Should Writers Incorporate?

by | Jun 26, 2015

By Helen Sedwick

Writers frequently ask me whether they should incorporate or form an LLC (short for limited liability company) for their writing, blogging, and self-publishing businesses. They have heard that forming a corporation or LLC will protect their personal assets from liability, and who wouldn’t want to protect their assets.

Like most legal answers, it depends. But in my view, it rarely makes sense for writers to form a corporation or LLC. Their money is better spent other ways.

Crazy? Not really. Let me explain.

Incorporation May Not Work

It is true that businesses operate as corporations or LLCs in order to protect the personal assets of the owners from business liabilities. If you were manufacturing bicycles in a factory full of employees, a corporation or LLC would create a separate entity with its own assets and would “shield” you from claims of creditors, such as parts suppliers in case the business runs out of money, and personal injury and other tort claims from someone who says the bicycles were defective.

Writers work alone. Most of us don’t have a staff helping us create our products. So there is no “business” separate from the writer’s own actions.

A writer’s greatest legal risks are defamation, privacy, and infringement claims, all of which result from the writer’s own actions. Even if a writer had a corporation, someone would sue both the corporation and the writer for these claims.

If you are publishing, whether traditionally or independently, then you have signed contracts that say you will indemnify the publisher, Amazon, Smashwords, etc. against defamation, privacy, and infringement claims arising from your work. This means you have agreed to hire attorneys and pay any damages or settlement costs. You must dig into your pocket to meet these contractual obligations whether or not you have incorporated.

The Technicalities Will Get You

Many people have heard the expression “piercing the corporate veil.”

Translation: Unless you keep enough assets (money) in a corporation or LLC to cover its potential liabilities, AND you keep the entity’s finances separate from your personal finances, AND you keep up with certain formalities and state filings, your corporation or LLC may be disregarded by a court and not provide any protection.

Most of us won’t keep all this straight. We won’t leave a lot of money sitting in our business accounts. We’ll forget about state filings and maintaining corporate minutes.

Most Writers Don’t Need the Protection

Most writers are not writing high-risk material. Fiction writers are rarely sued for defamation, unless they have been lax about masking identities. Memoir and other non-fiction writers take more risks, but they can and should learn how to minimize them. As a starting point, take a look my post How to Use Real People in Your Writing Without Ending Up in Court.

However, if you are going after Big Oil, Big Food, Big Med, City Hall, Wall Street, or any deep pocket, then you are taking greater risks. Instead of spending money on forming a corporation or LLC, you are better off hiring an experienced publishing attorney to review your manuscript. An attorney should be part of your publishing team.

How to Get More Protection For Your Money

Forming and maintaining a corporation or LLC costs money. In California, it’s $800 a year. If your risk or anxiety level is high, that money is better spent buying liability insurance.

If you have insurance, then the insurance company hires the attorneys and manages the claims, saving you time, money and stress. A business liability policy ($500 to $800 a year) covers unintentional infringement and defamation, but be sure to ask your insurance agent about the coverage since policies vary.

For more protection, take a look at Media Liability Insurance. These policies provide more protection at a higher cost ($1,500 and up). If you are a member of the Author’s Guild, you may be eligible for a discount. https://www.authorsguild.org/member-services/media-liability-insurance/

Already incorporated?

Maybe you are reading this post too late and have already formed a corporation or LLC. No problem. You have not made a mistake. If the cost of maintaining the entity in your state is low, then you might as well keep it in existence. It serves as one more indication that you are operating your writing as a business for tax purposes. But if the annual fees in your state are more than you want to spend, consider terminating the entity.

Who Should Incorporate

Of course, there’s an exception to every rule.

If you are making a lot of net income from your writing, let’s say $50,000 a year or more, then you may want to form a corporation or LLC for tax reasons. Some accountants use a strategy of allocating income between salary and profits in order to reduce self-employment taxes. When I asked my accountant about this, she rolled her eyes.

If you are making that kind of money, great for you. You are living the dream. But it’s time to hire someone to help you with business set-up and tax planning. This is what I call a “problem of success,” a problem I hope every writer enjoys.
 
Photo: bigstockphoto.com

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22 Comments

  1. Ryan Armstrong

    Thank you for the insight Helen! I am a writer & have recently started my website, so this is very helpful in my decision making whether I incorporate or not. I appreciate it!

    Reply
  2. Edmund

    Thanks for the article. I hope it’s an old one but still very helpful.

    Reply
    • Edmund

      Correction: I see it’s an old one.
      This sentence autocorrect function on my phone is starting to bug me.

      Reply
  3. J. fIELDING

    WHAT IS THE COPYRIGHT LAW REGARDING EXTRACTING A READER’S COMMENT WHICH APPEARED ON A MAJOR ONLINE NEWS SITE AND INSERTING IN A PLAY?

    Reply
    • Helen Sedwick

      J.
      Good question. Since you are considering using words written by someone else, you should always ask this question. Unfortunately, I can’t give a definitive answer to such a general question. It depends on how long and original the quote is and how you are using is. I wrote a post about those issues here: https://www.thebookdesigner.com/2016/08/how-to-legally-use-quotations-in-your-book/
      You also take a look at the Terms of Use of the news site. They may make a claim to all comments as well.

      Reply
  4. Johanna

    Super helpful!!! I am just about to publish my book and wondering if I can put a publishing company name into the legal information section without it being registered or incorporated? I rather just have it as I always self publish books und one name which is not my authors name to have it appear more professional too.
    Thanks a lot in advance.

    Reply
    • Helen Sedwick

      Johanna, You don’t need to form a corporation or LLC to use a business name. But if you are going to be accepting payments in a business name, then you should file a fictitious business name statement. I wrote a tool kit for setting up your business, which you can get at https://authortoolkits.com/businessinabox/
      I also give more information in my blog.

      Reply
  5. I. Dell

    Helen,

    What about anonymous authorship?

    Does it help to keep my personal identity relatively secret by keeping myself one step away from my book?

    Thanks!

    Reply
    • Helen Sedwick

      If you want to hide your identity, you can use a pen name, but that’s a not perfect solution. But at some point, CreateSpace and other providers will need to know our name. The more people who know your real name, the more likely the information will leak.
      For an added layer of protection, you could form a corporation or LLC and publish and register your work in the entity’s name. Even then, you will need a living person (other than you) to sign corporate documents. That person should be your attorney, accountant, or someone you trust. All this costs money, but for some people, it’s money well spent.

      Reply
      • Corey

        Hi Helen.

        I decided that I’m going to start a Kindle Publishing Business through Amazon. How since I will strictly be using ghostwriters to fulfill the niche market. I need to know if I should file for an LLC for any sort of financial protection or should I just have a company name shown in my account instead. I will definitely be using kindle, audio books, and create-space to generate income stream. However, before I start do you have any suggestions or advice so I can be in good standing with Amazon and my target audience?

        Any advice would be greatly appreciated.

        Thanks.

        Reply
  6. Alexis

    For starters, I have bought and read your Self-Publishers Legal Handbook and it is a fantastic resource and a must-read for anybody considering self-publishing.

    Follow on question, how does one find a good publishing attorney? I need one at minimum to write some disclaimers, but it’s not something that the general population can provide a referral for.

    Cheers and thanks!

    Reply
    • Helen Sedwick

      Alexis, For some reason I missed your comments. Email me through my website and I can help you with disclaimers and finding the right attorney.

      Reply
  7. Widdershins

    May we all enjoy that ‘problem’! :)

    Reply
  8. amanda mctigue

    Thanks so much, Helen. Incredibly helpful and clear as always.

    Reply
  9. Michael W. Perry

    If you’re going to be distributing internationally, keep in mind that the laws in other countries are different.

    The UK’s libel laws tilt heavily in favor of someone suing. Those sued are guilty until they prove themselves innocent. There are moves afoot, and may be complete, to make UK libel judgments unenforceable in the U.S.
    In Germany, unless the situation has changed, death of the person you write about offers no protection. A family can sue for libel for up to thirty years after a person’s death.

    And yes, I do see that there’s a ‘cooperated with the Nazis’ connection in the German law and perhaps a ‘nobles don’t like upity peasants’ flavor to the UK law. The UK’s libel law only benefits those rich enough to afford lawyers. Rich oil sheiks with ties to terrorism have used it.

    Reply
    • Helen Sedwick

      Michael, Yes, the laws regarding libel differ by country. Thanks to the First Amendment, U.S. writers enjoy more leeway.
      My rule of thumb about libel suits is this — it’s a factor of money times emotion. The more money that’s involved (or the richer the target), the more likely a writer will get sued. Conversely, if a lot of emotion is involved, then a writer faces a higher risk regardless of the financial stakes.

      Reply
  10. Phyllis Moore

    Interesting. Thanks. I haven’t incorporated and wonder if I was right.
    Thanks for letting me know I am.

    Reply
  11. Kaia Anderson

    Great info and timing. Thank you. If one already has a publishing corporation (complying with all regulations) and the writing is done as an employee, will the employee’s personal assets be protected?

    Reply
    • Helen Sedwick

      Kaia, If you are following corporate formalities and keeping some money in the corporation’s accounts, then the corporation should provide protection. But for most writers, insurance is a better choice.

      Reply
      • Kaia Anderson

        Thank you, Helen. Researching whether the copyright should be owned by me or the corp, I just read in another legal blog that defamation and copyright infringement are torts and that incorporation doesn’t protect the individual from tort lawsuits. In fact, the article said, if a claim is brought and the corporation owns the copyright, both could be liable, vs. just you individually if you owned the copyright. Messy subject. I plan to own the copyright. Corp. will have the publishing and subsidiary rights. And the corp is applying for media perils insurance with coverage extended to me. Please let me know if there’s anything that raises a red flag in that plan. Your info is greatly appreciated.

        Reply
        • Helen Sedwick

          Kaia, Yes, most likely a plaintiff would name both the individual writer plus the corporation or LLC. Very messy and expensive.
          You have done your homework well, especially making the sure the media perils insurance covers both you and your corporation. Good for you.

          Reply

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