Making Your Photo Studio an LLC: The Pros and Cons

August 7, 2017

By Aaron M. Arce Stark

© Ethan Yang Photography

Attorney Aaron M. Arce Stark

Let’s say a client hires you to shoot an assignment. When it comes time to pay, the client writes you a check and addresses it to you—your personal name. You cash it.

In taking these simple steps, you’ve accidentally established your business as a sole proprietorship: For all legal intents and purposes, you are the business. This is trouble. It means that if your business is sued for any reason—copyright infringement, invasion of privacy, or even simple breach of contract—then you are on the hook. Any asset you own could be taken, including your house, your equipment and your personal bank accounts.

Now, the law thinks this is bad. The law wants you to start businesses and follow your aspirations, and fewer people will turn entrepreneur if they’re afraid of losing all their money. And so we have limited-liability corporations, or LLCs.

If you like, you can think of an LLC as being like an imaginary friend, who is also your boss. You dream up an invisible, intangible person, give them a name—let’s call ours Bob, LLC—and give them a purpose. In this case, that purpose is running a business, and you give “Bob” all the money you would spend on that purpose. When you are running your business—making a product, keeping your books, managing employees—you’re working for Bob. He owns the company, in a sense, which is good because it means he’s protecting you, just like a real boss would.

Bob has two jobs. The first is to hold the business’s money and other assets, and so all the money and equipment you use in your business will be held in Bob’s name. But the second job is more important: Bob takes the blame. If you do anything wrong while you are operating your business, Bob gets sued, not you; and if Bob loses, Bob pays the judgment. Like a good boss, he protects his employees by taking the bullet, and keeping your assets safe. If you do something wrong while running the business, only the business’s assets can be taken.

This is really the whole point of any corporation. Corporations aren’t just an easy way to organize people into working together; they’re also a way to protect those people’s personal assets. An LLC is much like a regular corporation such as GM or Google, but smaller and simpler, and often owned by just one person. In order to form a corporation, the owners have to go through some pretty elaborate paperwork as well as obey complicated rules and pay special taxes, and for this reason, corporations are usually much larger affairs than a simple LLC—an imaginary boss to hundreds or thousands of people, rather than just a few. That is why a photographer is generally better off creating an LLC rather than
a corporation.

So, which is best for you and your photography business? The answer depends entirely on you and how you want to run your business.

Most photographers will fall somewhere in the middle between a sole proprietorship and a corporation. You’re not trying to start the next Google, but neither do you want a haphazard business whose assets are mingled and indistinguishable from your own. You want a liability shield, but you also want the freedom to move your money around as you see fit, and you don’t want all the hassle, paperwork and formal procedures required by a corporation. If this is the case, an LLC may be best for you.

To start, an LLC is done by filing the proper paperwork, called the Articles of Organization, with the state in which your business is located. Each state will have its own process for filing the proper paperwork, and you can learn more about your state’s process by going to your Secretary of State’s website.

Remember that LLCs have special taxation rules. Once you form an LLC to protect your business, don’t be shy about talking to a certified public accountant to make sure that Bob is paying his taxes. Bob certainly won’t pay them without your help, because, being a legal fiction, he doesn’t have hands.

Aaron M. Arce Stark is a lawyer for the artist and entrepreneur. His law firm is Arce Stark Law LLC, This article is for informational purposes only. It is not intended and should not be construed as legal advice. Contact a lawyer about legal issues.