Benefits of an LLC for a Funeral Home

Personal Asset Protection

The top reason to form an LLC for your funeral home business is to gain access to the personal asset protection provided by this business structure. Whether your funeral home is a simple operation at a small cemetery or a major service provider with advanced services and hundreds of available plots, you need the limited liability protections that an LLC can provide.

As an example, let’s say that a guest slips on a wet spot on your funeral home’s floor during a service, falls over, and injures themselves. If you operate your funeral home as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that individual decides to sue your business.

On the other hand, if you form an LLC for your funeral home, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

Taxation

However, this is just the tip of the iceberg when it comes to the advantages of the LLC for cemetery and funeral services. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.

Sole Proprietorship/General Partnership

Your funeral home LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your funeral home itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.

C Corporation

You can also choose for your cemetery and funeral services to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.

S Corporation

The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most cemetery and funeral businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.

S corp taxation can help your funeral home save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

Compared to operating a sole proprietorship or general partnership funeral home business, the S corp taxation model can save you quite a bit of cash that you can use to buy expensive embalming and refrigeration equipment and make other improvements to your business, rather than writing a big check to Uncle Sam.

Enhanced Credibility and Name Uniqueness

Finally, an LLC structure can enhance the credibility of your cemetery and funeral service business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a funeral home sole proprietorship, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a funeral home.

In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states. This means that if another funeral home wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.

With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.

What Is an LLC?

First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.

Steps to Start a Funeral Home LLC

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete LLC guide on the topic.

1) Choose an LLC name

Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.

2) Designate a registered agent

Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.

3) File your formation documents with the state

The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.

4) Acquire an EIN

The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.

5) Create an LLC operating agreement

Most states don’t require operating agreements but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.

6) Create a financial infrastructure

You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.

7) Handle taxes, licenses, and permits

Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. The industry-specific licensing requirements for funeral homes vary by state. Take a look at this guide from the National Funeral Directors Association for more information about licensing in your state. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.

8) Understand maintenance requirements (annual reports, franchise taxes, etc.)

Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.

Additional Resources for Starting a Funeral Home

1) National Funeral Directors Association

The NFDA’s resource page is divided into seven different categories: compliance and legal, business and technical, operations and management, public and community relations, products and services, online communities, and research. No matter the scope and scale of your cemetery and funeral services, the National Funeral Directors Association has the information you need.

2) Wilbert Funeral Services

Wilbert’s funeral professionals page has an excellent collection of resources for cemetery and funeral service providers. While Wilbert is best known for its sales of burial vaults and cremation products, the education portion of their website is quite helpful, as it includes stories from funeral professionals, videos and training programs, and industry resources.

3) Funeral Service Foundation

The Funeral Service Foundation offers a selection of tools and resources for funeral service professionals. The Foundation is actually the charitable arm of the NFDA, and the news section on their website is a comprehensive collection of articles and blogs about important issues for funeral directors and other cemetery and funeral home employees.

4) LifeWeb 360

LifeWeb produces tasteful online memorials for the deceased, where friends and family members can share photographs and stories of their loved ones. LifeWeb also offers physical books for any mourners who would rather have a tangible reminder of the departed. LifeWeb is a great complement to a traditional funeral service and guestbook.

5) National Directory of Morticians

The goal of the National Directory of Morticians is to assist funeral professionals with business aspects of the industry, which gives them more time to focus on family care. They also offer information for funeral service providers to work together, providing connections for companies to subcontract portions of the process.

Frequently Asked Questions

  • There are quite a few potential liability issues for funeral homes. First off, your funeral home is subject to slip-and-fall accidents, as is the case with any brick-and-mortar business.

    In addition, funeral home negligence can result in some serious lawsuits if you intentionally or unintentionally improperly embalm or store a body, commingle ashes, and more. In other words, you should never operate a funeral home as an informal business entity — you need personal asset protection.

  • Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses.

    Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.

  • You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.

    For instance, you would need to be present and available at your business location during all standard business hours. In addition, if you serve as your LLC’s registered agent, you may need to make your home address a matter of public record. Not only does this have privacy concerns, but there’s also the matter of unwanted junk mail as well.

  • The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.

  • Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.

    However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.

  • The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our state fees guide for state-by-state expenses.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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