We talk a lot about writing, but we haven’t really touch on the topic of formally creating a writing business.
This post lists types of business structure options you have, at least in the U.S., for categorizing your writing or (self-) publishing business.
Since I’m neither an accountant or an attorney, please seek out someone who is one or the other, to help you determine the best structure for your needs. All states should have (at least) similar categories; these are for New Hampshire businesses.
The full definitions (these are paraphrased) can be found via the NH Division of Economic Development site:
- Sole proprietorship – is a business with the least amount of legal formalities and simplest to form. You assume sole responsibility for the operations and finances of the business, including profit or loss.
- General partnership - is an agreement between 2 or more individuals, or entities/businesses, to jointly own and operate a business. Profit, loss, and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. As entities, partnerships do not pay tax, but must file an informational return, while individual partners report their share of profits or losses on their personal returns.
- Limited partnership – offers some of the partners’ limited liability. It includes a general partner who organizes and manages the business and its operations, and limited partners who contribute capital, but have limited liability and assume no active role in day-to-day business affairs.
Limited liability partnership (LLP) - is organized to protect individual partners from personal liability for the negligent acts of other partners or employees not under their direct control (i.e. licensed fields like law or medicine). Not every state has this category. Partners report their share of profits and losses on their personal tax returns.- Limited liability company (LLC) – combines the corporate and partnership entities. Parties in an LLC control shares and their operational liability of the company is determined by their level of investment. However, like partnerships, income tax is not paid at the LLC level, but rather it is “passed through” and taxed at the shareholder level. It’s not an easy entity to explain or understand.
Two others categories are “C” corporation and “S” corporation. Each of these has shareholders and for the purposes of this conversation, aren’t what a writing or (self-) publishing entity would need – at least not immediatly.
But again, each of the above business structures has legal, tax, and other consequences. I’m a writer, not an attorney or accountant, but I think these details can at least give you a start if you’re considering turning your writing into a business, or you’re thinking about creating an entity to self-publish under.
Have you thought about turning your writing into a business at some point?
Lisa J. Jackson is a New England-region journalist and a year-round chocolate and iced coffee lover. She’s a sole proprietor and solopreneur. She writes fiction as Lisa Haselton, has an award-winning blog for book reviews and author interviews, and is on the staff of The Writer’s Chatroom. Connect with her on Facebook or Twitter.
When I owned and operated my remodeling business, I did it as an LLC – which meant that I had buffer of protection in terms of liability – my business could be sued, but my personal assets were protected if a judgment was ever issued against me. (Thankfully, that never happened during the many years I operated which is unusual in construction!)
I’m not sure how I will tackle registering as a business, but it’s definitely a question I will discuss with an attorney once I begin to earn a significant income as a writer. Sole proprietorship is the easiest, but then it begs the question – what if you are ever sued and have a judgment placed against you? In sole proprietorships there is no protection. You assume all the benefits and profits of the business, but you also assume all the risk including being personally responsible for meeting the terms of any judgment against you. As a result, personal assets CAN be attached including savings, home, vehicles, etc.
The alternative to this is possibly buying an insurance policy to protect you.
I am not familiar with insurance companies who underwrite policies for writers, though I’d be surprised if authors like J.K. Rowling didn’t have them.
Now you got me thinking….that’s something I’ll have to investigate.
Hi Laura – thank you for sharing and happy to get you thinking.
I am ‘write’ there. My toes are dangling over the edge of the cliff. And, fear keeps me at my day job.
OH no! Don’t be scared. More or less, there is much less risk to writing than so many other kinds of jobs. For the most part, unless you are an exceptionally prominent writer, my assumption (though I am not a legal expert either) is that you will probably not run into issues in terms of liability. But, of course, it’s something to prepare for in the event you write and publish a book or become an established expert in a specific field. Let’s face it, there are plenty of frivolous law suits. J.K. Rowling was hit with several though no one came out of the closet before she achieved superstar status!
Do not let legal considerations hold you back! Just prepare sensibly and keep writing, no matter what! For the most part liability will be minimal, but there are tax implications as well so it’s a terrific topic for discussion.
I can relate, Fresh. I took a few years to get everything in order before I jumped ship and started freelancing. And even though scary, it was also so exciting. I haven’t stopped smiling – and it’s been about 7 years now.
You’ll know when the time is right.
And everything Laura already said, too!
Thanks. I’m getting close.