Social media influencers have become big business. From Instagram to YouTube to TikTok, the rise of social media platforms has accelerated the appeal of partner marketing and sponsorship opportunities.
According to The Washington Post, the “creator economy” is a global industry worth $250 billion with its trade association and work-credentialing programs.
In addition to endorsing products, many social media influencers and creators supplement their income by selling paid subscriptions, soliciting gifts and donations from followers, and partnering with vendors to sell products and merchandise.
But do social media influencers need an LLC to operate legally? In this article, we explore LLCs for social media influencers, the advantages and disadvantages of forming an LLC, and how to get started.
What is an LLC?
An LLC is a limited liability company, an entity type that has the flexibility of a partnership but the liability protection of a corporation. An LLC is a separate legal entity from its owner(s) with its own rights, liabilities, risks, and responsibilities.
As such, an LLC can file a lawsuit in its name (or be sued). It can also purchase, own, and use its real property or personal property, enter into contracts and guarantees, and lend money.
An important characteristic of an LLC is pass-through taxation. In an LLC, profits and losses pass through the owner(s)/members and are not subject to corporate taxes. However, if you operate an LLC, you are still considered self-employed and must make self-employment contributions like Medicare and Social Security.
LLC benefits for influencers and content creators
There are several advantages to forming an LLC for social media influencers and content creators.
Asset and liability protection
LLCs offer protection by separating business and personal assets. If your business owes money, creditors can only go after the LLC's assets, not your personal assets. This means you only risk losing the money you invested in the business. This is because you don’t own the business, the LLC does.
Many influencers and content creators start as sole proprietors. While sole proprietorships don't require legal paperwork to start, they do not provide liability protection. In this business structure, there's no legal separation between the owner and the business, meaning the owner is personally responsible for the business's debts and obligations. So, if your business is sued, your personal assets may be at risk even if they have nothing to do with your social media influencing work.
Business credibility
Forming an LLC can enhance the credibility of your influencer business. For example, it indicates a level of commitment and seriousness to your partners and followers. It also signals that your business is real. In addition, an LLC ensures you have an official business name,
Flexibility in ownership
The owners of an LLC are called members and can include individuals, partners, trusts, or corporations. There is also no limit to the number of members.
Flexibility in taxation
An LLC can choose how to be taxed. For example, single-member LLCs (LLCs with one owner) are typically taxed as sole proprietorships, whereas multi-member LLCs (with two or more owners) are taxed as partnerships. However, single- and multi-member LLCs can be taxed as a C corporation or S corporation. This is achieved by filing an election document with the IRS.
Ability to join SAG-AFTRA
Social media influencers are eligible to join SAG-AFTRA. However, they must be structured as an LLC or corporation before they can sign an influencer agreement. Other business structures, including sole proprietorships, partnerships, and so on, are not permitted to join.
LLC advantages and considerations
While there are many good reasons to choose an LLC for your influencer business, there are also disadvantages to be aware of.
Costs
Forming and maintaining an LLC typically costs more than a sole proprietorship or general partnership. For instance, states charge filing fees when establishing an LLC. In some states, there is a requirement and so an additional cost for publishing a notice in a newspaper announcing the formation of the LLC.
Additionally, an LLC may be subject to ongoing annual or biannual report fees and franchise taxes to maintain its legal status. If the owners decide to dissolve the LLC, they must pay a small dissolution fee.
Compliance obligations
LLCs must have a registered agent who will act as the primary point of contact for the LLC to receive legal documents and official communication from the state.
Additionally, most LLCs must obtain an Employer Identification Number (EIN) from the IRS. Unless exempt, some LLCs may also need to submit Beneficial Ownership Information (BOI) to the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN).
In addition, it's important to maintain a general business license. LLCs must also keep detailed records; failure to do so could lead to an IRS audit. It's also important not to mix personal and business accounts.
When is the best time to form an LLC for your business?
A good time to form an LLC is before you generate substantial revenue, partner with brands, or expand your business to include employees or independent contractors.
Before forming an LLC, conduct a business analysis to decide if an LLC is right for your business. A business consultant, tax expert, or legal advisor can help you decide.
If you decide to form an LLC, don’t delay. With LLC status, you can enter into contracts and sign other agreements in the LLC’s name, thus protecting you and your personal assets from any liability and taking advantage of the other benefits an LLC affords.
For more information, see When to incorporate or start an LLC .
How to form an LLC
The requirements for forming an LLC vary by state, however, there are some general steps that you must take:
- Select a business name.
- File formation documents with the Secretary of State.
Additional requirements include appointing a registered agent, obtaining an EIN, getting the right business licenses and permits, and filing a beneficial ownership information report.
You should also have an LLC operating agreement. This establishes the rules and structure for the LLC and can help address any issues that arise during business.
It is also recommended that you open a business bank account to keep finances separate.
For more information, see:
- What is an LLC? Definition and steps on how to form an LLC
- I have an LLC, now what? 7 things you should do after you form an LLC
Ready to create an LLC for your social influencer business?
BizFilings can help you create your LLC online. We’ve helped over 500,000 companies start an LLC. We guide you through the steps and make sure the process is done right. Our experienced team, comprehensive services, and exceptional value is with you for the life of your business. Learn more.
