Should I Start an LLC for My Welding Business?
Starting a limited liability company (LLC) for your welding 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 welding business, lawsuits can arise from things like damage to a client’s property, and the personal injury of employees or customers (for example caused by the business’s insufficient safety precautions).
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your welding business seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Welding 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 Welding Business
By starting an LLC for your welding 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.
Welding businesses will benefit from liability protection because of the risk of being sued for personal injuries if someone is hurt on the premises. In addition, welding businesses can also be liable for property damage.
Example 1: While welding a metal at a client's house, you mistakenly hit a water pipe with your equipment, causing it to break. If a lawsuit was to arise as a result, your business may be required to compensate the claimant, but you would not be.
Example 2: When two metal pieces containing electrical voltage accidently make contact with one another, one of your customers experiences a voltage shock and suffers second-degree burns on his upper body. He then sues you, demanding compensation for medical bills, as well as damages for his pain and suffering. As an LLC owner, you will not need to personally compensate the claiming party, even if your business is unable to.
Example 3: After experiencing a serious eye injury during work, one of your employees claims that this could have been prevented if your business took adequate safety precautions, and files a compensation lawsuit against your LLC. Given your limited liability in law, you will not be personally liable for compensating the claiming party, regardless of how the case progresses in court.
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 Welding 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 welding 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
Welding businessees 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.
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
- 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.
Welding businesses need insurance to cover a variety of risks, especially those that relate to employee injuries and customer’s property damage.
Business insurance can also help you replace your welding tools, if need be.
Common Situations Business Insurance May Cover for a Welding Business
Example 1: Poor ventilation causes fumes to build up at a job site, and those fumes are ignited by a spark. Although relatively small, the explosion causes substantial property damage and some injuries. General liability insurance would probably cover legal expenses associated with the incident.
Example 2: While welding in a customer-owned building, equipment malfunctions and causes a fire. The fire spreads throughout the building, damaging a large portion of the structure. General liability insurance would probably cover the property damage.
Example 3: A customer drops off items that need to be welded at your company’s facility. On their way out, the customer trips over a hose on the ground and falls. General liability insurance would likely cover any resulting serious injuries.
Other Types of Coverage Welding 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 welders should obtain:
Professional Liability Insurance
Businesses that employ skilled workers may be held financially responsible for any errors their employees make while working. Professional liability insurance helps protect against errors in work, and it’s widely available for different types of professions. Welding is potentially dangerous work, and an error can lead to substantial property damage, severe injuries, and (in some cases) even death. Make sure your business’s professional liability coverage has high enough limits to provide protection in even the worst scenarios. Professional liability insurance can be purchased through a package policy or by itself.
Commercial Property Insurance
Most welders need commercial property insurance for the physical assets their business owns. This insurance can cover both buildings and equipment (as well as supplies and inventory). Welding equipment often costs thousands of dollars, and many businesses in the field have several different welders. Check the terms and limits of your business’s commercial property insurance to make sure it fully insures your welding equipment. Commercial property insurance can be purchased through a business owner’s policy (BOP).
Commercial Auto Insurance
If your business has a vehicle that’s used to offer welding services at customers’ locations, that vehicle needs to be insured with commercial auto insurance. State law generally requires all commercial vehicles that are driven on public roads to be insured. Commercial auto insurance can be purchased through a package policy or by itself.
Workers' Compensation Insurance
If your business has employees, it is required by state law to carry workers’ compensation insurance. This insurance protects against work-related illnesses and injuries. Even welders who are self-employed and don’t hire other workers may want workers’ compensation insurance. Health insurance sometimes won’t cover work-related injuries, but workers’ compensation can fill in this potential gap.
Commercial Umbrella Insurance
Welding-caused fires and explosions can quickly cause a lot of property damage, which can lead to expensive and lengthy lawsuits. Commercial umbrella insurance affords extra liability protection in the event that lawsuits exceed primary policies’ limits. Commercial umbrella insurance can be purchased through a package policy or by itself.
Should I Start an LLC FAQ
Which is better for my welding 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 welding business need?
At a minimum, you’ll need general liability insurance as well as workers' compensation insurance if you have employees. You also may need commercial property insurance.
Read our Business Insurance for Welders article for more info.
What are the costs to start and maintain a welding business?
The cost of starting this business is around $10,000 to $50,000.
This is because you will need to rent a metal fabrication shop, as well as purchase insurance, tools, electronics, mobile service options, and personal protection equipment.
You will also need to pay for labor (if applicable).
Visit our How to Start a Welding Business guide to learn more about the costs of starting and maintaining this business.
What are the ongoing expenses of running a welding business?
A major ongoing expense is employee salaries. In addition, you will need to buy raw materials and mark them up about 50% when you use them.
Learn more about running a welding business.
How do welding businesses make money?
Most welding businesses make money by performing small projects or larger projects; the larger the project, the more money they make. Marine equipment providers hire a lot of welders to help them prevent rusting and water damage.
Metal modifications and repairs are also part of a welding company’s business. If a company’s machinery breaks, a welding business will be called to examine the surrounding problems. The company may also contact a separate repair team — taking charge of metal repairs and needed fabrications.
Learn more about starting a welding business.
What is a welding business and is it lucrative?
A welding business repairs and constructs items made out of metal. Aluminum welding, metal fabrication, plasma cutting, and other services are routinely offered by welding businesses.
Someone who runs a good welding business can repair the majority of metal items. A welding business can take on many jobs each year and can earn a significant income. A good welding business can have annual profits of $70,000 or more.
Learn more about starting a welding business.