Should I Start an LLC for My Expert Witness Service?
Starting a limited liability company (LLC) for your expert witness service 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 expert witness service, lawsuits can arise from things like professional malpractice (e.g., a witness giving testimony that is inaccurate, etc.), as well as from perjury.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your expert witness service seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for an Expert Witness Service?
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 Expert Witness Service
By starting an LLC for your expert witness service, 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.
Expert witness services will benefit from liability protection because of the risk of being sued for malpractice, libel, and negligence. While expert witnesses have historically had a significant level of immunity shielding them against lawsuits, this protection has weakened in recent years.
Example 1: Your business is sued by a plaintiff in a lawsuit who claims that the expert witness testimony you provided was based on numerous errors, which resulted in a very expensive settlement. As the owner, your personal assets can not be taken in the settlement because of limited liability from your status as an LLC.
Example 2: Your office is broken into and the private information of your clients is taken. They are now experiencing identity theft and demand you pay for their legal bills, or they will take you to court. Limited liability protection from your LLC would protect your personal assets from being used for the repayment.
Example 3: An electrical fire breaks out in your office that spreads to neighboring businesses, the owners of which demand you pay for the fire damage to their property. Since your business is an LLC, limited liability would protect them from being used to pay for the bill.
Example 4: Your business is sued by a plaintiff in a lawsuit who claims that expert witness testimony you provided was based on numerous errors, which resulted in a very expensive settlement.
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 Expert Witness Service
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 expert witness service 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
Expert witness services 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 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
- 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.
Do LLCs Need Insurance?
All businesses need insurance to protect their business assets — even LLCs. This is because limited liability protection from being an LLC protects your personal assets, not your business assets.
Expert witness services need insurance because of the liability involved with providing information in court. Stating the wrong information in court can send an innocent person to prison and a guilty individual free. Should something go wrong, insurance can help cover the legal fees of your service in court.
Common Situations Business Insurance May Cover for an Expert Witness Service
Example 1: While visiting your place of business, a potential client slips while walking up the stairs to your office, breaks a wrist as she falls, and demands you pay for her medical treatment. General liability insurance would cover her medical care.
Example 2: The owner of a competing expert witness service files a lawsuit against your business, claiming you libeled his company. While you disagree with the claim, you want to hire a lawyer right away. General liability insurance would cover your legal defense costs.
Example 3: During a meeting at a client’s business, you accidentally spill your coffee on her high-end laptop. General liability insurance would pay to replace the client’s damaged laptop.
Other Types of Coverage Expert Witness Services 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 expert witness services should obtain.
Commercial Property Insurance
You made a major investment to establish 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. This includes structural damage to your office as well as the business equipment, supplies, and furniture stored there.
Professional Liability Insurance
While you provide reliable, high-quality expert witnesses, there’s always a chance someone might claim your professional services caused them harm. If a client sues your business, claiming you made a mistake or failed to perform, professional liability insurance would cover your legal fees and any required settlement.
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 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. If you have employees, you will also need workers’ compensation insurance.
Read our Expert Witness Service Insurance article for more info.
The costs involved in opening an expert witness service business are minimal. Entrepreneur Magazine places the total cost of opening an expert witness business at between $2,000 and $10,000.
The primary startup costs include:
- Rent for an office space
- Website costs
- Advertising fees
Visit our How to Start an Expert Witness Service guide to learn more about the costs of starting and maintaining this business.
Ongoing expenses include website maintenance, lease payments, utilities, advertising, and employee salaries.
Learn more about running an expert witness service.
An expert witness service charges clients a percentage of an expert witness’s fees as a commission. It also may charge expert witnesses to be listed in its database.
Learn more about starting an expert witness service.
As the name suggests, an expert witness service provides experts to testify at a trial. Expert witnesses are professionals who are qualified to testify about a given subject.
The expert witness consulting services industry is growing and has revenues of more than $100 million. An expert witness service’s profits depend on the size of its client base and the areas that its witnesses specialize in.
Learn more about starting an expert witness service.
