Should I Start an LLC for My Creative Agency?

Starting a limited liability company (LLC) for your creative 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 creative agency, lawsuits can arise from things like indemnity claims (e.g., if a customer gets sued for copyright infringement after following an employee’s logo and branding advice, etc.).

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

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

Four people working on their laptops in a creative agency

Do I Need an LLC for a Creative 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 Creative Agency

By starting an LLC for your creative 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.

Creative agencies will benefit from liability protection because of the risk of being sued for trademark infringement, libel, and personal injuries, among other things.

Example 1: A client hires your agency to help with their marketing campaign, but after the campaign is launched, one of your client’s competitors accuses your client of libel. As a result, the client sues your agency. In this scenario, liability protection will ensure that your personal assets are not used to pay for any damages associated with the lawsuit.

Example 2: A client hires your agency to design a new website for their company, but after the site is launched, it experiences frequent crashes and errors. If sued, liability protection will safeguard your personal assets from being used to pay for any damages or legal fees associated with the lawsuit, as well as any damages awarded to the client.

Example 3: A client hires your agency to manage their Facebook page, but after you post a controversial advertisement, they receive a significant amount of backlash from their customers. In the event of a lawsuit, the LLC structure would protect your personal assets from being used to pay for any damages.

Example 4: Since your business name is similar to another creative agency’s name, the other agency sues you for loss of income because it claims several of its clients mistakenly booked services through you.

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 Creative 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 creative 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

Creative 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 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?

All businesses, including creative agencies operating as LLCs, need to have insurance in place to protect against potential risks and liabilities. Having insurance can help to safeguard your business and personal assets in the event of a lawsuit or other unexpected event.

Common Situations Business Insurance May Cover for a Creative Agency

Example 1: While a client visits your office, she falls in the restroom due to inadequate lighting. General liability insurance would cover her medical bills for any resulting injury.

Example 2: Because your business name is similar to another creative agency’s name, the other agency sues you for loss of income because it claims several of its clients mistakenly booked services through you. General liability insurance would cover your legal costs and any awarded damages.

Example 3: You need to replace the hard drives in all of your computers after an IT employee makes a critical error. General liability insurance would pay to repair your damaged equipment.

Other Types of Coverage Creative 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 creative agencies should obtain.

Commercial Property Insurance

If you own the building in which you operate, commercial property insurance helps protect your business-related property in the event of a fire, burglary, or natural disaster. It covers the cost of repairing any structural damage to your building or grounds as well as repairing or replacing any business materials you store there.

Professional Liability Insurance

Creative agencies give clients the direction they need to promote their products or brand. If a client believes the advice your company provided caused them to lose business, they may blame you for a loss of income. Professional liability insurance would cover your legal costs in the event of a lawsuit.

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 Auto Insurance

Any vehicle you or your employees use primarily for business — such as to visit clients — 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 business-related equipment you carry in your vehicles.

Data Breach Insurance

If your business loses sensitive client information as a result of a cyber attack, this coverage would help pay to restore your computer network and compensate clients for any related financial losses.

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 and professional liability insurance.

Read our Creative Agency Business Insurance article for more info.

The cost involved depends on the image you want to portray to your clients. Technically, much of the work can be done with laptops, but it may be helpful to have a dedicated office space. A Certificate of Occupancy is required for this, and the cost can vary depending on your location.

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

Ongoing costs include lease payments, office equipment, employee salaries, website maintenance, and networking expenses.

Learn more about running a creative agency.

Creative agencies charge clients for services, either on a per-project basis or for a flat fee.

Learn more about starting a creative agency.

Creative agencies help other businesses develop slogans, write blog posts, create logos, and otherwise present a consistent voice that will help them target a certain demographic. A creative agency is different from an advertising agency, which buys media space to spread a company’s name. By contrast, a creative agency focuses on providing the company’s public face.

A creative agency has the potential to make a substantial profit, in part because its overhead is relatively low.

Learn more about starting a creative agency.