The original plan for this post was to talk about the pros and cons of choosing a sole proprietorship or an LLC for your business. That topic gets covered quite a bit, and there's a lot to say there.
But I'm not going to do that. Here's why.
If you're asking "Should my business be an LLC or a sole proprietorship?", you're asking the wrong question.
As an attorney for creative entrepreneurs, I love building relationships with my clients. Their enthusiasm and ambition are contagious.
Earlier this month, for example, I connected with Freddy Dickerson, AKA Freddy D'Angelo, out of St. Louis. Freddy is incredibly inspiring and wickedly talented. At just 23 years old, Freddy has created a successful media company through his expertise in photography and videography.
Earlier this year, Freddy tragically lost his father. His family now looks to Freddy, as the only son, to fill his father's shoes.
After his dad's passing, Freddy's outlook changed dramatically. While he's always been positive and ambitious about his career, the comforting notions of a "safety net" or "side hustle" went out the window. Freddy is determined to create a successful business. Failure isn't an option anymore.
After hearing Freddy's story, I knew it was worth sharing.
I've talked with so many creatives who are on the fence about making their business legit. So, I originally planned on writing this post to respond to that sentiment—to go over the pros and cons of proceeding as a sole proprietor vs. other business entities.
But after hearing Freddy's story and seeing how his mindset is shaping his company, I've realized that merely pointing out the pros and cons would be a disservice to you creatives. Because whether or not you make your business legit, you owe it to yourself and your business to act like it's legit and plan accordingly.
Disclaimer: Yeah, I know, there are other business entities besides a sole proprietor and an LLC. You could form a partnership or a corporation, for example. But, for the typical solo creative entrepreneur, the two major options are sole proprietorship or LLC.
Before we get into it, you might not be sure what a "sole proprietor" is. I had no idea what it meant before law school.
A sole proprietorship is the easiest and most common way to form a business. To start a sole proprietorship, you don't have to do anything other than make money from a business activity as the sole business owner. Okay, you might need to get business licenses and permits depending on the industry you're working in, but that's it. You can operate under your own name or create a fictitious name for your business (commonly called a "DBA"—short for "Doing Business As"—or an "Assumed Name").
If your business is a sole proprietorship, that makes you a sole proprietor. The main benefit to being a sole proprietor is that it's easy and requires little paperwork. The main drawback is there's no legal protection. Since there's no legal distinction between you and your business, you and your personal assets are 100% on the hook if your business ever gets sued.
Why you should treat your business as an LLC
If your business is a sole proprietorship, you're not alone. Over 70% of businesses are sole proprietorships.
But here's the thing. When creatives ask me whether they should be a sole proprietor or an LLC, what they're really asking is: "Is my business worth protecting?"
Look, I get it. Forming an LLC takes some time and work. It's easier and cheaper to just take comfort in the "side hustle" and "passion project" mindset.
But there's a problem here. As I wrote about earlier this week, your mindset matters. What you think of yourself and the world around you shapes your reality. So, when you think about your business as a sole proprietorship, you're setting a limiting belief for yourself and your business. You're sending a message to the world—and yourself—that your business isn't capable of being a success story.
The reality is that protecting your business only matters if your business is successful. If it's not successful, then there's nothing there worth protecting. But if it is successful—if your creative work adds real value—then you want to secure it. You lock your car, buckle in your kids, and keep your dog on a leash out of a sense of duty to protect what you value. Your business shouldn't be any different.
Make a plan to get legit.
I'll be honest here. I have a sole proprietorship of my own.
In addition to being an attorney, I also do graphic design and photography work. For years, I've been the family photographer who made holiday cards and wedding invitations for friends. I recently decided to "level up" this side hobby.
I have high hopes for my graphic design work. I've been inspired by my clients—like Freddy—to see the potential for success here. Failure isn't an option.
But I haven't formed an LLC for this company. Yet. As my creatives in Illinois know, that state is particularly expensive when it comes to forming an LLC.
Just because my graphic design business isn't an LLC doesn't mean I'm not treating it like one. I've been saving up to file all the necessary paperwork in the beginning of 2017. I'm planning for success, which means I'm also planning to protect it.
I urge you to do the same. Even if you can't afford that LLC formation right now, set up a plan to change that. Set aside $50 a month until you can afford it. The length of this saving period depends on the state you do business in. For example, the filing fee for forming an LLC in Missouri costs $50, but it costs $500 in Illinois.
Treat your business like it's legit. Invest in finding a lawyer, an accountant, a business coach, and networking communities. Don't think of these as necessary evils you can skimp on. Think of them as a team of business partners that will take your business to the next level.
Take a lesson from Freddy. Don't limit your own success.
UPDATE: January 23, 2017. This post was written in November of 2016. So much has changed in just a few months! In particular, my law firm has grown faster than I ever could have imagined. It has been so humbling to see creatives connect with what I am trying to do as an attorney. In order to best serve my law firm clients, I'm putting my graphic design business on pause at the moment. If you're a creative entrepreneur, please check out my Facebook group Friends of Indie Law. There are great discussions happening in the group, and I'm loving the sense of community among the creatives there!