What are the costs to start and maintain a web development company?

You can start your web development business for under $5,000. You will need to: Purchase or lease an office space Purchase a computer and multiple screens Get a business phone and website Purchase design reference books You will also want to allocate a monthly advertising budget in order to market your services online. Visit our How to Start a Web Development Company guide to learn more about the costs of starting and maintaining this business.

Do I Need an LLC for My Web Development Company?

Starting a limited liability company (LLC) for your web development company 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 web development company, lawsuits can arise from things like using watermarked images without a license, missing customer deadlines, and injuries suffered by a client during a consultation.

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

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

Should I Start an LLC for a Web Development Company?

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 Web Development Company

By starting an LLC for your web development company, 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.

Web development companies will benefit from liability protection because of the risk of being sued for stealing intellectual property, contract breaches, libel, and data breaches.

Example 1: You use some stock images which are copyrighted for a client's project without receiving consent. The owner of the images proceeds to sue your client for copyright infringement. If the client sues you, your LLC may be legally required to indemnify them, but limited liability will ensure that you will not be.

Example 2: A client visits your home office for a consultation. On her way out, she mistakenly steps on your cat's tail and is severely scratched. Even though you offer to take her to the nearest hospital immediately, she sues your business in order to recover her medical bills. Should the court find in favor of the claimant, your personal assets will remain protected as a result of your limited liability protection.

Example 3: You've been hired to create a web application for your client that must be completed by a specified date. Due to unforeseeable circumstances, your business is unable to make this deadline, and your client suffers financial losses as a result. If he decides to sue your LLC, the lawsuit may affect the assets of your business but not your own.

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 Web Development Company

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 web development company 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

Web development companies 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.

Web development businesses need insurance to handle fallouts arising from lawsuits caused by data breaches, employee negligence, and injuries within the business premises.

Common Situations Business Insurance May Cover for a Web Development Business

Example 1: A client brings some documents into the office and fails to notice the cables strung across the floor. He trips on them and falls, injuring himself and requiring medical attention. The fees for his medical treatment will be covered by your general liability insurance policy.

Example 2: One of your competitors determines that your new logo, which you have been using on all your latest marketing materials, is too similar to theirs. The competitor files a lawsuit against your company, demanding damages for copyright infringement. Your general liability insurance policy will pay for your legal defense as well as for a settlement if the case is decided out of court.

Example 3: One of your team members visits a client’s office for some hands-on guidance on how to maintain their website. While there, your employee knocks over a cup of coffee onto an expensive laptop, causing extensive damage. The general liability insurance policy you carry will pay for the replacement cost of the client’s equipment.

Other Types of Coverage Web Development 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 web development businesses should obtain:

Commercial Property Insurance

Your web development work requires functional, current tech—which is costly to buy and costly to replace. If your computer equipment and other office equipment is damaged in an unexpected event, like a fire, a commercial property insurance policy would pay for the replacement of the equipment and other supplies. With your equipment replaced, you can quickly get back to serving clients and generating revenue.

Data Breach Insurance

The clients you work with entrust you with a lot of important information. Should that information become compromised by cybercriminals, the damage to the client can be considerable. Should the client take legal action due to the stolen user data, your data breach insurance will cover your legal fees. It will also cover the cost of paying a settlement if your case is settled out of court.

Workers’ Compensation Insurance

If your web development business has employees, workers’ compensation insurance will ensure that you are able to cover the costs of their medical care if they are injured while performing job-related activities. It also provides some coverage for lost wages if the employee is unable to work due to the injury. Workers’ compensation insurance coverage is required by most states for companies that have part-time or full-time employees.

Home-Based Business Insurance

If you run your web development business out of your home, it is possible that your homeowner’s insurance will not cover accidents due to business-related activities. It is important to speak to the insurance provider of your homeowner’s policy to verify what kind of coverage you have related to your business. If your homeowner’s policy does not cover you, then you can get a home-based business insurance policy as part of a business owner’s policy or possibly as an extension of your existing homeowner’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.

Read our Business Insurance for Web Development Businesses article for more info.

You can start your web development business for under $5,000. You will need to:

Purchase or lease an office space
Purchase a computer and multiple screens
Get a business phone and website
Purchase design reference books

You will also want to allocate a monthly advertising budget in order to market your services online.

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

For web development companies with an office location, ongoing expenses are essentially limited to rent and utilities. Some development companies might utilize software development and planning applications that may cost a monthly or yearly fee.

Learn more about running a web development company.

Web development companies profit by charging clients an hourly rate or flat fee in exchange for their services.

Learn more about starting a web development company.

Unlike web designers, web development services are primarily involved with the creation of applications and software for client needs through coding.

Considering that costs are relatively low, earnings potential for web development companies is quite high.

Learn more about starting a web development company.