NOVEMBER 21, 2023
A Legal Structure Can Protect You
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.
In the United States, the two most popular legal structures for content entrepreneurs are LLCs (limited liability companies) and S Corps.
Doing an LLC: 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 Corps.
“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.
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.”
– Ann Gynn
The Tilt provides this article for information purposes only. To determine the best legal and taxing structure for your business, consult with a professional.
content entrepreneur spotlight
Entrepreneur: Austin L. Church
Biz: Freelance Cake
Tilt: Teaching freelancers how to be successful with less runway.
Time to First Dollar: 6 years (as a content entrepreneur); 2 months as a freelancer.
Rev Streams: Coaching, courses, fractional CMO positions, book
Our Favorite Actionable Advice:
- Have the courage to launch: Austin thought about doing a podcast for a while but always talked himself out of it. Last year, he decided to just do it, committing to one season a year.
- Get guest gigs: Work with other creators to gain access to their audiences. Secure guest spots on podcasts. Establish yourself as an expert and thought leader through other entrepreneurs’ platforms.
- Find a negative mentor. Austin believes you need negative mentors in your space or closely adjacent. Someone you can look at and think, “That person isn’t working harder or smarter. If they can do it, surely I can do it too.” Evaluate what’s holding you back. More often than not, it’s a mindset, not a strategy.
– Marc Maxhimer
Know a content creator who’s going full tilt? DM us. Or email [email protected].
things to know
the business of content
- Your Content Must Be Different. Here’s How. (Content Inc.)
- AI Is Becoming Normalized. That’s a Problem. (This Old Marketing)
- Let’s talk about the non-creation side of your brand. Join Tilt Your Business: A Weekly Mastermind for the Creator Economy at 12 p.m. EST on Tuesday.
- CEX 2024 registration is now open. Be sure to get your ticket before our early bird pricing goes away!
- Thinking about becoming an author? Be sure to give Publish and Prosper a listen, a new podcast where publishing, ecommerce, and marketing collide!
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