Today’s post comes from the question files:
“Do I have to use an LLC or a corporation if I use a pseudonym? Also, do all writers need a corporation (or limited liability company), whether they use a pseudonym or not?”
Let’s deal with the second question first.
Do writers NEED a corporation or limited liability company? Not always, and never without making sure it will actually help you.
Many people incorporate their businesses (meaning, they create a corporation or limited liability company) because they want a shield against personal liability.
Unfortunately, corporate structures often don’t protect authors from personal liability the same way they do companies that produce items like cars or sodas.
This is because the soda manufacturer doesn’t sign a contract that contains the same personal warranties authors do. Generally speaking, the publisher will want the author’s personal guarantee that the author’s work doesn’t violate the law–not the corporation’s promise. If the author signs the contract personally, or makes a personal guarantee (whether or not (s)he signs the contract in the corporation’s name) the author has personal liability.
Corporations may or may not be useful at protecting an author’s true identity and shielding pseudonyms.
Corporations and other business entities are governed by the laws of the state where the business is formed. State disclosure laws vary. In most states, businesses (including author-owned businesses) must pay taxes and comply with annual reporting formalities. Research the requirements in your state carefully (and meet with a lawyer experienced in handling authors’ business issues) before forming a business for your writing. In many cases, authors discover (sometimes too late) that the business doesn’t protect them the way they hoped or intended. An expensive mistake.
Owning a business entity adds responsibilities many authors aren’t prepared for.
Even if your entity is “pass through” (meaning its taxes appear on your return) you still have special recordkeeping & accounts. Many business entities need to hold annual meetings, have written resolutions documenting their activities, and impose obligations on owners and shareholders. Research the corporate requirements in advance, and talk with a lawyer to learn how the business will and won’t protect you.
Make sure you know what you’re getting into – and that the corporation will actually do what you expect.
You do not “have” to form a corporation, limited liability company or other legal entity in order to use a pen name or publish novels.
Authors can protect their real names (and use pseudonyms) in the contract with the publisher, even without a business entity “shield.” Many of my clients who use pseudonyms don’t have corporations–they simply address the pseudonym issue in the publishing contract. We’ve talked in the past about how that’s handled – here’s a link to the articles.
The short answer to the questions above is: you don’t necessarily need a corporate entity to protect your writing or to use a pseudonym. If you think a business entity might be helpful to you, talk to a lawyer who knows publishing issues before you form one.
Like everything else in publishing, a little research in advance can save a lot of time and expense in the long run.
Do you have a corporation? How is it working out for you?
Have questions about this or other publishing legal issues? Feel free to ask in the comments, email me through my website, or find me on Twitter (@SusanSpann).