Should I Start an LLC for My Electrician Business?

Starting a limited liability company (LLC) for your electrician 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 an electrician business, lawsuits can arise from things like professional malpractice claims (e.g., one of your electricians is negligent and causes a customer to suffer an electrical injury).

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

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

Do I Need an LLC for an Electrician 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 an Electrician Business

By starting an LLC for your electrician 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.

Electrician businesses will benefit from liability protection because of the risk of product liability, property damage, and workplace accidents.

Example 1: An employee accidentally starts a fire during some repairs, and it spreads rapidly through a client’s living room, damaging furniture and electronics worth thousands of dollars. The client sues your business and asks you to pay for the property damages. Limited liability as an LLC protects your personal assets as the owner from being used to pay.

Example 2: Your business takes out a loan to expand your office but unfortunately misses several payments. Since your business is an LLC, limited liability ensures that your personal assets are not involved so they could not be repossessed or taken as collateral.

Example 3: A competitor is attempting to sue you over an advertisement they have deemed as slanderous. Should this matter go to court, your personal assets could not be used to pay for settlements since they are protected with limited liability as an LLC.

Example 4: You accidentally start a fire during some repairs, and it spreads rapidly through a client’s living room, damaging furniture and electronics worth thousands of dollars. The client sues you and asks you to pay for the property 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 an Electrician 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 an electrician 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

Electrician 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 businesses need insurance, as your business’s assets are unprotected without it. Limited liability from being an LLC only protects the owner’s assets.

Electrician businesses need insurance because of the potential problems running electricity on other people’s property. Should something go wrong and damage occur, insurance can help cover the cost.

Common Situations Business Insurance May Cover for an Electrician Business

Example 1: You accidentally start a fire during some repairs, and it spreads rapidly through a client’s living room, damaging furniture and electronics worth thousands of dollars. General liability insurance would likely cover some of what your business owes in damages or any settlement reached.

Example 2: During a repair, a customer’s unattended child touches a live wire and suffers severe injuries. If found liable, your business would probably be covered for some of the resulting damages or any settlement reached between you and the customer.

Example 3: You decide to take a lunch break while repairing some wiring in a customer’s house. After eating, you accidentally leave a bar of dark chocolate on the floor. The client’s dog sneaks in and eats the entire thing, becoming seriously ill. If held liable, your business would probably have some coverage under a general liability insurance policy for damages incurred or a settlement reached outside of court.

Other Types of Coverage Electrician 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 electrician businesses should obtain.

Professional Liability Insurance

In the event that your services are deemed unsatisfactory, you can find your business confronted with a suit alleging professional negligence. Instead of paying damages out of your business’s profits, a professional liability policy can cover a good chunk of whatever figure you end up having to pay.

Commercial Property Insurance

Your electrician operation will no doubt require expensive professional equipment, tools, and machinery to help you get the job done. You cannot afford to lose these assets to an unpredictable disaster like fire or violent weather. Acquire a commercial property policy to protect your business materials, including equipment, tools, machinery, vehicles, and any owned real estate.

Workers' Compensation Insurance

If you decide to hire any part-time or full-time employees, most states legally require you to have workers’ compensation insurance. This covers costs related to injuries that an employee suffers while working.

Commercial Auto Insurance

If you have a vehicle that is driven primarily for business use, you’ll need to pick up commercial auto insurance to stay covered for accidents that happen while on the road.

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 commercial auto insurance.

Read our Electrician Business Insurance article for more info.

Many companies spend at least $5,000 to get started. These costs do not include schooling or apprenticeship, which can range anywhere from $3,000 to upwards of $20,000.

License renewal can cost up to $200–$300 per year, depending on your state. You should budget $1,500–$2,000 for annual insurance premiums.

Visit our How to Start an Electrician Business guide to learn more about the costs of starting and maintaining this business.

The main operating expenses for an electrician business are license renewal, insurance, and rent (if you have an office).

Learn more about running an electrician business.

Electrician businesses make money by selling their services to residential and/or commercial customers.

Learn more about starting an electrician business.

Whether the business focuses on residential customers, commercial customers, or both, there is always a demand for electricians. This means there is great potential for profits year-round.

Most electricians charge between $40 and $100, while master electricians can charge even more. Most states have licensing requirements, which can keep the supply of electricians lower and give you even more opportunities to make money.

Learn more about starting an electrician business.