Should I Start an LLC for My Project Management Consulting Business?

Starting a limited liability company (LLC) for your project management consulting 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 project management consulting business, lawsuits can arise from things like an employee providing a customer with negligent advice that results in him suffering a detrimental loss.

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

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

A group of business people managing a project

Do I Need an LLC for a Project Management Consulting 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 Project Management Consulting Business

By starting an LLC for your project management consulting 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.

Project management consulting businesses will benefit from liability protection because of the risk of being sued for negligence, libel, and trademark infringement.

Example 1: Following the advice of your project management consulting business, a client’s business suffered extensive detrimental loss that he alleged was the fault of your advice. As such, the client sued your business for its negligence, arguing it had not satisfied the duty of care it owed him. In the litigation that follows, any liability to pay damages can only be imposed on the assets belonging to your business.

Example 2: After a customer fell down the stairs at your business premises due to a loose top step, she suffered a serious injury that required extensive medical attention. This prompted the injured party to sue your business for the bodily harm she suffered. Limited liability would protect your personal assets from being used to satisfy any business responsibility to pay damages.

Example 3: In order to launch your project management consulting business, you take out a loan to acquire some starting capital. Unfortunately, it quickly becomes apparent that your business is not successful enough to be able to repay this loan, which leads the creditor to sue you for defaulting on this debt. In this instance, only your business’s assets could be used to satisfy any liability for this debt.

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 Project Management Consulting 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 project management consulting 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

Project management consulting 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.

This is especially true for project management consultancy businesses due to the unique set of liabilities they are exposed to, as they offer expert advice to clients. Any advice that goes awry could lead to a lawsuit.

Common Situations Business Insurance May Cover for a Project Management Consulting Business

Example 1: During a meeting in your office, a potential client accidentally knocks your awards shelf off the wall and sustains serious injuries. General liability insurance would pay for their medical bills and your legal fees in the event of a lawsuit.

Example 2: A local competitor claims you’ve stolen their logo design for your new business logo and threatens to sue. General liability insurance would cover your legal fees and any payouts awarded in a settlement.

Example 3: While moving supplies from your car into your building, you lose control of the dolly, and it hits a visitor. The impact causes them to fall and break an arm. General liability coverage would pay for the visitor’s medical expenses and your legal fees if they pursue a lawsuit.

Other Types of Coverage Project Management Consulting 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 project management consulting businesses should obtain.

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.

Professional Liability Insurance

You help other companies make the best decisions for their business by providing the leadership and oversight they need to execute key projects. If a client decides you failed to perform or your advice caused damage to their business operations, you may face a lawsuit. Professional liability insurance provides protection for any related negligent acts and covers your legal fees in the event of a lawsuit.

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.

Data Breach Insurance

Your clients entrust you with sensitive business and financial information. Yet, you may still face a hacking risk even after investing in the best cybersecurity systems available. Data breach insurance protects your business in the event of a cyberattack.

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 and professional liability insurance.

Read our Project Management Consulting Business Insurance article for more info.

Very little initial capital is required to start a project management consulting business. On average, you can start one for less than $1,000. This figure should cover the costs of a phone, computer, and small office from which to run this business.

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

Office rent and computer and software maintenance are the primary ongoing expenses.

Learn more about running a project management consulting business.

Project management consultants charge on a per-hour or per-project basis.

Learn more about starting a project management consulting business.

A project management consultant uses their expertise in managing projects to help other professionals accomplish what they need to do, on time and on budget. They often work with upper-level management on projects that are vital for a company’s business.

A project management consulting business’s profits depend on its clientele and client volume.

Learn more about starting a project management consulting business.