Should I Start an LLC for My Fundraising Consulting Business?

Starting a limited liability company (LLC) for your fundraising consulting 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 fundraising consulting business, lawsuits can arise from things like clients becoming dissatisfied with a consultant’s performance and claiming that they’ve given inaccurate advice, misrepresented them, or omitted important information.

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

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

Do I Need an LLC for a Fundraising Consulting 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 Fundraising Consulting Business

By starting an LLC for your fundraising consulting 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.

Fundraising consulting businesses will benefit from liability protection because of the risk of being sued for negligence, workplace injuries, property damage, libel, and financial data breaches. 

Example 1: Despite following your fundraising consulting firm's advice, a nonprofit organization raises significantly less money than expected at its annual gala. They sue your business for not providing effective fundraising strategies. If your business is found to be liable, your personal assets will not be affected.

Example 2: A school district hires your fundraising consulting firm to help them raise money for a new sports facility. However, the district's fundraising campaign falls short of its goal, and they sue your business for not providing adequate guidance. Only the business’s assets will be used to pay for damages if found to be liable.

Example 3: As a consultant specializing in fundraising consulting, you frequently deal with donors and stakeholders who may access sensitive data about your clients. Due to a security breach, financial information about your client is stolen, and the organization is forced to pay large fines. Limited liability protection helps to keep you from being personally liable for those fines.

Example 4: Your company is sued by another company, claiming that you libeled them while fundraising for one of your clients.

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 Fundraising Consulting 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 fundraising consulting 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

Fundraising consulting 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 loansgrants, 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 professional 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 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.

Those in the fundraising consulting industry need insurance to safeguard their assets and protect against the financial impact of a lawsuit or other unforeseen circumstances.

Common Situations Business Insurance May Cover for a Fundraising Consulting Business

Example 1: A potential investor arrives early for a meeting in your office — just after your cleaner finishes mopping. Unfortunately, the investor slips on the wet floor in your lobby. The investor breaks a wrist in the resulting fall and asks you to pay for her medical treatment. General liability insurance would cover her medical bills.

Example 2: As you accept an order of office supplies, your loading dock door slams into the delivery van and renders it inoperable. The delivery company threatens to sue your business for damages. General liability insurance would cover your legal fees and any required settlement.

Example 3: A recent hailstorm washed out some asphalt in your parking lot. A regular client fails to see the hole and falls into it on her way to a meeting, fracturing her wrist. She sues your business, asking you to pay her medical bills and additional damages. General liability insurance would cover your legal fees and any required settlement.

Other Types of Coverage Fundraising Consulting 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 fundraising consulting businesses should obtain:

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 workplace accident.

Professional Liability Insurance

While you strive to provide sound advice to your clients, there’s always a chance someone might claim your professional guidance and recommendations harmed their business. If a client sues your business, claiming you made a mistake or failed to perform as promised, professional liability insurance would cover your legal fees and any required settlement.

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

Which is better for my fundraising consulting business — an LLC or sole proprietorship?

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.

What type of insurance does a fundraising consulting business need?

At a minimum, you’ll need general liability insurance and professional liability insurance.

Read our Business Insurance for Fundraising Consulting Businesses article for more info.

What are the costs to start and maintain a fundraising consulting business?

To open a fundraising consulting business, the main costs are minimal and may include marketing materials, a computer, a phone, and a means of transportation. Many business owners already have these items, except for the marketing materials. No specialized equipment is required for this type of consulting.

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

What are the ongoing expenses of running a fundraising consulting business?

Marketing and transportation are the main recurring expenses for fundraising consulting businesses.

Learn more about running a fundraising consulting business.

How do fundraising consulting businesses make money?

A fundraising consulting business charges a nonprofit for its time spent on consulting services.

Learn more about starting a fundraising consulting business.

What is a fundraising consulting business and is it profitable?

A fundraising consulting business helps nonprofits raise support by developing and implementing fundraising strategies.

There are millions of nonprofits, meaning there is a significant market for fundraising consulting. The profits of a fundraising consulting business depend on how many hours it bills per year and the rate it charges per hour.

Learn more about starting a fundraising consulting business.

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