Types Of Business Entities For Your Family Child Care

March 9, 2017

In short, we recommend forming a sole proprietorship and getting family child care insurance. We do not recommend an LLC, because it is more complicated and there is less protection. But ultimately, it is your call.

What is a sole proprietorship?

It’s the simplest and most common structure chosen to start a business. It is a business, owned and run by one individual with no distinction between the business and the owner. You do not need to take any action to form a sole proprietorship. You can learn more about it here.

What are the other forms of businesses?

There are many types, but the one that most family child care / daycare / preschool providers consider is an LLC.  It’s common to consider an LLC because a provider wants to protect themselves from any lawsuits. From what we’ve found, the best way to protect yourself is to have a good insurance policy. Members of Wonderschool can use our preferred broker to help you find an affordable policy.

Why shouldn’t I create an LLC?

LLC’s tend not to protect providers because they are operating the business from their home. Here is how Tom Copeland, Family Child Care guru, explains it:

“First, since you are using part of your home for your business, the business portion is not protected by the LLC. This means that if your Time-Space percentage was 40%, then 40% of your home (and your furniture and other equipment) is business and would not be protected.

Second, since the LLC is a relatively new type of business entity, it’s not clear if child care providers would really get the liability protection that is normally granted a corporation. I’ve heard from lawyers about this, and the law is unclear whether an LLC will protect you in a lawsuit over a major injury to a child.

I don’t recommend setting up an LLC unless you understand the additional fees and record keeping requirements, as well as the possibility that it will not offer you complete personal liability protection. In general, your best protection is to purchase a lot of business liability insurance ($1 million per occurrence and $3 million aggregate).”

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