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Should You Incorporate? Yes! Urges
A VO/Attorney. Here’s Why and How
By Robert Sciglimpaglia Jr., Esq.
Voice Actor, Trainer, Attorney
All In One Voice
 Q: What is your opinion on the benefits of a voice actor incorporating as an LLC or S-Corporation versus being a Sole Proprietorship? When and how does one make these changes, and what are the benefits and disadvantages of a one-man (or woman) band becoming their own company? A: I love being asked this question because I get to answer a question with a question - which is: "why not incorporate?"
As a lawyer, like other professionals, I am not allowed to form a corporation to shield myself from personal liability from being sued by a client.
But as a business owner, the law allows you and me to file a pretty simple set of papers to become protected from being sued personally for anything that can ever happen. This includes contractual obligations that you enter into for buying and leasing goods or services. On the other hand, in a sole proprietorship, you are flying without a parachute.
CHEAP ‘INSURANCE’
Incorporating, in effect, gives you a cheap insurance policy to protect you from being sued.
Under most circumstances, even with a lawyer involved, it shouldn't cost more than $1,000 to file everything. And it’s completely tax deductible. The only down side is tax preparation, in that it takes a little more work to file corporate tax returns. But I'll trade that extra effort for the added protection any day.
Why anyone would choose to operate as a sole proprietor versus the protection of a corporate structure is a mystery to me. Of course, if you are not doing enough voice-over business to justify the expense of setting up the corporation, it’s understandable to wait. WHY SUE ME?
You may think that voice acting is a liability-proof business – so why worry about being sued? But a voice-over business can be sued just like any other. Whenever money changes hands, there is a potential for a lawsuit. Here are some of the areas in which we, as voice talent, can find ourselves in trouble with the law:
COURTING TROUBLE
Anyone can sue you for anything in this country, and they often do. Folks who say "I can't be sued" - and then walk into my law office with a Summons and Complaint - have no choice but to pay me $250 per hour (which is cheap) to defend them in court to avoid a judgment being rendered against them.
To take this all the way to a jury verdict could easily cost upwards to $30,000 in legal fees.
Yet if prior to this trouble you’ve formed a corporation, all we have to do is fold that corporation and start a new one. The only way the other party can get anything from you is to "pierce the corporate veil," which is very tough to do, or if you have personally guaranteed a contract. WHICH TYPE OF CORP? Should you incorporate as an LLC (Limited Liability Corporation) or an S Corporation?
I personally prefer the S Corp because it is harder to pierce the structure of that corporate veil.
However, the LLC is attractive, too, with no formal record requirements - meaning you don't have to conduct meetings, produce minutes of the meetings, or prepare certain other paperwork.
Here are some of the main differences between an S Corp and an LLC:
Stock. S Corps are "owned" by shareholders who hold stock in the Corp. LLCs are owned by "members" (more on this below).
Records. S Corps must keep formal records, like from annual meetings, stock certificates, etc., while LLCs are not required to keep any formal records. However, I recommend that LLCs do adopt some formal recordkeeping procedures, such as drafting an operating agreement amongst the members, and to keep a record of all business decisions.
Structure. LLCs are run more like a partnership where the "members" run the business like partners, versus a Corporation, which has a Board of Directors and Officers.
Longevity. S Corps, once formed, stay formed forever until formally dissolved, versus an LLC, which in many states has an "expiration date" that must be stated in the formation documentation filed with the Secretary of the State.
Stock/share sales. S Corps stock can be sold or transferred freely to someone else. Since there are no "shares" in an LLC, all members have to agree to allow one member to sell or transfer their share to someone else. This includes the circumstance of the death of a member. In that case, the member’s "share" of the LLC does not pass to his or her heirs unless so stated in the operating agreement.
Subsidiaries. LLCs can hold subsidiaries without restriction, while S Corps cannot be owned by C corporations, other S corporations, LLCs, partnerships, or many types of trusts.
Taxes. S Corps may have self-employment tax advantages over LLCs. An accountant should be consulted for specifics about these advantages.
GET AN EIN
LLCs are not required to have a separate Employee Identification Number (EIN), which is required for an S Corp.
Thus, you can use your Social Security number for the LLC - but I would NOT recommend this! Definitely get a separate EIN for the LLC, just as you would for an S Corp.
Why? It adds fuel to the fire to those who would "pierce the veil."
And by the way, the number of employees in your business – whether one or 10,000 – doesn’t matter in regards to a corporation structure.
HOW TO FILE? Becoming a corporation is as simple as filing paperwork with the proper Secretary of State's office. It's really that simple. Different states have different filing fees and protections, though, so it is wise to shop around and speak to a lawyer about the best entity and venue for filing.
There’s plenty of additional info on this on the Internet. And I’m sorry to mention the following, but I must: PLEASE do not rely on any of the information in this article as specific legal advice. And please consult a lawyer directly for specifics about your particular circumstances for your particular location. This article is not intended to form an attorney/client relationship.
Robert J. Sciglimpaglia Jr. is an attorney with the firm of Kerin & Canty, 193 East Avenue, Norwalk, CT. He is also a voice-over artist, on-camera actor, and owner of All in One Voice – a company specializing in voice-over instruction, demos and business services.
Email: robscig@usa.net
Internet Movie Database: http://imdb.com/name/nm2215197
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However, the much more important reason a performer should operate as an LLC or Corporation is to shield their personal assets from liability in the event something catastrophic happens.
The best thing to do is to speak to your advisors and heed their advice. I'm sure your accountant would be willing to run the numbers with you to show you why the $150,000 threshold is the magic number for a corporation to save on taxes.
I am also an actor, on camera and voice over. I have been wanting to incorporate for a while but my accountant thinks I need to make $150k/year, I'm not quite there yet but I do make my living as an actor and don't have a "survival" job. My gut is telling me to do it because it seems I am getting taxed way too much. Any thoughts?