Should I Start an LLC for My Domain Registration Business?

Starting a limited liability company (LLC) for your domain registration 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 domain registration business, lawsuits can arise from things like selling a trademarked domain name to a customer, as well as from data breaches.

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

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

Do I Need an LLC for a Domain Registration Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start 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 Domain Registration Business

By starting an LLC for your domain registration 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.

Domain registration businesses will benefit from liability protection because web services and internet businesses face a variety of risks, such as potential liability of copyright or trademark infringement with online content distribution.

Example 1: In order to pay for the Internet Corporation for Assigned Names and Numbers (ICANN) accreditation fee to license your domain registration business, you decide to take out a substantial loan. However, after your business doesn’t perform as well as expected, you realize it will not be able to repay this debt. As a consequence, the creditor decides to sue your business for defaulting on this debt. Limited liability would protect your personal assets from any liability imposed on your business to pay compensation.

Example 2: After an employee of your domain registration business had their phone stolen, your business suffered a devastating data breach that resulted in the leak of the confidential information of numerous clients. Upon hearing of this leak, one of the affected individuals brought a data breach lawsuit against your company, arguing that your negligence led to this leak. In this situation, if your business is found liable for damages, this liability can only be imposed upon your business’s assets.

Example 3: After firing an employee from your domain registration business, you receive notice that your business is being sued for wrongful dismissal. The ex-employee alleged that he was dismissed in a way that breached his contract and was seeking compensation. If found liable to pay the plaintiff damages, your personal assets would be kept safe due to limited liability.

Example 4: A company sues your business, claiming that you are selling domain names to scammers that are deceptively similar to the company’s actual website.

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 Domain Registration 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 domain registration 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

Domain registration 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).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a dependable 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 LLCs need insurance because they face liabilities that their assets need to be protected from. Just as insurance protects a business’s assets, limited liability protects the personal assets belonging to an LLC’s owner.

Common Situations Business Insurance May Cover for a Domain Registration Business

Example 1: While visiting your office, a potential investor slips on some wet flooring in the restroom, breaks his tailbone in the resulting fall, and decides to sue your business. General liability insurance would pay for your legal defense costs.

Example 2: As a visitor enters your place of business, she trips on some damaged pavement in the parking lot, breaks an ankle, and demands your company pay for her medical treatment. General liability insurance would cover her medical bills.

Example 3: Another domain registration business sues your company for libel. While you disagree with the claim, you know you need an attorney to protect your interests. General liability insurance would pay for your legal defense costs.

Other Types of Coverage Domain Registration 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 domain registration businesses should obtain.

Professional Liability Insurance

While you do your best to serve your customers’ needs, there’s always a chance someone might claim your professional services caused them harm. If a customer claims you made a mistake — whether you actually made an error or not — and sues your business, professional liability insurance would cover your legal fees and any required settlement.

Commercial Property Insurance

You made a major investment in the equipment, supplies, hardware, and software needed to run your business. 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.

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.

Read our Business Insurance article for more info.

Very little initial capital is required to start your domain registration business. Acquiring the mandatory accreditations will likely form the largest component of this cost. You can get your business accredited through ICANN. The application fee is $3,500, in addition to a $4,000 annual fee.

Visit our How to Start a Domain Registration Business guide to learn more about the costs of starting and maintaining this business.

Ongoing expenses will include the cost of computer hardware and software maintenance, employee salaries, ICANN annual fees, insurance, rent, and utility costs for your physical business location.

Learn more about running a domain registration business.

Domain registration businesses profit by charging clients an annual fee for the maintenance of their registered domain name.

Learn more about starting a domain registration business.

Domain registration businesses are involved in the process of doling out and maintaining website domain names for their clients.

Since there is not a lot of maintenance cost associated with maintaining a client’s domain name, the profit margin for domain registration businesses could be quite high.

Learn more about starting a domain registration business.