I'm an editor/copywriter and have started as sole proprietor (doing business under assumed name). But I wonder, would it be better to have set up as a limited liability company? I know you get no tax shelters that way, but it does give you legal shelter. Set up fees are a little more costly, but is that the only drawback?

Hi, I'm a freelance writer too, and I just operate under a sole proprietership. As long as you're not subcontracting work, you should be fine under an sp. I think it mainly comes down to peace of mind when it's just you. Chances of anyone coming after you are slim to nil.

QUOTE: Originally posted by copywise

I'm an editor/copywriter and have started as sole proprietor (doing business under assumed name). But I wonder, would it be better to have set up as a limited liability company? I know you get no tax shelters that way, but it does give you legal shelter. Set up fees are a little more costly, but is that the only drawback?


LLC only protects your personal assets for company bills you can't pay, and even this protection is limited.

LLC does not, for instance, cover you if/when you:

Personally and directly injure someone.
Personally guarantee a bank loan or a business debt on which the LLC defaults.
Fail to deposit taxes withheld from employees' wages.
Intentionally do something fraudulent, illegal, or clearly wrong-headed that causes harm to the company or to someone else. (Part of this means that if you do something really stupid that injures your own company, you lose LLC protection.)
Treat the LLC as an extension of your personal affairs, rather than as a separate legal entity. (This largely means that if you want to protect your personal assets, then you can't mix your personal assets with company assets, or use company assets for personal pleasure. You can't for example, use company funds to take personal vacations, buy yourself a now sports car, or a condo in Hawaii, else a court will likely rule against any LLC debt protection, since you were using the company as a personal asset.)

LLC is usually only beneficial to those in a business where a lot of money is going to be spent and borrowed, and wherein debt at any given time is going to be substantial. A low overhead businesss with no serious running debt, and no serious dependence on high credit, has pretty much zero need of LLC protection.

I wouldn't begin to start a night club without LLC protection, but I can't see where it's any benefit at all to something like editing/copyediting.

If you go LLC, then you have to go all the way, and you have to completely separate your company from your personal assets in every way. YOu have to get loans/credit in the company name, not your own, which means the company itself must have enough assets to back the loan/credit. Using your own personal assets as collateral means you will almost certainly lose LLC protection, should you be taken to court.

It's a tightrope, and setting it all up is far more complicated than simply paying the extra fee for an LLC. Above this, you have to set everything up so your company and you are separate entities, and this can be very costly to do right, and shouldn't be done without a lawyer guiding your every step. And lawyers themselves are not cheap.

Forming an LLC is not very expensive, but it is not always neccessary. If you don't mind the stipend as well as the tax, then it might be a good choice; however, being a sole proprietor means that you have more freedom and that you are the owner. With LLCs, there can be many members who make the company's decisions. If you ever decide to change your business name yet you have already become an LLC, then you could have wasted that money. In truth, being a sole proprietor is safer and likely better in the beggining of your business; later, you can decide if you want to make it an LLC or not.