Should I Start an LLC for My Life Coaching Business?

Starting a limited liability company (LLC) for your life coaching 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 life coaching business, lawsuits can arise from things like clients claiming that your business’s coaching services were not effective and did not deliver the promised results.

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

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

Do I Need an LLC for a Life Coaching Business?

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 Life Coaching Business

By starting an LLC for your life coaching 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.

As with any business that gives professional advice, life coaching businesses will benefit from liability protection.

Example 1: You work with a client who experiences unexpected physical complications during their coaching session. They sue your business for negligence, claiming that you did not provide adequate supervision and care. Limited liability protection would help ensure that your personal assets are protected from any legal costs or damages incurred by the lawsuit.

Example 2: During a life coaching session, your employee accidentally damages a piece of office equipment. The client sues your business for the cost of repairing or replacing the damaged property, arguing that you were negligent and did not properly maintain or supervise your employees. Again, limited liability protection would ensure that your personal assets are protected from these costs.

Example 3: As part of your coaching services, you collect and store sensitive financial information about your clients. A data breach occurs and the client's private data is leaked online, resulting in identity theft or financial fraud. Limited liability protection would help to safeguard your personal assets from any legal costs or damages incurred by the incident.

Example 4: A client sues your life coaching business for giving advice that they claim damaged them professionally.

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 Life Coaching 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 life coaching 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.

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

Credibility and Consumer Trust

Life coaching 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 the limited liability protection from an LLC protects your personal assets, not your business assets.

Life coaching businesses need insurance to protect themselves from potential risks and liabilities. Business insurance can help cover legal costs if they are sued, as well as provide financial protection against losses in the event of an accident or injury.

Common Situations Business Insurance May Cover for a Life Coaching Business

Example 1: A client visiting your office trips on the steps while entering and suffers a bad fall. General liability insurance would likely cover any injuries they sustained.

Example 2: You’re unable to deliver on promises made in marketing materials, and a client sues for false advertising. General liability insurance would likely cover the lawsuit.

Example 3: General liability insurance may be required to reserve spaces at tradeshows or for teaching classes.

Other Types of Coverage Life Coaching 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 life coaches should obtain:

Professional Liability Insurance

Professional liability insurance helps protect workers who give advice as part of their job. This insurance covers lawsuits that clients might file if they find advice misguided or faulty.

As a life coach, your entire business centers around the expertise you have and advice you give. You likely make big promises, and big promises often come with big potential liabilities. Make sure the professional liability insurance you select has broad coverage definitions and high limits so that you’re well protected.

Professional liability insurance can be purchased by itself or with other coverage in a package policy.

Home-Based Business Insurance

Many life coaches have a home office and therefore need home-based business insurance. This is an insurance that fills in gaps left by homeowner’s insurance policies, which frequently don’t cover accidents related to business activities.

Home-based business insurance is sometimes available through a business owner’s policy (BOP) or as an endorsement on a homeowner’s insurance policy.

Data Breach Insurance

Assuming you offer some life coaching services online (even if only to email clients occasionally), data breach insurance is an important protection to consider. Should confidential information about clients be leaked, the resulting consequences could be significant and potential lawsuits might be expensive. This insurance covers many types of possible data breaches and associated legal fees.

Data breach insurance can be purchased by itself or with other coverage in a package policy.

Commercial Property Insurance

If you own an office space or meeting area, your business should have commercial property insurance. Property coverage typically insures buildings, other commercial spaces, and equipment that businesses own.

Commercial property insurance can be acquired with other coverage in a BOP.

Commercial Auto Insurance

If you use a vehicle for work-related driving, regardless of whether it’s registered as a personal or commercial vehicle, you should have some form of commercial auto insurance. Vehicles driven on public roads need to be insured, and those that are used for business typically require commercial coverage.

Commercial auto insurance can be purchased by itself or with other coverage in a package 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 and professional liability insurance.

Read our Life Coaching Business Insurance article for more info.

Starting a life coaching business is relatively inexpensive. All you will need is a phone, computer, and transportation to clients’ meetings. You can minimize your expenses even further by using your personal phone, computer, and vehicle if you have one.

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

A life coaching business has minimal ongoing expenses for a life coaching business. These expenses include insurance, marketing, transportation, internet access, and a phone. If a life coach hires employees and/or rents office space, these will present additional expenses.

Learn more about running a life coaching business.

A life coaching business makes money by charging clients for life coaching services. Clients typically pay by the hour or in the form of a retainer.

Learn more about starting a life coaching business.

There is a reason self-help books and videos are so popular: almost everyone wants to better themselves in some way. A life coach helps people make the improvements they seek. Specifically, a life coach meets with clients to discuss their goals and provide motivation. In addition, a life coach helps people make important decisions.

The profit life coaches can earn depends on how many clients they have and how much they charge per client.

Learn more about starting a life coaching business.