Should I Start an LLC for My Cartoon Service?

Starting a limited liability company (LLC) for your cartoon service 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 cartoon service, lawsuits can arise from things like slander allegations or copyright infringement claims (e.g., an employee accidentally copying a competitor’s artwork, etc.).

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

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

Sketches of various objects on graph paper

Do I Need an LLC for a Cartoon Service?

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 Cartoon Service

By starting an LLC for your cartoon service, 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.

Cartoon services will benefit from liability protection because of a number of risks, including plagiarism, copyright infringement, and libel.

Example 1: While the team at your company is working on a new project, an animator accidentally spills hot coffee on their computer, damaging the hardware. This causes the loss of several days' worth of work, leading to a delay in production. If the client sues you because of the delay, liability protection will shield your personal assets from the lawsuit.

Example 2: During a software update, hackers steal sensitive data from your cartoon service's database. Your company risks facing lawsuits and reputation damage. If your business is found responsible for the data breach, the compensation would only be imposed on the business's assets, not your personal assets.

Example 3: An animator trips and falls while at work, hitting their head on a piece of equipment and sustaining serious injury. If the employee sues for damages, limited liability protection will shield you from having to pay any damage awards from your personal assets.

Example 4: A competing cartoon service claims that you used a trademarked character in your work and sues you for infringement.

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 Cartoon Service

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 cartoon service 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

Cartoon services 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 trusted 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?

Yes, LLCs need insurance coverage to protect their assets against possible risks and liabilities. From natural disasters to accidents and lawsuits, many unforeseen circumstances can threaten the financial stability of an LLC. By obtaining insurance, LLCs can protect their assets and mitigate the impact of potential losses or damages.

Common Situations Business Insurance May Cover for a Cartoon Service

Example 1: While visiting your place of business, a potential investor slips on a wet floor in your restroom, breaks an arm, and demands you pay for his medical treatment. General liability insurance would cover his medical bills.

Example 2: Another cartoon service files a libel lawsuit against your business. While you cannot recall committing libel, you want to hire an attorney immediately. General liability insurance would pay for your legal defense costs.

Example 3: An overnight storm knocks a hole in your roof and destroys some collector’s items a client sent you to help guide your art direction. General liability insurance would cover the cost of replacing the client’s damaged property or providing compensation.

Other Types of Coverage Cartoon Services 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 cartoon services should obtain.

Commercial Property Insurance

You made a major investment in the equipment and supplies needed to run your cartoon service. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property.

Workers' Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for both part-time and full-time workers. 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 or death benefits stemming from a work-related accident.

Read more about workers’ compensation insurance.

Data Breach Insurance

Also known as cyberattack insurance, data breach insurance protects your business from damages stemming from stolen user data. If a cybercriminal breaks into your computer system and steals customer data — and then your customers sue you for damages — this coverage would pay for your legal defense and any required settlements.

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

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.

Starting a cartoon service can involve many different costs. Such costs may include website or platform development, artist or animator hiring, software or equipment purchases, hosting fees, maintenance and updates, and advertising and marketing efforts. The overall expenditure will depend on the specific features and goals of your service.

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

Ongoing expenses are likely to be minimal and will primarily include supplies, insurance, and website maintenance.

Learn more about running a cartoon service.

Cartoon services make money by charging fees for their work, either on a per-cartoon basis, in bulk, or even via subscription.

Learn more about starting a cartoon service.

Cartoon services draw and often write cartoons for newspapers, websites, books, advertisements, and other outlets.

Profit margins for cartoon services can be quite high. The average salary of a print cartoonist ranges from $30,000 to $60,000 a year, but some well-known cartoonists can make millions each year.

Learn more about starting a cartoon service.