Last Updated: May 10, 2024, 10:37 am by TRUiC Team

Do I Need an LLC for My Online Courses Business?

Starting a limited liability company (LLC) for your online courses 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 online courses business, lawsuits can arise from things like customers being greatly dissatisfied with the quality of a course and believing they are owed a refund or using a trademarked design as your logo.

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

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

A laptop, mouse, glasses, paper, pen, phone, and cup on a table

Should I Start an LLC for an Online Courses 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 Online Courses Business

By starting an LLC for your online courses 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.

Online courses businesses will benefit from liability protection because of the risk of professional liability, copyright and trademark infringement, and data privacy breaches. 

Example 1: One of the most expensive accountancy courses offered by your online course business does not contain a mandatory module, despite being called “official.” This prompts a customer of this course to bring a misrepresentation lawsuit against your business, as they were led to believe it would help them to qualify. Limited liability would protect your personal assets from being used to satisfy any requirement imposed on your business to pay damages.

Example 2: A customer unsatisfied with the quality of one of the courses offered by your business decided to sue after your business refused them a refund. In the litigation that follows, the court could not levy any business requirement to pay damages to the plaintiff against you personally.

Example 3: You decided to let an employee design your online course business’s logo. However, it is extremely similar to that of an immensely popular brand, which prompts the latter to sue your business for this copyright infringement. Since you were not responsible for designing the logo, limited liability would contain any damages your business is found liable to pay to only the assets owned by your company.

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 Online Courses 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 online courses 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

Online courses 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).

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 the limited liability protection from an LLC protects your personal assets, not your business assets. This is particularly true for online courses businesses, specifically due to how valuable their assets typically are (servers, commercial space, course creation materials, etc.).

Common Situations Business Insurance May Cover for an Online Courses Business

Example 1: A competitor sues your business, claiming you libeled her company in your last marketing campaign. While you disagree with the accusation, you realize you need a lawyer to protect your interests. General liability insurance would pay for your legal defense and any required settlement.

Example 2: While visiting your place of business, a potential investor slips on wet flooring as he enters the restroom, breaks his tailbone in the fall, and demands your company pay for his medical treatment. General liability insurance would cover his medical expenses.

Example 3: During a meeting at a potential client’s office, an employee accidentally spills coffee on some expensive recording equipment, and the business owner demands you pay for a replacement. General liability insurance would pay to replace the client’s damaged property.

Other Types of Coverage Online Courses 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 online courses businesses should obtain.

Professional Liability Insurance

While you strive to provide students with high-quality educational opportunities, there’s always a chance someone might decide you made a mistake that harmed them. If a student sues your business for negligence, professional liability insurance would cover your legal fees and any required settlement.

Product Liability Insurance

While you work hard to offer online courses that educate students, there’s always a chance someone might decide one of your courses caused them harm. In the event of a lawsuit, product liability insurance would cover your legal fees and any required settlement.

Workers’ Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for your 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.

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 Online Courses Business Insurance article for more info.

The initial capital you will require to launch your online courses business can range between $21,000–$25,000. A typical budget for a comprehensive course offering would consist of $10,000 for creating course materials, $5,000 for a website, and $500 per month for internet marketing. However, this figure will increase if you plan to offer level two or three self-directed courses.

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

The ongoing expenses of running an online courses business include marketing, maintenance fees for the course-delivery platform, website maintenance, overhead costs, and insurance.

Learn more about running an online courses business.

Online course businesses make money by charging individual students an access fee to their courses. They can also make money by contracting with large corporations to deliver their courses.

Learn more about starting an online courses business.

The online course market is expected to grow from $188 billion in 2019 to $319 billion in 2025. Increasing access to the Internet is driving this growth globally.

The average profit margin for an online courses business can be as high as 80%. 

Learn more about starting an online courses business.

Related Articles

Article Sources

IRS: Limited Liability Company

IRS: S Corporations


SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business