The more serious you get about your career as a content creator, the more you'll probably start thinking about the actual business side of it. One of the questions that routinely pops up? "Do I need an LLC now that I'm making money as a content creator?"
Of course, this is not business advice. You should absolutely discuss your specific circumstances with a business manager, attorney, accountant, and other professionals to decide what is truly right for you. But in the meantime, let's take a look at why and when you might want to consider an LLC as a content creator.
What Is An LLC?
An LLC stands for "limited liability company." It's a business structure that allows for the "pass-through" of taxes while still offering liability protections of a company. If we lost you already, don't worry. We won't get too much more technical than that.
Just know that LLCs are very common and account for the majority of partnership returns (over 70 percent in 2021). Functionally, an LLC has members. They could be just one member that "owns" all of it, multiple members that split percentages, or even owned by other LLCs and companies. So if you're a three-piece band and you decide to form an LLC for your band, each member would own a portion of it based on what you discuss. It could be equal ownership, or unequal. It's totally up to you. Maybe you decide to cut your manager in, and the three bandmates own 30 percent each while the manager owns 10 percent. You get the idea.
Upon formation, the LLC is given what's called an EIN — this is basically the business version of a social security number. It's the identifying number you give to anybody who pays you. It's also the number you include on tax return documents given to LLC members. Once you have an EIN for your LLC, you qualify for all kinds of "business products," from business bank accounts to enterprise pricing on services etc.
Once money starts flowing into the LLC, it's up to you to decide when and how much you pay it out. You may choose to have all of the money pass through to members, or you may keep a lot of it for operating costs. At the end of the year, every member of the LLC is given a tax document that indicates how much that LLC made and what their percentage of it is. This essentially just gets added as a line item on your personal taxes, whether it's a gain or a loss.
Why Would You Want To Form An LLC?
As you might have gleaned from the information above, one of the key reasons to form an LLC is if you are going into business with another person. There are several different types of officially recognized "partnerships," but LLCs are among the cleanest and easiest to set up.
This just means that all the bookkeeping and finances are easier to keep separate from personal finances. It's also easy to add and remove members to the LLC, like if you were to sell a portion of it, for instance.
But one of the biggest reasons is right there in the name: limited liability. As soon as you start doing business as an LLC, you separate that company's assets from your own. Which means if somebody tries to come after your LLC, they typically can't also come after you personally.
A lot of touring artists form LLCs specifically for this reason. As long as you are doing business with a venue and other businesses as an LLC, that's the primary entity at risk. So let's say you form an LLC, buy some equipment and a van, and go on the road. And then let's say something unfortunate happens at a venue, like some of your equipment falls over and injures somebody, who then decides to sue everybody involved. In this instance, they are suing your LLC, not you as an individual. This separates your specific "liabilities" in this instance.
It's all one big way of saying that an LLC can help you keep your finances cleaner and your business liabilities separate from your personal liabilities.
So Do I Need To Have An LLC As A Creative?
This is where it all starts to come down to your own personal situation. If you're just starting to get to the point where you're making some decent money, you might be thinking about whether or not you need to get away from sole proprietorship. As a sole proprietor, there's no legal distinction between you and your business. And that can be ok.
But let's say you've decided to want to hire some part-time help. Suddenly, you as an individual are now paying this other person for their services. These decisions carry both business and tax implications.
If you're just making some side money here and there from your content, or maybe the occasional UGC, or hired out gig as a 1099 contractor, it may not be worth going through setting up a separate business. But if you have larger aspirations, you may seriously want to consider it. It's important to note you can have an LLC and be the only member of it.
A Few Benefits Of Having An LLC
- Easier way to go into a partnership with a business partner, bandmates etc.
- Separate your personal liabilities from your band liabilities
- Allows for additional privacy by separating business from personal names and data
- Opens up some business products from financial institutions etc.
- Can be a cleaner way to hire vendors and employees
Some Downsides Of Having An LLC
- Can have some recurring annual costs, depending on state
- Requires additional tax paperwork
- Can incur up-front legal costs to set up etc.
If you're at the point as a creator where you're making significant money and incurring more costs, hiring others for help, or going out and putting yourself in a potential situation that increases your liabilities (like holding events etc.), consider reaching out to a local professional about creating an LLC. At the very least, it can't hurt to get more information as it pertains to your specific situation.