After establishing a living trust and a limited liability company (LLC), I decided to set up an intellectual property holding company (IPHC) with a Wyoming LLC to further protect my copyrights from any potential personal and/or business liabilities.
Since I live in California, I have to take additional steps to avoid paying the minimum $800 USD annual tax to the Franchise Tax Board (FTB). The trick is to make sure that the IPHC does no “work” in California, therefore sidestepping the requirement to register with the California secretary of state and paying the franchise tax.
Here’s my workflow for using a Wyoming LLC as an IPHC:
- As the writer, I transfer all my literary copyrights and other business-related intellectual properties (i.e., domain names and artwork) to the IPHC (Wyoming LLC).
- As the IPHC owner, I sell first serial and reprint rights to third parties (i.e., anthology and magazine publishers), and licensed the ebook business (California LLC) to further monetize the copyrights.
- The ebook business (California LLC) turns the licensed copyrights into ebooks and hosts the related websites, paying a 25% royalty rate to IPHC on all related income.
Under this particular arrangement, I no longer get paid as a writer and everything I write is out of love for the craft. (Some things never change.) With both the IPHC and the ebook business being taxed as corporations, all the monies from writing are staying in the businesses for now.
The only work that the IPHC does is responding to emails and signing licensing agreements. If a short story needs a revision before being submitted, the manuscript get sent back to the unpaid writer in California. Since the IPHC derives passive income from licensing to third parties and the ebook LLC, the business isn’t subject to California tax laws.
The ebook business still pays for the annual $800 USD franchise tax since a substantial amount of work and income is taking place in California.
Why go through the trouble of setting up an IPHC? With the copyrights and other intellectual properties in a separate business entity (the Wyoming LLC), the opposing attorney who sues me personally and/or the ebook LLC will have to hire a Wyoming attorney and the charging order will prevent the IPHC from being liquidated. If the ebook LLC implode from a lawsuit, I can start a new business entity and resume business with the licensed intellectual properties.
If you’re interested in setting up an IPHC, do your homework and consult with an IP attorney (if necessary). This isn’t something that you should rush into. An IPHC is like any other business. You need a business plan to outline your goals, establish a clear workflow and maintain a well-documented paper trail. Failure to do any of this correctly will result in an expensive mess if you’re sued and everything unravels.
Mark Coker alerted Smashwords writers that Apple will be requiring larger cover image for new and updated ebook titles in August 2012. Since Amazon is also recommending a larger cover image, the ideal image size is 1600 pixels by 2400 pixels. The larger images are for the newer ebook readers such as the Apple iPad and Amazon Kindle Fire.
I put together a redesigned cover image, submitting it to Amazon and Smashwords for approval. I’m not sure if the smallest text font size is large enough to be visible when viewing the cover image as a thumbnail. Depending on the feedback, I’ll make additional tweaks before I finalized the design.
For the smaller cover image, I got away with using the extra-small-sized stock photos. I’ll need the medium-sized stock photos for the larger cover image. A small fortune in buying new images for 33 existing titles as each new cover image will cost $6.00 USD each. The redesigned covers should spark an increase in sales.
A good thing I’m summer break from publishing new ebooks. I wasn’t planning to update the ebook covers unless it was necessary. Now that the larger cover images are necessary, I’ll be updating all the ebooks towards the end of summer. I may even get a larger monitor since manipulating a 1600 x 2400 image is annoying on the 1280×800 screen for my MacBook. A justifiable business expense, if there ever was one.
After writing a three-part blog post about forming a revocable living trust for my personal life, converting my writing business into a limited liability company (LLC), and using the two together, I felt it was time to take a break for the summer. With my father’s death from lung cancer and starting a new non-writing tech job last month, writing short stories, four 500-word blog posts every week, and a new short story or essay ebook every other week have left me stretched thin. I’m halting the publication of ebooks to work on several projects for the next three months.
Writing A Business Plan
One of the reasons why I converted my writing business from a sole proprietorship to a LLC was to impose structure. I’m no longer a writer sending out short stories into a cruel world of rejections in the slush piles, but a business owner with copyrights, ebooks and websites. All these areas require my attention to make the new structure successful. Writing a business plan will put everything into focus.
Re-branding Existing eBooks
When your business becomes a LLC, you need to let the entire world know that you have a LLC. I’ll be adding “Published by C.D. Reimer & Associates, LLC.” to the title page of existing and future ebooks. This will also be a good time to update each ebook with a new cover, navigation structure and content changes.
Filling Up The eBook Buffer
Although I have 24-month publishing calendar for my ebooks, I don’t have a four-month buffer with ebook titles ready for publication. Every other week becomes crunch time to put together a new ebook. Unlike reprint short stories ebooks, original short stories and essay ebooks require additional work. I can fill up the buffer before I resume ebook publication in September.
If this summer break works out well, I’m hoping to take every summer off to work on longer writing projects (i.e., my unfinished first novel that’s been gathering dust since 2009). As a writer, I want to write without worry about the business side. As a business owner, I need to make the business run well enough to make that happen.
This is the third part of a three-part blog post. Read Part 2 – A Limited Liability Company.
Using Living Trust & LLC Together
Here’s how everything ties together between the revocable living trust and a limited liability company (LLC). As the writer, I assign my economic interests in the copyrights and the LLC to the living trust while maintaining full ownership. As the trustee of the living trust, I provide the LLC with a revocable license to publish the copyrights in any format. As the owner of the LLC, I’m publishing the licensed copyrights to make money.
If someone wins a lawsuit against the LLC, I (the trustee) can revoke the license for the copyrights to force the LLC to halt business. That leaves only the bank accounts, office supplies and furniture for liquidation under a court order. Without the copyrights, the LLC has nothing to sell. Meanwhile, after the court drama is over, I can start a new business all over again.
If a judge decides I haven’t maintained the LLC properly and declares the “corporate veil” pierced, all my personal assets—including the copyrights—are at risk. I could further protect my copyrights by putting them into an intellectual property holding company (IPHC). As with the living trust, the IPHC issues a revocable licensing agreement to the LLC for publishing the copyrights. This creates another legal layer that an opposing attorney will have to overcome to get at the copyrights.
The living trust comes into play when you die and your heirs inherit your estate without having to go through a very expensive and time-consuming probate process before a judge, where everything becomes public. Most people who accumulated a lifetime of assets, spend very little time thinking about—much less planning for—their eventual demise. A properly structured living will and LLC can keep your assets from being liquidated to pay estate taxes.
The living trust and a LLC are powerful tools—if done right. I’m doing this without any professional advice because I’m confident from my research that I’m doing this correctly. After being a sole proprietor for the last six years, I’m ready to take my personal life and writing business to the next level. If everything goes well over the next few years, I’ll do a full review with an attorney and make whatever changes as needed.