Registering a Small Business (Legal Mumbo-Jumbo)

Chapter 4 in Parker’s book is about becoming legit. As I’ve mentioned before, this is a topic I’ve been avoiding … but it’s time to get serious about it.

She starts out by telling us that while many freelancers set up the business half after they’ve been working for a while, that is a mistake (oops!) namely because there is a potential for “property use violations, fines, back taxes, business name lawsuits and issues of business ownership.” Albeit she allows that registering is more important for writers serving corporate clients (in case, for example, you were supposed to charge them tax and didn’t – you’ll end up paying for it).

What Kind of Business Should You Be:
The important decision is deciding what type of business you (or I) am going to have: a sole proprietorship, a partnership or a corporation. Then, figuring out what needs to be done to dot the i and cross the t. Most freelancers probably work as a sole proprietor – you claim your income from freelancing on your personal taxes and are solely responsible for your business (including any debt you incur in its name).

A partnership would involve bringing on another person – the main difference here is when filing taxes. Partners are still liable for debt incurred in the name of the business, and either partner can be held responsible for any expenses (meaning you could end up paying for your partner’s charges). Arrangements vary greatly, and if you are interested in this for some crazy reason, I recommend doing a lot more reading. If you decide to go this route, set up your partnership agreement very very carefully and I highly recommend you consult a lawyer. Parker recommends Form a Partnership:The Complete Legal Guide from Nolo Press.

There are a couple of intermediary options – limited partnerships and LLC (limited liability company). Limited partnerships involve one of the partners being less liable. Limited liability companies are a good option if you’re worried about the risk you may be taking and its potential impact on your personal finances (in my opinion, less important for a freelance writer than, say, a food product manufacturer, where you could accidentally poison someone and get sued). A LLC works like a sole proprietorship in terms of income taxes but like a corporation when it comes to liability (essentially, it’s limited to the business’s assets).

Finally, there is the corporation, “a legal entity in itself.” The benefits include: limited liability, insurance options. Disadvantages: a LOT of paperwork – and regular paperwork at that.

My Decision #1: I’m going to have a sole proprietorship. I haven’t decided yet if I want to work under my own name or if I want to have a “company” name. If I choose to use a company name (even if I just add “editorial services after my own name) then I have to register as a DBA (doing business as).

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