You may have thought of forming a limited liability corporation ( LLC ) to run your YouTube channel.
An LLC is a popular choice for businesses seeking asset protection. It also has some other key advantages.
Do I Need an LLC for a YouTube Channel?
Although an LLC may be the best option for your YouTube channel’s business, it is not the only choice. Our mission is to help you make the right decision. You have many factors to consider when forming a YouTube business entity. Let’s look at an LLC’s details to determine if it is the right choice.
What is an LLC?
Let’s first define an LLC. LLCs are legal entities that are generally taxed in the same way as sole proprietorships or general partnerships. The owners include any company profits and losses in their personal returns, but the LLC does not owe income tax.
A limited liability company (LLC) may choose to be taxed as a corporation. However, this is not very common.
There are many similarities between corporations and LLCs, particularly when it comes down to financial responsibilities. An LLC does not have owners or members who are personally responsible for the company’s financial condition. Your personal assets are not at stake if your LLC is sued.
It is important to start an LLC for YouTubers
Personal Asset Protection
An LLC is a great way to protect your personal assets. An LLC provides limited liability protections for YouTubers, regardless of whether you have a YouTube channel with only occasional videos or an eCommerce website.
Even if you have a simple YouTube channel, there is a risk that you will violate copyright laws or commit libel or defamation. A sole proprietorship or general partner will not offer the asset protection that you need if you are involved in a copyright or defamation case.
However, if your YouTube channel has an LLC, and that LLC is operated and maintained in compliance, your viewers’ lawsuits will only be limited to your business assets. Your personal assets will be protected regardless of your chosen business structure.
Although the options available to LLCs for taxation are more extensive than those offered by other types of businesses, they offer a major advantage. The LLC offers more options than a corporation or informal business entity.
Sole Proprietorship/General Partnership
The LLC that runs YouTube can be taxed either as a sole proprietorship (for single member LLCs) or a general partnership (for multimember LLCs), the default option. This tax structure does not apply to your business. Instead, the profits of your YouTube channel are passed through the business entity, and you pay taxes when you file your personal taxes.
It’s possible to tax your YouTube business as a C-corporation. However, this option isn’t very popular as it makes your business subject to double taxation. This means that your profits will be taxed at both the corporate and personal levels when they are distributed to you.
S corporation taxation is another option. Although there are some limitations, most U.S.-based YouTubers can meet these requirements: your business must have at least 100 owners, and all owners must be residents or citizens of the United States.
S corp taxation could help YouTube businesses save money by reducing their self-employment tax burden. Instead of having to pay self-employment taxes (15.3%, which includes employer and employee parts of Medicare and Social Security) on all your income, you can give yourself a reasonable salary and pay self-employment tax only on that portion. You can then reinvest the remainder of your income into your business.
S corp taxation is not an option for YouTubers because they don’t have any business expenses. A YouTube channel has very few costs other than the cost of your computer. The IRS may ask questions if you leave a lot of money in your business structure.
Enhanced Credibility and Unique Name
An LLC structure can also help increase the credibility of your YouTube venture. Informal business entities are not limited to a single business name and operate under the names of their owners. If your name is Johnny Smith, and your YouTube channel is called “Johnny Smith”, your company name will also be “Johnny Smith,” which is not a good name for a business.
You could also register a DBA name (doing business under) to allow your business to operate under an assumed name. However, in many states, DBAs do not have exclusive rights to their names. If another YouTuber wishes to use your DBA name as theirs, they are allowed to. They can also register a formal entity with that name. This will stop you from using your assumed name.
An LLC gives you the right to use a business name exclusively. You can also include the words “limited liability company” and the letters “LLC” within the business name. An LLC gives your business a boost of respectability as sponsors appreciate the professionalism displayed by your company. Customers are more comfortable writing checks to an LLC than to an individual.
How to start an LLC for a YouTuber
Although the formation of LLCs is different depending on where you are located, some steps can be applied regardless of where your business is.
Our complete guide provides a detailed overview of the process for forming an LLC. These are the basic steps for forming an LLC in any state:
1. Choose an LLC Name
It is important to choose the right name for your LLC. Choosing a name that reflects your company and describes your business is important. You can also check your state’s database to ensure it is not already in use.
2) Designate a Registered Agent
The registered agent of your LLC (which can be either an individual or a service) receives important documents from the state, such as service of process and reminders for annual reports, etc. — forwarding them to your address. A registered agent is a point of contact that ensures the state has always been available to you.
3) Submit your formation documents to the state
Although the form is commonly called the Articles of Organization (although the name may vary in some states, it’s often called the Certificate of Formation), the state will need some information about your company and its owners. The state will then create your LLC.
4) Get an EIN
The federal tax ID number, the Employer Identification Number (EIN), acts as a Social Security Number for businesses. Your business can use the EIN to pay taxes, hire employees, apply for loans, etc. The Internal Revenue Service can provide an EIN for free.
5) Make an LLC operating arrangement
Although operating agreements are not required by most states, every LLC should have one. It is an internal document that describes key aspects of your LLC’s operations. It is important to understand how the LLC will run so that ownership disputes can be avoided.
6) Create a financial infrastructure
A business bank account is required for your LLC. You’ll also need a business credit card to cover work-related expenses. You can also use accounting software such as QuickBooks, or hire an accountant to do your bookkeeping.
7) Manage taxes, permits, and licenses
You may require a general business license, depending on where you live to run your LLC. Although it is unlikely that YouTube will require any industry-specific licenses, this doesn’t mean that you won’t be responsible for these areas. Check with your state to determine if franchise or privilege taxes are assessed on LLCs. Also, check to see if any licensing requirements apply to your local and/or county governments.
8) Understanding maintenance requirements ( annual report, franchise taxes etc.
These requirements may vary from state to state, but all states require a regular report to ensure that the LLC’s information is current in the state’s business databases. While some states require annual reports, others require them only biannually. You must keep up with all requirements of your state to maintain your LLC’s good standing.
Frequently Asked Questions
What are the liability risks YouTubers take?
YouTubers face a major problem in this area: intellectual property rights. The media owner can sue you if you use any clip, song, or video that is not theirs without permission. You could also be sued if the media owner is aware or not.
Why is an LLC better than a corporation?
Every situation is unique and we cannot offer legal advice. The limited liability company is a better option than a corporation for small businesses. Corporations are more complicated to form and maintain, and don’t enjoy the tax benefits of an LLC.
While the corporation offers some benefits (e.g., it is easier to attract investors to corporations), it is worth considering. However, the LLC is simpler and more flexible.
Can I act as the registered agent for my LLC?
Yes, you can. Each state allows entrepreneurs to be their own registered agents. Although it may seem like a redundant role for the registered agent, the position is actually more complex than most people realize. You would have to be available during normal business hours at your business location.
You may also need to make your address public record if you are the registered agent of your LLC. This not only has privacy issues, but it also allows for unwanted junk mail.
Why hire an LLC company when I can create my own LLC?
For LLC formation, you always have the option to go it alone. But, LLC services are so inexpensive that there is no reason not for one. IncFile can even set up your LLC free of charge! These companies also often offer bonus features such as a year of registered agents service, which makes them even more affordable.
Do I choose to form my LLC in my state of residence or should I go with a state such as Delaware or Wyoming?
People like to set up LLCs in favorable states. Delaware, for example, is often regarded as being the most business-friendly because it has a whole court system dedicated to business matters. Wyoming has some of the best anonymity laws in place for LLC owners.
For most people, however, it is best to form your business in your state. It can be difficult to form a business in another state. This can also add unnecessary complexity to tax issues.
What is the cost to forming an LLC?
The cost of forming an LLC can vary depending on the state in which you are forming it.