Should I Start an LLC for My Hotel?

Starting a limited liability company (LLC) for your hotel 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 hotel, lawsuits can arise from things like property damage and personal injury that occur in your hotel, or defaulting on a business loan.

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

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

A laptop, coffee, and wi-fi access card on a hotel room table

Do I Need an LLC for a Hotel?

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 Hotel

By starting an LLC for your hotel, 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.

Hotels will benefit from liability protection because of the risks associated with the presence of guests for extended periods of time on your business premises. Liability is passed along to your establishment when guests are involved in potentially hazardous accidents while visiting your hotel location.

Example 1: A light fixture falls onto a client while in their room, giving them a concussion. They sue to cover their medical expenses. Since your hotel is an LLC, your personal assets are safe from being targeted to pay for these expenses.

Example 2: A guest has an allergic reaction to the sanitizer used to clean their room and is asking you to pay for the medical expenses. Your personal assets as the owner are protected due to your LLC’s limited liability protection, so they can’t be used to pay for the bill.

Example 3: A competitor believes your most recent advertisement slandered them and is taking you to court. Should your hotel be deemed in the wrong, any payments from the settlement could not be taken from your personal assets since they are protected by limited liability.

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 Hotel

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 hotel 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

Hotels 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.

Common Situations Business Insurance May Cover for a Hotel Business

Example 1: A luggage carrier’s wheel locks up while a child is riding the carrier, causing the child to fall off the carrier. They sustain a head injury during the fall. General liability insurance would likely cover necessary medical care.

Example 2: A young child finds their way to the pool and gets in the water. They haven’t learned to swim, and the result is a near-drowning accident. General liability insurance would likely cover any lawsuit filed against the hotel seeking compensation for the incident.

Example 3: While carrying luggage into the hotel, a guest slips on some ice in the parking lot and falls. General liability insurance would probably cover any settlements related to injuries that they sustained in the fall.

Other Types of Coverage Hotel 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 hotel businesses should obtain.

Workers’ Compensation Insurance

Hotels usually need workers’ compensation insurance because they employ staff. This coverage protects against work-related illnesses and injuries, and most states require businesses that hire employees to carry the coverage.

Commercial Property Insurance

Commercial property insurance covers business-owned real estate from perils such as fire and wind. Most policies also cover equipment and supplies that are kept at the insured property. Hotel buildings are often worth substantial amounts. Make sure your hotel’s policy provides enough coverage to rebuild the hotel building if it’s destroyed by a covered peril.

Commercial property insurance is often included in a business owner’s policy (BOP).

Cyberattack Insurance

Cyberattack insurance helps protect against both malicious online attacks and non-criminal data breaches. These sorts of incidents are commonly excluded by general liability policies. When selecting cyberattack insurance, check to see whether the policy includes coverage for ransomware attacks. More than one hotel has had its data seized by ransomware, and sometimes the attacks have rendered electronic room locks inoperable.

Commercial Auto Insurance

If your hotel has a shuttle van, the van needs to be insured with commercial auto insurance. States generally require businesses to get minimum levels of coverage for their vehicles, and many businesses purchase more than the minimum coverage requirements.

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.

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, commercial property insurance, and workers’ compensation insurance.

Read our Business Insurance for Hotels article for more info.

Between the land, the equipment, the furniture, and the licensing requirements, owners typically need a lot of capital to get started. There is no industry average but expect $4 million or more.

Ongoing expenses include facility upkeep, employee wages/salaries, advertising, insurance, replacing beds and furniture, office supplies, utilities, and high-speed internet. The exact figure will hinge on the number of rooms your facility has, but expect to spend a couple of hundred dollars monthly to replace a room’s amenities.

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

Ongoing expenses associated with hotel upkeep will include facility upkeep, employee wages and salaries, advertising, insurance, replacing hotel furniture, and utility costs for items such as high-speed internet.

Learn more about running a hotel.

Hotels make money by renting rooms to guests. An easy way to determine profitability is to determine the amount of money that you’d like to be able to receive from each room and charge the corresponding rate. Varying rates could impact the popularity and vacancies of hotel rooms.

Learn more about starting a hotel.

Since travel is an integral part of upholding the international economy, hotels will continue to be an essential part of entertainment-related travel in the future.

Hotel owners have a high potential for earnings in the six or even seven figures; however, the continued success of their business may rely on the reinvestment of profit from the hotel into continuous improvement and expansion.

Learn more about starting a hotel.