What business entity should I establish as a social media influencer or streamer?

Companies are becoming increasingly aware of the benefits of partnering with influencers and influencer agencies to promote their brands, products, and services.

2021 US influencer marketing spend is projected to reach $3.69 billion according to a new report from eMarketer and we see the growing popularity of livestreaming on platforms like YouTube, Instagram, TikTok, and Amazon Live enabling influencers to share experiences and advice through informative and engaging videos. If you’ve also jumped on the bandwagon, you might ask how to turn your influencer activity into a legitimate business.

This article will answer the question of how to choose the most appropriate type of business entity examining four different options; a sole proprietorship, a partnership, a limited liability company, and a corporation.

Why set up a business?

The most important reason for a social media influencer to establish a business is to properly file taxes. Collaborations with brands and influencer marketing agencies will generate income, you will have some expenses, and it’s critical you record and report these correctly.

Secondly, a business enables you to provide invoices for your services which is a legal obligation when you sell a service, and thirdly, it can help to protect you from risk, by separating you, the owner, from the business.

What are my options?

Sole proprietorship

A sole proprietorship is the simplest business entity to establish. It does not require any setup should you decide to operate it under your own name. You can also decide to register a name, known as a DBA (“doing business as”), using your influencer name, livestream channel, or blog name, to operate under. You will need an EIN (“Employer Identification Number”) as soon as you hire employees and some banks may also require it when setting up a business account. We strongly recommend that you set up a dedicated bank account for your business separate from your personal account. It will make keeping track of your income and expenses, and make any potential future audit, significantly easier.

One disadvantage of a sole proprietorship is that any income you make will be subject to both income tax and self-employment tax and your business income is treated as personal income so any increases in business revenue risk putting you into a higher tax bracket. Another disadvantage is that any legal claims against your business are not limited to your business assets but extend to all your personal assets.

Example 1. You work with a brand to promote its products. The contract details your obligations. After the promotion, the brand contends that you failed to meet your obligations and it sues you for breach of contract.

Example 2. You work with a brand to promote its products but fail to properly disclose your connection to the brand per FTC regulations (FTCs guidance on Disclosures 101 for Social Media Influencers). FTCs sues you for failure to include disclosures.

Partnership

A partnership is very similar to a sole proprietorship except that it is owned by more than one individual. It does not require any paperwork, profits or losses pass through each owner’s individual tax returns and the owners also lack limited liability protection. The lack of liability protection coupled with all owners being held personally liable for the partnership's debt makes this structure is only advisable in early-stage, low-risk ventures, where there’s a lot of trust between the partners.

The financial risks with sole proprietorships or partnerships can be reduced by getting appropriate insurance or using our next option.

Limited liability company

A limited liability company is a very popular company entity. Its main benefit vs. the sole proprietorship and partnership is that it offers limited liability. This means that it protects your personal assets in the event that your business defaults on a debt, or you get into a lawsuit.

This option needs more time to set up than the sole proprietorship. Each state has its own rules and regulations on how to set up and operate an LLC. Learn the 6 steps to create an LLC in this article from TRUiC.

It offers more flexibility with regards to taxation as you can either choose to be taxed as a corporation or as a sole proprietorship, the default option. Should you choose to be taxed as a corporation you can choose either an S-Corp or a C-Corp.

Learn about the differences between S-Corps and C-Corps in this excellent article by Blueprint.

Corporation

A corporation can issue shares. This becomes necessary should you decide to take on investors. Similar to a limited liability company it offers liability protection but the largest differences to previous options relate to taxation. Whereas all the previous options profits are generally reported on the owners’ individual tax return(s) corporations are taxed as a separate legal entity at a flat rate of 21% of profits, which is lower than the top 5 individual tax rates. Dividends paid to the owners are taxed separately, referred to as double taxation, but this is not a problem for small organizations where the owners work for the company as they can receive compensation via tax-deductible salaries and bonuses.

Due to complexities in taxation, setup, and reporting this option is not attractive for most influencers before generating significant income from influencer activities.

What is my next step?

Regardless of your choice, we recommend that you find a local CPA (“certified public accountant”) who can advise you on organization registration, tax, and accounting topics. At Beanepic we are big fans of local experts and finding the right local CPA can help you save time and money and a lot of headaches down the line, such as how to deal with being audited or when facing other organizational challenges.

At Beanepic we are always looking for epic influencer talent so once you’ve set up your organization and plan, or have already started, to livestream on Amazon Live, get in touch for epic brands partnerships.