Answers from an Actual Lawyer
Written by Jeanine Percival Wright, Simplecast CLO, COO, and actual lawyer.
Note that this is general information, not legal advice, and does not form an attorney-client relationship. Please consult a specialized lawyer to address specific legal issues!
What does it mean to start an LLC?
It means you’re creating an entity that is treated separately from you as an individual. Under the law, businesses can act just like people, and can be given their own separate identity.
Why would you want to do that?
The question of whether to form an LLC or incorporate usually comes up when you want to start to treat your podcast like a real business, better protect your intellectual property, have clear arrangements as to who owns what (and who is entitled to what) among your co-hosts or co-producers, or you want to start making money on your podcast. You may also get advice from an accountant that an LLC can help with tax planning, and while that’s true, most often creators turn to an LLC for one of two other reasons: they want to find a way to efficiently split up ownership and interest between people through an operating agreement, or they want to separate their company’s liability from their personal liability. Here’s a good article with more details on when and why you might form an LLC.
How does that benefit a podcast creator?
One important way is that it can limit your personal liability exposure. Because the law treats companies as separate individuals, by legally treating the company as separate from yourself (for example, not “commingling funds”), when your company does something wrong, typically the only legal recourse can be against that entity and not against you as an individual. So, let’s say, in your podcast you accidentally used someone’s copyrighted workwithout knowing (we know, you would never!), and the copyright holder decides they want to sue you. If it was your LLC that was acting, then in most cases, you as an individual would not be sued–so it’s not your house on the line. If you’re doing things correctly, by having an LLC, you’re doing all of your podcast-related business through the corporation, and it’s only the corporation’s assets that are at risk–versus your assets, or your family’s assets!
When should someone form an LLC or incorporate?
Real talk: If it’s just you doing everything by yourself, there might be some financial advantages to forming an LLC or incorporating, but for the most part, you probably don’t need to. It really depends on how risk-tolerant you are. If you’re worried about your assets, you might want to form a corporation or an LLC sooner rather than later. But if it’s just you, making your own podcast without aggressive monetization plans, you’re probably okay. However, if you’re making your show with somebody else, and the two of you are going to own it together, then it makes sense for the two of you to form an LLC, or at least get some good documentation in place between you as to who owns what, what each of you can and can’t do with your work, and what happens when you have expenses or make money from your podcast.
A natural place to consider formalizing your podcast into a business entity is when you decide to monetize. Especially if you’re going to be entering into contracts where someone is going to pay you money(!), it’s important to think about who is entitled to that money (and who has to pay taxes on it!). Or, are you going to need to pay expenses from the company? Time for an LLC!
What’s the difference between an LLC and a corporation?
An LLC tends to be easier to create than a corporation. An LLC is basically members getting together and deciding they want to create a company, and then dividing some shares. An LLC can do almost anything a corporation can do, with just a few limitations. A corporation has shareholders, stock, and a cap table. When people are starting out they go with an LLC–they probably don’t need something as complicated as an incorporation. For many small businesses, LLCs are easier and work just as well as incorporating. Here’s a good article with more info on when you might consider incorporating versus forming an LLC.
What is the process of becoming an LLC?
You can very easily research and file for your LLC online. There are some states–like California, Nevada, and Delaware–where it’s very easy to form an LLC. It varies by state, but you generally fill out certain paperwork that gets filed with the Secretary of State or the department of business. There might be some initial fees, like a registration to do business, but in some states, for small companies in their first few years of business, they’ll waive LLC or incorporation fees or the applicable dues. You can find a state-by-state breakdown of how to start your LLC here.
What stops people from incorporating?
Don’t know where to start with forming your LLC? Feeling kind of lost? After you make a good effort to do it yourself, there’s nothing wrong with bringing in an accountant–even your personal one–to give your paperwork a once-over. Most people become an LLC or a corporation without having a lawyer, but if business is booming, you can also bring in a freelance lawyer to help you get set up. It’s always a good idea to check your work, and many lawyers will help you formalize your business for very low costs in the hopes that you’ll come to them with future legal work as your business grows.
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