Should I Start an LLC for My CNC Machining Business?
Starting a limited liability company (LLC) for your CNC machining 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 CNC machining business, lawsuits can arise from things like commercial property disputes with insurance providers (e.g., in order to repair, maintain, and replace manufacturing equipment, etc.), as well as from personal injury claims.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your CNC machining business seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a CNC Machining Business?
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 CNC Machining Business
By starting an LLC for your CNC machining 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.
CNC machining businesses will benefit from liability protection because of the risk of someone getting injured in their place of business.
Example 1: An employee at your CNC machining business is injured after a milling machine broke as he was operating it. As a result, the employee sued your business for this personal injury on the basis that he was injured because your company had negligently maintained the machine. In the ensuing lawsuit, you are precluded from being personally responsible for damages by limited liability.
Example 2: Your CNC machining business produces the set of gears that are used in a lawnmower. One of these small pieces malfunctions while a customer is operating the lawnmower, causing the customer to sustain great injury. This led to your business receiving notice of a product liability lawsuit filed against it for these defective gears. Your personal assets would be protected from any obligation to pay damages the court may impose on your business.
Example 3: A company hires your CNC machining business to produce a number of specific parts by a certain date. Due to unforeseeable circumstances, your business is unable to deliver these parts on time, which causes the company to suffer significant financial loss. As a consequence, your business is sued for breaching its contract. Limited liability protects your personal assets (such as your house and savings) from being used to satisfy any damages.
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 CNC Machining 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 CNC machining 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.
Credibility and Consumer Trust
CNC machining 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).
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
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
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.
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, commercial property insurance, and workers’ compensation insurance if you have employees.
Read our Small Business Insurance article for more info.
It’s possible to start a CNC machining business for very little. The largest expense is the machinery, such as lathes and mills.
With a few thousand dollars, you should be able to buy the necessary machines to get your CNC machining business started.
Visit our How to Start a CNC Machining Business guide to learn more about the costs of starting and maintaining this business.
A CNC machining business can have significant ongoing expenses. They include raw material costs, utilities, equipment maintenance costs, lease payments, and employee salaries.
Learn more about running a CNC machining business.
A CNC machining business makes a profit by selling machined parts. It can sell single prototypes, but most buyers purchase large quantities of the same part.
Learn more about starting a CNC machining business.
Computer numerical control (CNC) machining is used to make a variety of products that other companies use and sell. This type of manufacturing uses computer-controlled machines to make products with greater accuracy than other types of manufacturing are able to achieve.
A well-run CNC machining business should earn a 10% to 15% profit margin.
Learn more about starting a CNC machining business.
