Bookish 101: Do Authors Need an LLC? A Simple Guide to Sole Prop vs LLC

A common question I get from authors who are about to publish or already have is how to establish a business structure. Some authors have a quick answer to this question, but miss important details to consider to ensure they are protected not only in the short term, but long term. And, I’m guessing if you are reading this blog post, you probably are in the same boat.

What is a Sole-Prop?

A Sole-Proprieter is someone who owns an unincorporated business by themselves without any separation between them and the business. 

This isn’t an unhelpful definition, but let’s dive deeper. Being a Sole-Prop means that there is no separation from you and your business, legally or financially. Anything your business is responsible for, so are you.

  Didn’t pay a vendor and they sent you to collections? The credit score you’ll use to buy a house or car takes the hit. 

Someone gets injured at an event you’re hosting and sues, they sue you personally, not the business. If you lose, and you aren’t adequately insured, your assets are on the line as well as the businesses.

What is an LLC?

An Limited Liability Corporation/Company is a combination of limited liability protection of corporations without the rigid requirements of a corporation, and the pass through taxation of a sole-proprietorship or partnership.

Which is also helpful, if a bit vague. Part of the issue is that each state has their own flavor of LLC, so it’s hard to get confidently specific but the important difference, in general, is that the business is its own entity and that comes with some protections, if you follow the rules of an LLC.

Let’s compare our previous examples. The vendor would report the LLC business, rather than you as an individual if the LLC has elected to build its own credit. Not great, but better.

Lawsuit? It’s the business and its assets that are on the line, instead of yours – to a certain extent. It still isn’t great, but it's an extra layer of protection (more on that later).

An LLC will also help you grow if you need to take on employees, or want to increase your income by doing author-adjacent work on the side such as copy editing, teaching or creating courses, paid critique, original character artwork, hosting in person events, etc. Just make sure that they are similar to the description of the original LLC, the business remains compliant with the relevant laws and you should be covered. 

With this in mind an LLC does come with state and federal paperwork, registered agent considerations, and yearly compliance fees that a sole-prop doesn’t need to deal with.

There is also the “more” we need to talk about when it comes to lawsuits.

Anyone can sue you personally for any reason, even if you have an LLC.  On top of that, if you don’t follow the rules of the LLC and an attorney can prove you haven’t, it won’t protect you at all. (See “piercing the corporate veil” for more information.)

So, what now?

What this honestly comes down to is insurance, reducing risk, and what you, ultimately, want your business to do in the long term.

If you are an author who just writes fiction and never interacts with humans in person, your main risk is privacy/likeness, defamation, and copyright infringement. In that case it would be advisable to get E&O or Media Liability insurance that covers court costs, with a $1-2 million dollar coverage limit. More if you know your work is poking at an angry bear. 

You can reduce your risk of privacy/likeness and defamation by not dedicating your book to your asshole ex who you make fun of in your story with only a vaguely different name. Even broke bitches can pay their attorney out of the settlement, so don’t do that. Change enough that no one would know who you’re talking about except for you and your bestie. They can know — everyone else can guess.

There can be risk if fictional characters are clearly identifiable as real individuals. Even if you treat them with care and respect.

Copyright infringement is the trickier and probably more existential risk, because even if you absolutely didn’t base your book on someone else’s, it’s possible another author may think you did. The ideas of Multiple Discovery and the Zeitgeist Theory tell us it’s possible for your book to be eerily similar to another writers, even if you have never interacted with it before. 

There are many examples of this happening, some resulting in nasty court cases, but usually only if a book becomes very popular.

Things to consider:

1. Is it a high risk? For a book with minimal sales, probably not. A bestseller? Get the insurance and count yourself lucky.

2. If you go to in person events, like book signings or as a vendor selling books, General Liability coverage is never a bad idea, just in case the venue doesn’t have coverage, or it’s in the fine print that they won’t cover you if you’re singled out. Which let’s be for real, that’s most likely the case.

3. Are you likely to be sued because someone trips on your table and hurts themselves? Probably not, but this is America, and take from that what you will.

   
   

The only other question when making this choice (that I’m going to talk about) is what do you want your business to do. 

1. If you only want a side hustle that’s a creative outlet, and you’re happy if it just pays for itself and a little extra on top? Sole-Prop is what you need.

2. If you’re going all in and investing as much time and money as possible into the business of being an author and author related services? Go LLC.

   
   

The best part is, that if you start as a Sole-Prop and the business starts to grow beyond what you initially envisioned, you can become an LLC pretty easily. So maybe start with one and move into the other.

You’ve already done the hard part: starting your author journey. And as you approach finalizing your final, final manuscript know that there are avenues for you to go down to ensure not only that your ideas and books are protected, but you as well.

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Have some specific challenges that make the choice harder? Hit the contact button and let's chat about it!

General disclaimer: Jenny is a bookkeeping professional, but cannot offer legal or tax advice. Any information here is intended to help facilitate conversation with relevant experts.