This is the second part of a three-part blog post. Read Part 1 – A Revocable Living Trust.
A Limited Liability Company (LLC)
For the last six years, I have muddled through the business side of being a writer as a sole proprietorship (i.e., everything got shoved into a manila envelope until tax time). That was fine when I was selling first serial rights to print magazines and anthologies. After I started turning my reprints—and later, original manuscripts—into ebooks, I was not only a writer but also an ebook publisher. Now that I’m making more money from selling ebooks than first serial rights, it’s time to change the business structure into a limited liability company (LLC).
As a writer and ebook publisher, do I need to have a LLC for my business?
The short answer is no. If you don’t take out business loans or credit cards, don’t rent an outside office and/or invite people into your office, you don’t have any liability issues that you need to protect your personal assets from.
If you have significant income, you may want to consider forming a corporation to take advantage of the lower tax rates and benefit perks. A LLC that doesn’t elect to be taxed like a corporation is a pass-through entity for tax purposes (i.e., all income gets reported on Schedule C of your personal tax return). If tax planning is your primary concern for setting up a LLC or corporation, see a qualified tax advisor for more information.
The longer answer is yes. For my particular business situation, I’m setting up the LLC for several different reasons:
- Having a LLC requires that you keep your business assets and your personal assets separate from each other. If you fail to maintain this separateness, a judge can declare your LLC invalid and put your personal assets at risk.
- Unlike dealing with individual publishers for selling first serial rights, you’re dealing with the public at large when selling ebooks. Some idiot will always come along to shake you down for money. A properly structured LLC can prevent frivolous lawsuits from being filed in the first place.
- Some of my future business plans may put me at risk for a lawsuit.
The major downside to incorporating a LLC in California is the $800 USD per year franchise tax that gets paid regardless if the business was profitable or not. Although I’m running an Internet business, and could form a LLC anywhere else in the United States for significantly less money, fighting off the Franchise Tax Board isn’t worth the trouble.
I’m forming my LLC without using an online service like Nolo’s Online LCC or consulting with an asset protection attorney. I’m comfortable with the process that I can do it myself. As I grow my business over the next few years, an attorney will need to review everything to make certain I’m doing this correct.