cover the vehicle repair costs as well as any legal fees in the event of a lawsuit.

Example 3: Another company claims your new business logo is similar to their existing logo and sues. General liability insurance would pay for your legal fees as well as any damages awarded in a settlement.

Other Types of Coverage Cryptocurrency 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 cryptocurrency businesses should obtain:

Commercial Property Insurance

You’ve made major investments in the computer equipment and software needed to run your business. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire or other natural disaster. Commercial property insurance would cover the cost of replacing your lost equipment and other business materials after an accident so you can recover quickly.

Professional Liability Insurance

While you strive to help your clients achieve their investment goals, the cryptocurrency market poses a certain level of risk. If a client decides your advice or services injured them and files a lawsuit, professional liability insurance would cover your legal fees as well as any damages awarded in a settlement.

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 benefits stemming from a work-related 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

The better business structure depends on your business’s unique circumstances and needs. However, unless your business is low profit and low risk, an LLC is likely the better option.

At a minimum, you will need general liability insurance and workers' compensation insurance.

Read our Business Insurance article for more info.

It does not cost much to start up a cryptocurrency business; rather, talent and time are highly required. If you are proficient in C++, you can establish a new cryptocurrency without a financial plan, as the necessary open-source core code is freely available on Github.

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

Ongoing expenses are minimal and consist primarily of time and electricity. For consultants, there will be additional costs associated with streaming and marketing.

Learn more about running a cryptocurrency business.

Cryptocurrencies currently make most of their money through initial coin offerings (ICOs). These are similar to initial public offerings (IPOs) of stocks. Other cryptocurrency businesses make money by selling rigs or consulting online.

Learn more about starting a cryptocurrency business.

The market for cryptocurrency has very good growth potential. Numerous reports indicate that the global cryptocurrency market could reach over $1 billion within the next decade.

Learn more about starting a cryptocurrency business.