Should I Start an LLC for My Charter School?

Starting a limited liability company (LLC) for your charter school 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 charter school, lawsuits can arise from things like student injuries and educational malpractice lawsuits.

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

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

Do I Need an LLC for a Charter School?

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 Charter School

By starting an LLC for your charter school, 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.

Charter schools will benefit from liability protection. Injuries by the student body are the most common hazards you’re likely to encounter. If you provide meals to students, there is the risk of serving contaminated food. Schools have also faced legal action because of bullying and conflict among students.

Example 1: When a student is injured within your charter school’s premises, his parents threaten to sue your business, claiming that you failed to take the reasonable steps necessary to prevent such an event from occurring. Since your charter school is registered as an LLC, you and your partners will not be held personally liable if a lawsuit arises.

Example 2: You promise to promote one of your part-time staff into a full-time position at the end of the month, but shortly realize that this won’t be financially feasible. When you let them know, they claim that your promise constituted an enforceable verbal contract and threaten to sue you. Here, your personal assets will remain protected regardless of whether the school ends up compensating the claimant or not (i.e., due to lack of consideration.).

Example 3: A student’s parents decide to sue your charter school for educational malpractice, claiming that you have breached your duty of care by failing to provide all students with adequate and effective educational materials. Regardless of how the case progresses in court, your business’s LLC structure will mean that your personal assets will remain safe from all creditors.

Example 4: A student is hazed by members of the school’s football team. His parents sue the school for negligent supervision.

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 Charter School

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 charter school 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

Charter schools 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?

LLCs, including charter schools, need insurance in order to protect their business’s assets (e.g., school furniture, transportation buses, etc.) because the limited liability offered by an LLC applies to the owners’ personal assets only.

Note: Unless you are registered in Texas or South Dakota, you are legally required to purchase workers’ compensation insurance if you hire employees.

Common Situations Business Insurance May Cover for a Charter School

Example 1: While touring your school, the parent of a new student slips and falls, breaks an arm, and decides to sue for damages. General liability insurance would pay for your legal defense and any required settlement.

Example 2: As the school janitor cleans a classroom, he accidentally drops a box on a student’s bag and crushes the gaming laptop inside. General liability insurance would pay to replace the student’s damaged property.

Example 3: A competing charter school sues your school for libel. You don’t recall doing anything that would constitute libel, but you want to hire an attorney immediately. General liability insurance would cover your legal defense costs.

Other Types of Coverage Charter Schools 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 charter schools should obtain:

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. 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.

Commercial Property Insurance

It took a lot of capital to establish your charter school. 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. This includes structural damage to your school building as well as the computers, furniture, supplies, and equipment you store there.

Commercial Auto Insurance

Any vehicle you use primarily for school business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured but also sufficient protection for any school equipment or supplies you carry in your vehicle.

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, workers’ compensation insurance, and commercial property insurance.

Read our Business Insurance article for more info.

Starting a charter school can be very expensive, depending on the size and design of the actual school. You will also need to factor in the cost of hiring several teachers. Additionally, you will need to factor in all medical, hardware, and other school supplies you will need to purchase.

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

The major operating expense of a charter school is teachers’ salaries, which usually account for over half of revenue. Occupancy expenses can take up another 15%.

Total operating expenses can vary from 50% to 98% of fee revenue. Fee revenue also varies a great deal. Some charter schools manage just one school, while others manage several dozen.

Learn more about running a charter school.

Charter schools are funded by state and district funding based on their enrollment levels.

Learn more about starting a charter school.

A charter school is a school that gets funding from the government but exists separately from the established public school system.

Charter school profit margins vary considerably. For some companies, it exceeds 50%. For others, it is less than 5%.

Learn more about starting a charter school.