During every business coaching session and workshop, when talking about “getting legit” the first question is usually this:
“What is the difference between an LLC and a Sole Prop? Which is right for me?”
LLC Definition: Like a corporation, a limited liability company or “LLC”, is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The primary advantage of an LLC is that its owners, known as members, have “limited liability”, meaning that, under most circumstances, they are not personally liable for the debts and liabilities of the LLC. For example, if an LLC is forced into bankruptcy, then, absent special circumstances, the members will not be required to pay the LLC’s debts with their own money. If the assets of the LLC are not enough to cover the debts and liabilities, the creditors generally cannot look to the members, managers or officers for recovery.
An LLC can be taxed either as a “pass-through” entity, like a sole proprietorship or partnership, or as a regular corporation. By default, an LLC is taxed as a pass-through entity, and the owners of the LLC are not subject to double taxation. With an LLC, the members have the option to have the profits “pass through” to the owners who pay taxes at their individual tax rates.
Sole Proprietorship Definition: The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.
“Blah, blah, blah – What the heck does that all mean?”
ANSWER:
Technically speaking there is a number of differences in the corporate world and beyond with regard to how many members you can have, formalities of meetings, etc. For the specifics of a single owner/operator of a photography business the most basic different is this:
In a Sole Prop you are personally liable for whatever happens. Unlike the LLC, if you go bankrupt it is all you. Not just your business because you are your business. That can be very harsh on you and your own personal credit. Odds are if your business is in debt, you had to personally co-sign to acquire the line of credit anyway, so LLC or not, you would still be liable.
BOTH Sole Prop & Single Member LLCs:
Are reported on your personal federal Tax Return on a Schedule C: Profit & Loss for Business.
Are subject to Self-employment taxes from net income (after being calculated on your Sch C).
99.9% of any concern over whether or not one should be an LLC or a Sole Prop has to do with what assets you will lose if you get sued.
So…. how about you don’t get sued? Problem solved right?
What are some reasons a client can sue you?
Card Failure? Act of God? Catastrophic emergency? Accidentally damaging property?
Refer to your contract
If you start your relationship off with your clients with an excellent contract, then there is no reason to go beyond the terms of that agreement you both signed. Be sure your contract covers what will happen in those worst case scenarios. What will you offer your clients in the event of a card failure and their wedding images are lost? (This would also assume that you had NO secondary back up images, or second shooter, or that the entire wedding was shot on one card and now they are gone – ALL of this is an extremely SLIM chance because as a professional working photographer, you would establish good business practices and would not allow for THIS many unprotected holes to go untidy.) BUT – assuming there were THIS many holes, and you lose the wedding, and you get sued…..
What does your contract say? Does it say that you are liable for the return of all funds paid? Does it say that any disputes go to mediation? Does it say that on top of a refund, you will offer a portrait session as restitution?
So….. Get a good contract. But also….
Establish good business practices. Look out for your client’s best interests. Give GREAT customer service. Cultivate your business.
Is it raining when your family portrait session at the beach is scheduled and it is the ONLY time the entire family will be together and they don’t want their session in the rain? You might want to consider your client’s best interests and offer them a refund or another type of session as compensation. If not, they might want to sue you for NOT giving them a refund OR service.
Did you have a camera malfunction at that wedding? Then by all means do everything in your power to compensate that bride. Don’t be stingy. It’s her WEDDING. Give her family a free session, offer an After the Wedding session, upgrade her album with extra pages for the images you DO have. Don’t wait for her to sue you. Give her EXCELLENT customer service.
If not, they might want to sue you for NOT giving them a refund OR service. In the end it boils down to the contract you have both signed and what you agreed to what would happen.
Not so much on whether or not you are an LLC or a Sole Prop.
Where do you find a great contract?
You can hire a lawyer and get one customized for your business, or you could contact The LawTog Rachel Brenke and purchase one of her pre made contract templates. Rachel has kindly extended a special offer of 10% off anything in her shop for my readers using the code CreativeEye10 through the end of the year. Thanks Rachel! If you are not sure where to get started, she recommends her most popular contract here:
If you start off with establishing a Sole Proprietorship and decided you want to change over to an LLC, I recommend contacting Legal Zoom. It is super easy, AND you get a cool embosser. lol
If you are looking for answers for YOUR specific business, consider looking into a personal coaching session. Be sure to contact us before spots are completely full! ONLY a LIMITED number of appointments left for summer!
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East Coast Fine Art Lifestyle Family Portrait Photographer Angelsea Urban
Angelsea Urban is a photographer and entrepreneur helping women use their creative gifts to nourish their homes and cultivate their businesses through practical stewardship. Her unique photography work focuses on Redefining the Family Portrait Experience by telling the story of family through personalized foundations while creating a space to strengthen family bonds throughout the experience. As a certified tax professional and seasoned business consultant, Angelsea has helped the careers of photographers, restaurateurs, musicians and general small business owners through teaching, workshops, coaching, and hands on consulting. Her ministry work focuses on fostering creative gifts in women entrepreneurs to prioritize family and discipleship. She has photographed for families, brides, Bravo TV, NFL Films, and more and has been featured on multiple blogs and magazine print for her work in photography and in business. Angelsea teaches and photographs throughout the United States, and resides with her husband of 17 years, their two children, and their barely 3 pound Yorkie near Long Beach Island, New Jersey.
To book your session with Angelsea Urban, please visit www.angelseaurban.com
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