Should I Start an LLC for My Translation Agency?

Starting a limited liability company (LLC) for your translation agency 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 translation agency, lawsuits can arise from things like professional negligence (i.e. errors in translation which cause clients to suffer financial damage), and property damage suffered by clients in its offices.

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

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

Puzzle pieces with translation written in different languages scattered on a map

Do I Need an LLC for a Translation Agency?

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 Translation Agency

By starting an LLC for your translation agency, 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.

Translation agencies will benefit from liability protection because of the risk of claims of negligence, and trademark infringement.

Example 1: A client who hired you to translate a contract for an international business deal sues you, claiming that an error caused them significant financial damage. As the LLC’s owner, your personal assets are protected as a result of your limited liability.

Example 2: You leave a faucet on overnight and it leads to water damage in both your office and the business below you. As a result, the owner asks you to pay for the damages. Your personal assets could not be used to pay for this since they are protected with limited liability as an LLC.

Example 3: A business is suing you, claiming the tagline you came up with for a client infringes on their product’s copyright tagline. Since your agency is an LLC, your personal assets are protected with limited liability, meaning they could not be taken in the settlement.

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 Translation Agency

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 translation agency 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

Translation agencies 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.

Since your business greatly revolves around offering advice to people, misunderstandings may become messy and even end up in court. Should this happen, your assets can be protected with insurance, and your policy may even help with some legal fees.

Common Situations Business Insurance May Cover for a Translation Agency

Example 1: You are visiting a client’s office to discuss the translation of some legal documents. You fail to see an extension cord running to a desk and catch it with your foot—pulling down a tower of expensive-looking equipment. Your general liability policy would cover the cost of replacing their equipment if they demand that you cover the bill.

Example 2: In your marketing efforts, you accidentally reproduce similar marketing material from a competitor, and the competitor sues you for copyright infringement. With a general liability policy, you will have financial coverage to pay for your legal costs. If you wind up settling out of court, your policy will pay the settlement, up to your policy limits.

Example 3: One of your employees accidentally spills coffee on an old text she is translating. The damage to the text is considerable. Your general liability insurance covers damage to the property of customers on behalf of you and your employees, so your coverage should help cover the costs of replacement or repair.

Other Types of Coverage Translation Agencies 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 translation agencies should obtain.

Professional Liability Insurance

Translation is as much an art as a science, with room for interpretation based on a variety of factors. Some of your clients may be depending on your translations for serious issues like legal concerns or financial concerns. Should you make a mistake, they could take legal action against your business. Professional liability insurance covers claims of negligence due to mistakes and is tailored to your individual business.

Commercial Property Insurance

The computers and other equipment you use in the translation process are expensive, which means they will require a big financial outlay if they are destroyed due to an unexpected event like a fire. With commercial property insurance, you have coverage to help you pay for the replacement of your commercial property so you do not have to pay the cost out of pocket.

Commercial Auto Insurance

If you have one or more vehicles that are used primarily for business, commercial auto insurance will provide coverage to ensure that you meet legal requirements determined by your state. With commercial auto insurance, you and your employees have financial support in the case of an accident—to help cover vehicle repair/replacement, medical bills, and other related costs.

Home-Based Business Insurance

For business owners who run their translation businesses out of their homes, it is important to understand that homeowners insurance likely does not cover all the liabilities related to business operation. A home-based business insurance policy can help to cover accidents resulting from business activities—such as if a client visits your home for translation services and is injured during the visit.

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 Business Insurance article for more info.

The costs of opening a translation business are minimal. You’ll need to invest in office furniture, good lighting, a computer with high-speed internet service and a good all-in-one printer. Building a library of reference materials such as dictionaries and grammar books is also a wise initial investment. There is also professional translation software available, the cost of which ranges from between $200 and $1000.

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

Ongoing expenses for a translation business include utilities, software, website maintenance, insurance, marketing, rent (if you have an office space), and payroll (if you have employees).

Learn more about running a translation agency.

A translation agency charges fees for translating different types of documents. These fees may either be by the hour or by the assignment, depending on the length and complexity of the documents.

Learn more about starting a translation agency.

A translation agency translates documents from one language to another. They provide these services while keeping the contents of the documents confidential.

The amount of profit a translation agency can make depends on experience, location, and the volume of work available.

Learn more about starting a translation agency.