Running a business can be overwhelming, scary, and down-right frustrating sometimes.
The goal here is to help you protect yourself so you don’t have to be sucked into frightening and resource-sucking issues.
It is often believed that legal business setup is simply snagging a “license” and paying taxes. There are many moving parts that can be broken down succinctly into three phases.
The 3 Business Protection Phases
- The Legal Triad – liability protection to protect yourself personally
- A Legal Photo Client Timeline – the chronological and proper use of contracts
- Owning Your Brand – protecting the intellectual property we depend on
In this article, we are targeting on one of the three in the legal triad – business entity creation.
Before we dig into the five major reasons a Limited Liability Company (LLC) or Corporation is often best for business – understand this:
- Your tax situation may need a corporation status, you can be an LLC and elect for S Corporation.
- Your business plan may demand the need for corporation status
- Always check with a lawyer AND certified public accountant (not just a CPA – they aren’t here to advise on liability protection!)
- An LLC is not a license – its a business entity formation
Why not to be a sole proprietor (DBA, Trade name)
One of the biggest ways you can protect your business, and yourself personally, is through the formation of your business. Becoming a Limited Liability Company (LLC) is a perfect business structure for small to medium sized businesses to choose in order to gain liability protection and demonstrate professionalism to clients. If you intend to have investors, issue shares or have a more complex managing set up – Corporation may be the best choice.
KEEP IN MIND: Even if your profit is $0. Even if your revenue is $0 due to model calls. You are still opening yourself up for liability.
Imagine this, you advertise for coaching clients. You formulate a wonderful vision and plan. While having your student enact certain actions they lose money! There is a potential for liability there. She could potentially pursue you for a variety of things. Even if you did nothing wrong – you have to show up in court to prove it!
Not only is this a real possibility, but if you have not taken the steps to put protective division between your personal and business assets – she can touch them all when an issue happens. Whereas, if you’ve taken the steps to set up a legal business entity separate from yourself (NOT a DBA, fictitious name, assumed name), the damages pursuit may only be limited to the assets within the business.
You surely don’t want your personal assets, including your income earning potential, to be touched when an issue happens. Because it is not IF an issue happens in business, it is when.
#1 Protect your personal assets
Perhaps the most common reason entrepreneurs choose an LLC or Corp is for personal asset protection. Yes. This is so important, especially in today’s litigious age of society. You never know when liability will strike. Liability, relatively, doesn’t care how much money you’re making or how many clients you have. Once an issue happens, it is done. The goal is to keep your personal assets, small amounts or large, protected from any potential judgment.
If you’re sitting there thinking “well, I have no assets”. You do. You are an asset. If you are successfully sued, judgments can be made personally on you. We don’t want that.
If you are sitting there thinking “omg, I have a house, car, etc”. Yes. Assets. You don’t want anything in your life to be touched by your business, except for reaping benefits of the income, of course!
Getting “separate-bucket-liability-protection” is a smart and responsible decision as a photography business owner.
#2 Formation is easy & cheap
For the most part, LLC and Corp formations are relatively quick, cheap, and easy. I say relatively because there are a few States where the pricing does not seem so “cheap”.
The filing of the initial documents is often the largest cost investment. Some states do have yearly fees to maintain your entity but are a relatively minor investment compared to the potential of personal liability.
#3 Allows for expansion
Whether you’re starting out, or you’ve been doing this for a while; I’m sure you understand the need to expand eventually. This can be bringing on employees or independent contractors or gaining local business networking arrangements for referrals. The LLC or Corp structure sets up a formalized legal entity to enter into business with these different positions that can help you scale your photography business. (See also #1)
#4 Tax benefits
As an LLC, you can gain the benefit of being taxed like a corporation but without the corporate formalities. Through specific tax elections, only provided to LLCs and Corporations, your income tax liability may be reduced, in turn, saving you money!
#5 Establishes legitimacy
This may sound odd, right? It’s not to say sole proprietorships are not legitimate businesses; they are. But consider, should you seek to gain a loan or business networking relationships. The demonstration of taking a legal step towards a smart-business formation adds strength and legitimacy to your position as an entrepreneur.
How do I set up my LLC or Corp?
- Choose a name
- Decide to be an LLC or Corp
- File with your State
- Get an Operating Agreement/By Laws
- Don’t pierce the corporate veil
- Make money
- Have fun!
Still unsure what to do?
Enroll in Real Legal – my legal workshop that walks you step-by-step through entity formation, taxes, trademark, copyright and more!