Should I Start an LLC for My Recruiting Business?

Starting a limited liability company (LLC) for your recruiting 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 recruiting business, lawsuits can arise from things like recommending an employee to a company without conducting a background check or a client sustaining an injury on your premises.

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

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

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Do I Need an LLC for a Recruiting 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 a Recruiting Business

By starting an LLC for your recruiting 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.

Recruiting businesses will benefit from liability protection because of the risk of confidentiality breaches, negligence claims, intellectual property infringement, and other general business risks.

Example 1: A large company hires your business to fill some vacant positions in their technical support department. Six months later, one of the employees recommended by your firm is involved in a data breach issue, causing the company to lose a large portion of its investment. They sue you for neglecting to perform a thorough background check. Should the court find the business guilty, only the business’s assets will be used in providing compensation.

Example 2: A client arrives early for a morning appointment. They use the restroom, slip, and fall. She is injured and has to be hospitalized. If she decides to file a lawsuit, your LLC may be liable to compensate, but your personal assets will be safe from the case.

Example 3: Your firm is hired to handle the recruitment of 10 interns for a fashion magazine. During the interview sessions for your recommended candidates, one of them turns out to be a stalker of one of the magazine's editors and causes a stir. This disrupts the entire process, and they proceed to sue you for negligence. In the ensuing lawsuit, you would be protected from being held personally liable to pay any 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 a Recruiting 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 recruiting 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

Recruiting 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 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.

Recruiting businesses need insurance because of lawsuits that can arise from data breaches, disruption of work, and other forms of negligence by your recommended candidates to clients.

Common Situations Business Insurance May Cover for a Recruiting Business

Example 1: During an open house event for high school students hosted by your company, a guest slips on a wet floor and seriously injures themselves. General liability insurance would pay for the guest’s medical costs and your legal fees in the event of a lawsuit.

Example 2: During an office tour, a potential investor reaches for an award on your trophy shelf and accidentally knocks the entire unit onto their head. They accuse you of improperly securing the shelf and threaten to sue. General liability insurance would cover the investor’s medical costs, your legal fees, and any settlement payouts.

Example 3: A local rival claims you’ve stolen their logo design for your updated business logo and threatens to sue. General liability insurance would cover your legal fees and any payout awarded in a settlement.

Other Types of Coverage Recruiting 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 recruiters should obtain:

Professional Liability Insurance

While you’ve spent countless hours training so you can give clients the best possible advice, there’s always a chance they may decide your recommendations resulted in a mistake or other issue and sue for damages. Professional liability insurance, or “errors and omissions” insurance, provides protection for any related negligent acts and covers your legal fees if a claim goes to court.

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.

Business Interruption Insurance

If a fire or other natural disaster forces you to temporarily close, you could lose important clients and revenue while you wait for repairs. Business interruption insurance would help cover your operating costs and lost revenue until you can reopen.

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, professional liability insurance, and workers' compensation insurance if you have employees.

Read our Recruiting Business Insurance article for more info.

You can start a recruiting business for less than $2,000, especially if you decide to run the business out of your home. A business license, business cards, service agreement forms, a telephone, computer, software, and an internet connection are the other items this amount would have to cover.

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

The ongoing expenses of running a recruiting business include utilities, office supplies, marketing, and insurance.

Learn more about running a recruiting business.

Recruiting businesses make money by charging a fee for finding a suitable candidate for an organization. This fee is usually a percentage based on the new hire’s salary.

Learn more about starting a recruiting business.

Recruiting businesses help organizations find skilled talent and help candidates find a position that best fits them.

Typically, a recruiting business should aim for a profit margin of between 45% and 75%. The recruiting market is estimated to be at $160 billion and will continue to grow.

Learn more about starting a recruiting business.