What is an LLC?
An LLC is a type of business structure that provides liability protection to the business owner. When you form an LLC you create an entirely new entity that is separate from you. This entity is legally considered a new “person” and as such has a totally new identity. Therefore, if your business were to unfortunately get into some sort of legal trouble the party filing suit against your company could not be rewarded any of your personal assets.
Should I form an LLC for my author business?
There are two business types that are best for authors. One of them is an LLC, and the other is a Sole Proprietorship. In a Sole Proprietorship the owner and the business are essentially the same. Many authors choose to run their business as a Sole Proprietorship because there is little to no paperwork involved in starting the business. There is also no fee to start, the taxes are simple, and if you go out of business there is nothing you have to do to inform the government. The problem with this model is that there is no liability protection. So if somebody decides to sue you, or there are other legal problems, there is a chance that the court could seize your personal assets including any savings you may have, or even your home.
When forming an author business choosing to run it as an LLC is recommended, but not absolutely necessary. An LLC separates the business from the business owner. The advantage of this is that it protects you from any legal liabilities the business may face. This may not seem like a big deal because you don’t plan on having any big legal problems. However, when you write books, stories, or any other content there is a chance that your work could be stolen, or someone could accuse you of stealing theirs. If this were to happen it can be very costly to defend, and even more costly if a court decides against you. Forming an LLC can prevent personal losses due to these incidents.
Another great advantage of starting an LLC for those who self-publish is that if you are writing under a pen name, and you don’t want your real name tied to your books, you can list the LLC as the publisher. This can protect your identity.
An LLC does come with some downsides. The biggest hang up for most people just starting out is that you have to pay to get your business license and file with the government. This is usually a few hundred dollars, but varies by location. There may even be yearly fees depending on the state you live in. Taxes can also be more complex, but you can elect to pay them yearly instead of quarterly if that is more convenient for you.
How do I form an LLC?
Forming an LLC is a simple process, and can be completed online relatively quickly. Each state has their own requirements, and you can find them on the state’s government website. On Google you can search “file an LLC” and your state, and the government website should pop up as one of the top results. ***Make sure to go to the .gov website, some websites will try to charge you to file for you and will put .gov in the title of the website to make you think it is the standard form.
As mentioned above there is a filing fee, and there may be some annual costs to maintain the business. You will be asked to submit articles of organization. This sounds complicated, but for most states it is just a simple form that you fill out with basic information like the company name, address, and contact information. *** You have to have a physical address to file an LLC, and a PO box will not work. When you enter an address it becomes publicly available as the address of the business.
Something to note about forming an LLC is that there are many companies that will charge you to file the paperwork for you. I highly recommend doing the work yourself. You should be able to fill out the paperwork in about an hour, and it will save you hundreds of dollars, as companies who do this typically over charge. Of course, if you are having issues or have in depth questions hiring a professional is an option,but for those more concerned with the up front cost the expense is unnecessary.
Once you file the forms on the government website and pay the fees, it takes a few days for the government to process. They will let you know when it is complete, and then you can do the next steps of legally forming your company!
Things to be aware of when filing:
After you have formed an LLC there are a few things you will want to do to maintain your liability protection. The first, and most important, is to get a separate bank account for your business, and put it in the business name. Do not spend money for personal items out of your business bank account. If you mix your personal and business money you can lose the liability protection given to you by your LLC. This is because the business money and personal money become indistinguishable, so a court may assume it is all business money.
When you pay yourself from your LLC you should write a check (or electronic transfer) from your business account into your personal account. You should record this in whatever bookkeeping method you use. It is just like getting a paycheck from any other company. We recommend that you do not completely deplete your business account to pay yourself, as that practice has the potential to become a complex legal issue under certain circumstances. You should be setting aside money to pay taxes whenever you pay yourself (whatever percent your usual tax bracket would be is probably a good place to start).
You can register your copyrights to your LLC, and we recommend doing so. If your business fails the copyrights revert back to you, so there is no harm in putting them under the LLC name to keep the liability protection for them.
What to do next:
The first thing you should do after forming an LLC and getting confirmation from the government, is to get an EIN number from the IRS. This is a simple form to fill out on the IRS website, and it takes less than ten minutes. This number is like a social security number for your business. It helps the government identify your business, and is the number your business credit score will be tied to. You will also need it to form your business bank account.
Once you have your LLC and EIN you can open a business bank account and then move onto the fun stuff like creating a website, choosing your branding, and creating marketing content!