So you've decided to set up a photography business. Depending on the type of business or studio you're going to establish you may be wondering if you should set up an LLC, Partnership or Sole Proprietorship. It's always best to consult with a lawyer and/or your accountant to determine which one is most appropriate for your business. And your business model may evolve over time so it's a smart idea to re-evaluate your needs annually.
But, as with most companies and business models, things evolve. Two years after we set up our business our original model has morphed and we learned a few things along the way. Here are a few things to consider from our experience:
First, learn the difference between the various ways you can establish your business. An LLC, as mentioned above, is a Limited Liability Company. As the name implies, forming this type of business limits the personal liability you might incur due to something like a lawsuit against the company (not the individual). For instance, let's say your tripod was in the middle of a school gymnasium and a child tripped and fell. If they broke their arm there's the potential that the child's family could sue you for endangering their child. In theory they could sue your LLC, but your personal assets would be protected. There are instances where your personal assets may not be fully protected in the case where fraud or misrepresentation exists. But let's not go there. We know you are an honest business owner. But for all intents and purposes, the LLC protects your business from your personal assets. You will still need to purchase insurance to protect your equipment against loss or damage.
In the state of California, the annual LLC fee is an astronomical $800. In the state of Nevada, the fee is only $75. The cost of doing business will vary from state to state so you have to do your research and find out what those fees are. If you set up a studio in mutliple states, you will probably have to purchase an LLC for every state you do business in. Something to think about.
But now let's say your business model does not have a high risk. You are dealing mostly with individual clients such as families or events. Your team consists of you and one or two other partners. In that case, a General Partnership may be more approrpriate (and probably less expensive). With a General Partnership you need to put an agreement in writing that outlines roles and responsiblities, how profits and losses are distributed, and how debts are incurred. In most cases all assets are equally owned. But all of this should be clearly spelled out in the agreement in the case of dissolution so that everything is fair and square at the end of the day. A joint bank account in the name of the partnership enables easier settlement of transactions. In addition to the GP, you will also need to acquire business insurance which will protect the equipment and provide liability insurance.
If your studio consists of just you, then a Sole Proprietorship makes sense. This is where the studio is owned and run by one individual and there's really no distinction between the owner and the studio. The owner is responsible for all loss and profit, reporting all taxes, and incurring all debts. You should still obtain business insurance to protect that costly gear and for liability purposes. You're still dealing with clients so you should protect any risk that may occur. Having a Sole Proprietorship may entail registering with the state so it is on record, and a city or county license that shows you are doing business out of your home or studio if it is not located and attached to your home. The benefits of having a photography business are many. You can deduct the cost of doing business including the portion of your home that is dedicated for your photography, your mileage if you shoot on location, and supplies, professional fees and other business related expenses.
Having a Sole Proprietorship does not prevent you from working with others. You may have another photographer friend who has a job that requires more than one photographer. Agree up front how you will be paid but the two of you can work the job together. It is a great way to get more experience and continue building your portfolio and network. Be sure your buddy knows you have a sole proprietorship and that you are protected with business insurance.
How did you set up your photography studio? Do you have more questions about this? Let us know, we'd love to share from experience.
Key Resources: It varies by state. Google using "LLC State" (for instance LLC California) and you will get a link to the Franchise Tax Board. You will also be directed to the Secretary of State's link where you will find all necessary forms and instructions to go about forming your business.