Should I Start an LLC for My Transcription Business?

Starting a limited liability company (LLC) for your transcription 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 transcription business, lawsuits can arise from things like accidental copyright infringements, accruing debt as a result of a business loan, or employment law disputes.

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

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

Do I Need an LLC for a Transcription 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 Transcription Business

By starting an LLC for your transcription 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.

Transcription businesses will benefit from liability protection because of the risk of being sued for libel, trademark infringement, personal injuries, and more.

Example 1: When one of your employees transcribes a piece of copyrighted content without receiving permission, you find out that your business is being sued. Since you didn’t personally infringe on the claimant’s intellectual property rights, your personal assets will remain protected regardless of how the claim progresses in court. This means that you will not have to use your personal assets to compensate the claimant if your business is unable to.

Example 2: A customer asks you to transcribe their audiobook so that they can sell it. After transcribing it, you find out that the rights of the book are no longer owned by the customer, as they had already sold them in the past. If a lawsuit was to arise against your LLC, your limited liability protection would shield your personal assets from the claimant(s).

Example 3: You acquire a small business loan in order to cover some of your short-term costs and rent out a new business office. When you get your business’s lease, you make sure that the property contract is drafted between the landlord agency and your LLC. As a result, the landlord will not be able to sue you personally in order to get paid if your LLC is unable to pay them in the future.

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 Transcription 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 transcription 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

Transcription 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.

Business insurance can protect your transcription business’s assets against lawsuits that arise as a result of your accidentally transcribing copyrighted work. It can also protect your business’s assets against general employment disputes (e.g., termination of contracts, injuries, etc.).

Common Situations Business Insurance May Cover for a Transcription Business

Example 1: Your cleaning crew uses the wrong solution on the floor, causing a client to fall. Her medical bills would be covered under your general liability policy.

Example 2: Hoping to hire several new employees, you have applied to attend a job expo. The venue requires evidence of at least $1 million in liability insurance. General liability insurance would help fulfill this obligation.

Example 3: While delivering lunch to your staff, the delivery driver slips on ice in the parking lot and breaks both arms. Your general liability policy should cover his medical bills, legal representation, and any awarded damages if he decides to take you to court.

Other Types of Coverage Transcription 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 transcription businesses should obtain:

Commercial Auto Insurance

If someone from your staff is involved in an auto accident while performing business-related activities, commercial auto insurance can pay to repair damaged vehicles, third-party liability claims, and lost equipment. While minimum coverage limits are state-mandated, business owners are encouraged to protect themselves financially by considering higher limits.

Commercial Property Insurance

A commercial property insurance policy is purchased to protect a business’ investments. Should a loss, such as a windstorm, theft, or fire occur, the policy would pay to repair or replace owned real estate and any business-owned assets kept onsite.

Inland Marine Insurance

When purchasing your business policy, be sure to discuss coverages and exclusions on your commercial property insurance. If you travel off-site with your business tools, an inland marine policy may be necessary. Inland marine insurance fills a coverage gap, ensuring business property, equipment, and tools are covered when taken off premises.

Workers Compensation Insurance

The state mandates that all businesses with employees must carry workers’ compensation insurance. Its purpose is to provide medical coverage for on-the-job injuries. In the event of a more serious incident, the company will be provided legal representation, and court-awarded damages are paid up to the limits of the policy.

Professional Liability Insurance

If a client feels they have been harmed due to your professional negligence, they may sue your business. A professional liability policy, also known as errors and omissions (E & O) insurance, covers expenses and awarded damages related to such a lawsuit.

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 Business Insurance article for more info.

Starting a transcription business can be very affordable, but this will depend on how you go about starting it. At the most basic level, you will be able to begin working from home, meaning that you will only need a computer, foot pedal, business cards, and clients.

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

If you work from home, ongoing expenses are minimal and may include as little as internet, website maintenance, marketing, and insurance. If you have an office, you will have rent and utilities.

Learn more about running a transcription business.

A transcription business charges clients to transcribe documents, either for a flat fee or by the hour.

Learn more about starting a transcription business.

A transcription business transcribes documents for other businesses, particularly those in the medical and legal industries.

Profits will depend on your typing speed and how many projects you can get done.

Learn more about starting a transcription business.