When you’re just getting started out on YouTube, the legalities and structure of the business you’re creating may not mean much to you at the time, but not seriously considering the different options can have significant consequences down the line. That’s why we recommend taking a little bit of time to consider what type of YouTube career you may end up creating for yourself, and the financial, tax, and business implications that may arise.
We’ve put together a quick, comprehensive guide to setting up your YouTube business for success as a creator. It’s important to understand the different legal structures available to you so you can choose one that works best for your situation and goals.
Contents
Types of Business Structures
There are various different legal structures for YouTubers. Ensure you do your own research and consult a legal professional before undertaking any decisions.
Sole Proprietorship
This is the most basic form of business. Unlike corporations or LLCs, you don’t have to register this type of structure with the state. A sole proprietor has complete control over their business, but is also personally liable for all debts, taxes, and lawsuits. This signifies that you have unlimited liability, meaning all of your personal assets – houses, cars, investments – are at risk. This form of business may be ideal for a short period of time where earnings and business is minimal, but once you begin to grow in popularity and income, this structure becomes less desirable and riskier.
Partnership
A partnership would be ideal for two or more people running a YouTube business together. This is similar to a sole proprietorship, except it involves multiple people who share equally in the profits of the business, but similarly, also the liabilities. A partnership agreement is essential to avoid any issues later on.
Limited Liability Corporation (LLC)
LLCs are a popular business structure for small companies. They give you significant flexibility, liability protection, and potentially a lower tax bill. At a technical level, an LLC is a business entity that behaves like a corporation at the state level, but is taxed like a partnership or sole proprietorship at the federal level. LLC’s give maximum tax advantages when compared to being taxed personally as a sole proprietor. On the legal side, LLCs provide liability protection by giving the owners limited liability, meaning if the LLC is ever sued or goes under, the owner’s personal assets are not affected.
Corporation
A corporation is separate and distinct from its owners. Under the law, a corporation is an independent legal entity. As such, the corporation maintains its own set of books for accounting purposes, and is owned by shareholders. Corporations are able to issue an unlimited number of shares, allowing numerous owners, giving maximal opportunity to expand the business and raise funds. As a separate legal entity, the corporation is liable for its own debts and liabilities, and provides the most protection to shareholders. However, corporations also require the most paperwork, upkeep, and have stringent reporting requirements. Profits can be distributed either through employment income or through dividends to shareholders.
How do YouTubers pay taxes? See our U.S. Tax Guide or Canadian Tax Guide.
Our Take
If you’re a fan of David Dobrik, you may have heard the term “David Dobrik LLC” used in some pun or joke that one of his friends will make about David’s success. What they’re actually joking about is the business name and legal structure that David Dobrik operates under through his YouTube empire. All of David’s earnings, sponsorships, and business is conducted through his LLC. There are a few benefits to this, including significant tax and legal advantages. On the financial side, David is able to hire assistants, pay for all expenses related to his videos, pay for travel related to his YouTube gigs, and all of these become tax deductible through his LLC. He’s also personally protected from any legal matters that may occur by virtue of his business and YouTube career.
Our view is that an LLC is the most optimal legal structure (in the USA!) for YouTubers to operate under. It provides the most flexibility and protection. However, all businesses are different and business structures vary by jurisdiction, it’s important to let an expert assess your particular needs.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to any matters referenced in this post. We assume no liability for actions taken in reliance upon the information contained herein.
