Freelancing - worth creating an LLC to protect yourself? Any disadvantages?
interpolator
I'm staring to work with longer and more substantial contracts, and it occurs to me that in a worst case scenario, if something goes sour for whatever reason, I could be sued. Is it worth it to start an llc, to seperate my work from my personal assets?
Any polycount freelancers have any experience here? I'm going to contact a small business lawyer, but I thought that I would ask around here as we'll, see what other people think of the subject.
Thanks in advance guys.
- Yuri
Any polycount freelancers have any experience here? I'm going to contact a small business lawyer, but I thought that I would ask around here as we'll, see what other people think of the subject.
Thanks in advance guys.
- Yuri
Replies
Background: Ran my own company (LLC) for 3 years as a freelancer. Loved it. Also consider how awesome it will feel to have a company that you named that you do business as. The feelings of pride I felt were vastly stronger than I could have imagined.
I was under the impression that, assuming your LLC is just going to have you as the sole owner and member, that taxes aren't any different than if you didn't have one and were simply "self employed". Am I mistaken in thinking your LLC needs to be larger than just you to get any real tax related benefits you wouldn't normally get without it?
Edit: Looks like it sort of depends, with several options being available. "The more you know."
i have been writing off my home office rent (50% of annual rent maximum allowed) along with internet fee, transportation, office supplies, hardware, software, etc. anything else i needed that year that was for the business.
so from what i have been told by my lawyer, it is no different. on top of that you would have to pay a fee for setting up a company.
lol I am like the only guy on polycount without a lawyer...suppose I should get one
For what it's worth, I did later grow to one full-time employee and two contractors and kept doing my taxes the same way through the business.
speaking of liabilities, it really never really bothered me.
few of my personal rules:
first, i always try to stay away from shady clients. I usually never take work from individuals and only take work from established companies.
second, legit clients have better things to do than waste their time in frivolous litigation against a self employed artist who is not a millionaire.
third, read your contracts and be very specific with what clients want as final delivery files and when they are due. if you deliver with quality and in time then everything else should be golden.
also, if you set up a S Corporation (or LLC) then you will most likely have to pay quarterly taxes (estimated taxes). this is usually a problem for me since i rarely know how much income i will have in future. i just pay a small fine annually to avoid quarterly taxes (~$200) which i eventually distribute among several contracts anyways.
MM I agree that if everything goes perfectly, you have no real reason to worry, but for me it's more about the piece of mind of keeping that .001 percent from happening if you get a real shit or devious client.
It was also explained to me the taxes aren't effected much if you are the single employee, although you might have to swallow a couple extra fees, either annually or quarterly depending on where you live.
Perhaps you miss a deadline. Missing the deadline causes the client to miss a pitch meeting or something, and in turn they seek a suit against you for breach of contract, including damages for the missed opportunity.
I know it seems far-fethched, because it is, but it does happen in the litigious united states.
So if you are doing business as a person, and damages are being sought against you personally, everything you own can be seen as collateral for the damages - house, cars, savings, etc.
If you are behind a true LLC (limited liability company), it is the LLC's assets that seen as collateral, so the company bank account, cars the company owns, computer equipment etc.
______________
Is it going to happen in the games industry? Probably not. The stakes just aren't really that high, but who knows? So I suppose from a risk avoidance point of view, why not?
_______________
I'm not saying this is the way it is, I'm saying this is the way I understand it, and I'm asking for opinions etc.
My first thought was "raytraipser studios"... But haha that's stupid. I need to show the world how pithy and clever I am. All the good keywords are taken at this point - clay, pixels, etc.
Good luck ysalex!
If you're running solo, it just boils down to what you want to risk.
I totally misread that as you calling your wife property.
An LLC is (as the name implies) all about limiting liability, so it gives you extra protection in the case that you get sued, or your business falters and you need to file bankruptcy (afaik your LLC can file for bankruptcy without ruining your credit as an individual).
Now, I can't really see why it would be a bad idea to start an LLC, other than the required paperwork etc, but honestly for an individual contractor it probably is not necessary. However, If you're dealing with very large contracts, and especially if you're sub-contracting work I think it would be more important. The fact of the matter is, most individual freelancers probably aren't dealing with contracts worth the amount of money that a studio would come after you in court over a disagreement (the court fees would likely outweigh the cost owed), but again, if you're dealing with very large contracts that may not be the case.
There is another reason entirely to consider an LLC though, work experience for the purpose of getting a work visa in a different country. Filing as an individual/section C may not count as actual work experience. This may vary depending on what country you live in and what country you would like to move to, so just something extra to consider.
At the end of the day though, I would talk to a lawyer and tax professional, and not take advice solely from people on polycount for something like this. (edit: oh I see you've done this already, good deal).
http://www.thellcexpert.com/articles/llc_business_mistakes.htm
You should also look up the laws of the state your contract sets the legal venue in...Most of the time contracts have clauses that state where litigation is to take place in the event of a dispute...
I can see why having a lawyer on hand to browse contracts is probably a great idea
i believe a company is even more likely to take litigious actions against another company than an individual.
either way, it is your choice. i just think that it might look a bit pretentious to clients and also be an overkill for one single freelance artist to form a company of his/her own.
also, make sure to read up more on single-member LLC:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies
http://www.myllc.com/single-member-llc.aspx
Something I see a lot when I'm contracting artists is them approaching me as a single freelancer under their own name, then using an LLC name on contracts and invoices. I've always thought that seemed professional.
BTW, props to you, MM, for kickass advice here. I'm learning stuff!
i am learning stuff as well :poly121:
yup, i guess it can go both ways. my personal experience has been positive so far and clients seem to have a certain level of trust dealing with me (my name) directly and hold me accountable for anything. which probably means i am carrying more liability on my end.
who knows, depending on situation i might eventually have to form a company and work under it if things get tricky.
i am now interested to know what most studios prefer when dealing with off-site contract artists!
do they like dealing with individual artists, or LLCs ?
Bookmarked. Not quite ready to actually use any of the advice in this thread, but it will be so helpful when that time comes for me.
Aside from thinking "oh, he's incorporated, I need to give them a 1099 tax form instead of a W-2 then," it makes no difference to me at all if I'm only dealing with one person. But if you're more than one person working together as a group and you're not incorporated, that seems fishy, since my legal recourse in case of a breach of contract and seeking damages would be a lot more complicated with a bunch of people rather than a company. And it's not *that* much to incorporate if you're an operation of more than one person, so not being incorporated in that case would make me suspicious.
When you set up a limited company, you need to make sure you can afford to pay yourself a salary (even if it's minimum wage, for part time hours, roughly £7.5k per year) from the company, otherwise it goes bankrupt. you, as the owner of that company are also employed by it. which means that should it go bankrupt you are protected personally. similarly any legal pitfalls your company should land in, only affect the company and not you personally.
as well as your salary, you can also pay yourself a dividend from the company monthly, quarterly, or annually as you choose, from whatever profits you make.
so as long as you earn more than 7.5k per year (which you should be), there's no reason not to do it.
also, there are some companies out there who have flat out refused to work with me before i went limited.
Interesting! Did they give any indication as to why? Did they require you to buy insurance to cover their potential losses in case you breached contract?
I didn't expect that last bit, I would have thought it was closer to what MM said, about seeming pretentious or perhaps just overly optimistic.
Here's the link: http://www.jonjones.com/2011/11/17/artist-tip-first-impressions-matter-buy-a-domain-and-email-from-there/
https://www.gov.uk/national-minimum-wage/who-gets-the-minimum-wage
Obviously it goes without saying that an appropriate Business/Company Official should be consulted beforehand because it depends wholly on your situation.
There have been a few others I have come across who preferred but did not require it, but in the last two years of freelancing it has only ever been a requirement once. I'd have done it sooner myself but Illinois likes to make the process painfully slow and expensive.