You can start a content business without forming a legal business entity. By default, you’re a sole proprietor.

“You’re the business, and the business is you. The problem with a sole proprietorship is that it can expose you personally to litigation should that ever happen. Someone can come after your personal finances, along with the company, as there is really no distinction between the two when you’re a sole proprietor,” says Ben Michael, attorney of Michael & Associates.

That’s why you should look into the more formal legal options as early as possible. 

“When you’re seeing moderate success as a content creator, you’re going to want to continue to see success, as well as take steps to make yourself more successful in the future,” Ben says. “Creating a legal business around your content creation can be just the thing to ensure future success. The question then becomes, what type of business is going to be the best for your situation.”

Gregory Stone, attorney and managing partner, Fisher Stone, P.C., which forms hundreds of LLCs and corporations a year, agrees. “If an entrepreneur is operating without a business structure, they are missing out on potential tax savings and are personally liable if the business is ever to be sued,” he says,

An entrepreneur operating without a business structure misses potential tax savings and is personally liable if the business is sued, says Gregory Stone of  @FisherStoneLaw. #ContentEntrepreneur Click To Tweet

In the United States, the two most popular legal structures for content entrepreneurs are LLCs (limited liability companies) and S Corps.

Elliott Brown, a lawyer and business consultant, says LLCs are usually the best option because they protect owners from personal liability and have fewer compliance requirements than S corporations. 

“Unless you plan to raise money from investors, an LLC should suit the needs of most creators – even if you plan to hire employees,” he says.

LLCs are usually the better legal option for solo entrepreneurs because they protect you from personal liability and have fewer compliance requirements than S corps, says @TheElliottBrown. #ContentBusiness Click To Tweet

An LLC accomplishes the goal of legally and financially separating your business and personal lives. Ben says it isn’t difficult but can require ongoing paperwork. He suggests hiring a bookkeeper to track your finances correctly.

Diligently segregating your finances is essential. “It may feel like a pain, but you have to do it to maintain limited liability. It also makes things a lot easier when tax time rolls around,” Elliott says.

Gregory says LLCs are often the better choice for solo entrepreneurs because they offer the same liability protection as a corporation but are more flexible regarding taxes and easier to manage.

“LLCs have the option to elect how they are taxed, so they are normally taxed as either a sole proprietorship or partnership (depending on the number of owners). But an LLC could also be elected to be taxed as a C corporation or an S corporation if the owners wanted. So the main draw of a corporation for small businesses is also available for LLCs,” Gregory says.

Considering S corporation

An S corporation is more complicated to set up, but it could be a better choice if you make more than $70K a year, depending on what state you operate in, Ben says. 

He advocates researching your options if you have big plans for your business.

Elliott explains acting as an S corporation allows you to avoid self-employment taxes on some of the income earned from your business. 

“You have to pay yourself a ‘reasonable salary’ first, but additional profits from S corps can be distributed to you (and any other shareholders) as a dividend. That means there can be tax savings,” he says.

However, an S corporation is more expensive to set up than an LLC and requires more corporate compliance and reporting. 

Elliott points to this helpful calculator to assess whether you would do better financially as an LLC or S corp.

Gregory adds that forming a corporation will require a board of directors, corporate officers, and corporate minutes. (With an LLC, the owners, also known as members, can freely manage or hire third-party managers to run the company.)

Switching from an LLC to an S corporation

If you organized as an LLC but now realize an S corporation would be better, the process with the IRS is simple. Entrepreneurs need only file the necessary form with the IRS.

“Your organization type will still technically be an LLC, but you’ll be taxed as an S corp,” Elliott says. “If you want to actually change the entity type (which could make it easier to attract investors), you’ll have to follow a process that’s dictated by the secretary of state in the state where you’re incorporated.”

The Tilt provides this article for information purposes only. To determine the best legal and taxing structure for your business, consult with a professional.

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About the author

Ann regularly combines words and strategy for B2B, B2C, and nonprofits, continuing to live up to her high school nickname, Editor Ann. An IABC Communicator of the Year and founder of G Force Communication, Ann coaches and trains professionals in all things content. Connect with her on LinkedIn and Twitter.