In reading this title most people’s first thought it going to be: What?
Well when starting up your own business it is best to prepare yourself for taxes. Pesky pesky taxes. Hiring an accountant will help keep all your numbers in line and keep from being audited. However you have to make a decision on how you want to run your business.
There is an amount of liability that come with owning your business. Think what happens if you are on a shoot and suddenly someone trips over a light stand and tries to catch their body with their arm and suddenly they break it. That liability is now on you and your business. Would you rather have a plan set up or have all of your profits, plus possible your home, your car, and any other assets you own seized to pay off that person’s medical bills?
What most people starting into photography or any other creative business have set up is considered a sole proprietorship. A sole proprietorship is great because it is easy, affordable, and less of a hassle making decision with your business. But all of the liability will fall on the owner of said company. Meaning one big accident and you could really be in some trouble. It is great because there are very little formalities to deal with.
Partnerships, where there are two or more partners owning a company, is basically the same as sole proprietorships with multiple parties. There are two different types of partners: partners and then limited partners. Limited partners aren’t at liability for what happens, they are mostly considered an investor in your business. Regular partners are at equal rights within the company and all big decisions must be made with both or all partners. Plus the company is at risk for dissolution if one of the partners wishes to sell their portion of the business or someone dies.
Another option that people have when starting a business is a limited liability companies. This is considered the best of both worlds of sole proprietorship and corporations. It’s a hybrid allowing for liability to pass through the LLC itself and not pass through to the members or owners of the business. All profits are shared, however it is complicated because the member cannot pay themselves. So this would work if you had multiple owners, however as a singular owner, I see no way that this form of business could be of benefit. There’s also a shareholder limit of 75, which could be beneficial if you want to .
It’s a complicated system for people that aren’t willing to put the time into it. The main downfall however is that if you want to sell your business, the saleability of a LLC is limited. Dependent on where you live, the company could only have 30 or 40 years of legal lifespan before it must be dissolved, that’s where the “limited” comes into play.
Corporations? Those are those huge things that have CEOs, board members, and fat cats in suits rolling around in piles of money right? Well all corporations have to get their start somewhere. Basically it is taking your business and making it into a living, breathing being itself. That way there is no liability that falls back on it’s owners.
Tax wise it is great because advantages can be taken when distributing money as profits rather than salary. Profits aren’t subject to Social Security or Medicare taxes that can add up to 15% of what gets taken out of salaries. Now it isn’t a complete bed of roses due to the fact that it will be more expensive and more complicated to run, however once you figure out corporations the benefits are endless.