Do I Need an LLC for My Graphic Design Studio?
Starting a limited liability company (LLC) for your graphic design studio 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 graphic design studio, lawsuits can arise from things like libel claims, copyright infringements, or trademark disputes.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your graphic design studio seem more credible.
Interested in getting started? More than 84% of our readers form their LLC through a specialized LLC formation service in order to save time and avoid potential penalties.
Tailor Brands ($0 + State Fees)
Should I Start an LLC for a Graphic Design Studio?
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 Graphic Design Studio
By starting an LLC for your graphic design studio, 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.
Graphic design studios will benefit from liability protection because of the risk of trademark infringement and other general business risks.
Example 1: In recent marketing material released by your graphic design studio, an employee decided to include a joke about a competitor in the hope it would make your studio more popular. However, the competitor interpreted this comment as an attack on its reputation, and thus sued your business for libel. If the court found your business liable to pay damages, this could only be imposed on the asset’s belonging to your business.
Example 2: An employee of your graphic design studio designs a logo for a client that is uncannily similar to that of a popular brand. This prompts the popular brand to sue your business for copyright infringement. Limited liability would ensure that any requirement imposed on your business to pay damages could not extend to your personal assets.
Example 3: While showing a potential client around your graphic design studio’s offices, an employee bumps into the client. As a result, the client falls over and suffers a broken arm. This induces the injured individual to sue your business for this bodily harm that he maintains he suffered as a result of your business’s negligence. In the ensuing litigation, any liability to pay compensation cannot extend to your personal assets.
Example 4: While creating a design for a client, your work infringes on the trademark of another business. Your client will seek to pass on the liability for that infringement to you, meaning you will have legal fees.
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 Graphic Design Studio
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 graphic design studio 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
Graphic design studios 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.
Launch Your LLC With Tailor Brands
More than 84% of our readers form their LLC through a specialized LLC formation service like Tailor Brands in order to save time and avoid potential penalties.
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 the limited liability protection from an LLC protects your personal assets, not your business assets.
Graphic design studios, for instance, have expensive assets (such as computers and design programs), that they must protect with insurance.
Common Situations Business Insurance May Cover for a Graphic Design Studio
Example 1: Your graphic design studio recently received a large piece of printing equipment for which there was no outlet. While waiting on your electrician to install a new outlet, you decide to use an extension cord to power the machine. As a result, a visitor or client of your studio trips over the extension cord and requires medical attention. Your general liability insurance policy may cover any medical expenses and/or lawsuits related to the trip and fall accident.
Example 2: While trying to promote your graphic design business, you accidentally run an ad that misrepresents your services. A client contacts you, wanting the advertised service, and after you explain that the ad was wrong, they decide to sue you for false advertising. Your policy may help cover the costs associated with the false advertising lawsuit.
Example 3: While walking up your entrance stairs, the handrail fails, sending your client tumbling to the ground. This results in numerous scrapes and the need for emergency medical services. Your general liability insurance policy may help cover the costs associated with the emergency transport and treating the injury.
Other Types of Coverage Graphic Design Studios 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 graphic design studios should obtain.
Commercial Property Insurance
If your graphic design studio is located in a commercial building with a physical address, you’ll need commercial property insurance in order to financially protect your building, property, and equipment from certain covered losses.
Commercial Umbrella Insurance
If you anticipate potential large claims or lawsuits, you’ll want to consider purchasing a commercial umbrella insurance policy. These policies cover claim amounts that are more than the limits of your regular general liability insurance policy.
Professional Liability Insurance
Professional liability insurance protects you against lawsuits stemming from errors in your work, omissions, or acts of negligence.
Workers’ Compensation Insurance
If you employ any graphic designers and other employees at your place of business, you’ll need Workers’ Compensation Insurance, which helps pay for the costs associated with any on-the-job injuries.
Cyber Liability Insurance
Cyber liability insurance protects you in the event that an unauthorized person hacks into your databases and steals information about your clients, business, and/or employees.
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 Graphic Design Business Insurance article for more info.
Graphic design studios are incredibly affordable to set up, you can expect to be able to establish your business for less than $2000.
Many of these studios start at home, with the only true expense being the cost of the design programs required to complete this work.
Visit our How to Start a Graphic Design Studio guide to learn more about the costs of starting and maintaining this business.
Some of the ongoing expenses of running a graphic design business include design software, fees for contractors like photographers, illustrators, copywriters, marketing, and general overhead costs.
Learn more about running a graphic design studio.
Graphic design studio owners charge their clients on an hourly rate or on a project basis. Negotiating a monthly retainer with more established businesses is a good way to guarantee revenue to the business.
Learn more about starting a graphic design studio.
A graphic design business can offer their services to a wide range of businesses including advertising agencies, publishing companies, and product manufacturers.
Graphic designers are always in high demand to help businesses create identities that stand out. Profit margins for a graphic design business can range from 15% to higher than 50%.
Learn more about starting a graphic design studio.
