TWO LAWYERS COMMENT ON FORMING A SEPARATE ENTITY FOR YOUR BUSINESS

Edited by Artisan Joy Staff

Making your business “official” in the eyes of the law can be confusing. So, we interviewed two lawyers to demystify the importance of setting up a separate entity for your business vs. sole proprietorship.

Artisan Joy (AJ): In your opinion, why should an artist, maker, designer, crafter or other creative entrepreneur set up a separate entity for their business? How can it protect them and their creative work?

LaConya Murray (LM): Creative entrepreneurs can create and earn a living from those creations. This is a true gift. A gift that is protected by intellectual property laws. While it is easy for entrepreneurs to focus on the creation part of their business, not having the proper business foundation can cost them. This includes forming a separate entity for their business.

Many creative entrepreneurs operate as sole proprietors which means the business and individual are one. If your business owes money that debt can be satisfied with the business owners personal assets including home, car, bank accounts. For this reason alone, creating a separate entity benefits the entrepreneur.

Whether a corporation or limited liability company, both entities protect the business owner’s personal assets from business liabilities. The reverse is also true. If you have personal liabilities, your business and creative work can be protected by the separation created by forming a separate entity.

In addition to liability protection, creating a separate entity can provide tax benefits, provide credibility to your business and allow you to transfer ownership. Your creative work would become an asset of the entity, increasing the value of the business.

Leah Weinberg (LW): It’s so important for any creative entrepreneur once they start selling something (whether it be a product or a service) to have a legal entity for their business rather than operating as an individual. And the biggest reason is liability. When you’re conducting business as an individual, should a customer or client have an issue with your product or service and decide to take legal action, all of your personal assets are essentially up for grabs to satisfy the claim (should the client or customer prevail).

But when you are working through a corporate entity and there’s an issue, only your business’ assets would be available to satisfy the claim (except in extreme circumstances like fraud or willful misconduct where you could still be liable personally). I know that spending the money at the very start of your business to form a legal entity might be scary, but it will definitely be a worthwhile investment.

AJ: Should a creative entrepreneur consult a lawyer up front and why? If not, at what point in their business should they consider it? Finances may be a barrier to entry for a creative person hiring a lawyer. Do you recommend any resources?

LM: A 30-minute consultation could save entrepreneurs thousands of dollars and hours of time. Most entrepreneurs do not know what they do not know. An attorney can address your specific situation and questions while providing an action plan to avoid future legal problems. They should meet their attorney on a regular basis to stay out of trouble and make sure the business interests are protected. Selling your work online, collaborating with a brand, taking commissions? Consult with an attorney to make sure you have the right paperwork in place and are following the appropriate laws.

Consultations with licensed attorneys can start at $200. If cost is an obstacle, some cities offer free or discounted resources for creative entrepreneurs. Check with your state bar or local law schools for available programs. My office is currently offering discounted consultations for entrepreneurs wanting to start the year off tackling their legal needs. We also provide weekly law related articles and monthly question and answer sessions live in our free community, MARKEDlegal

LW: It’s good practice for a creative entrepreneur to establish a relationship with an attorney when first starting their business. Entrepreneurship is a wild ride, and having someone in your corner who is knowledgeable about small businesses and who you can trust is going to give you so much confidence along that ride. If you can afford the expense, an attorney can assist with getting all of those foundational ducks in a row (setting up a legal entity, getting an EIN, qualifying to do business in multiple states, etc.) and can also draft whatever contracts are needed for your business. Because legal fees can be a big expense for a brand new business, there are ways to get your entity off the ground on your own and there are contract template shops, Legally Set (contract template shop, co-owned by LW), where you can purchase attorneydrafted contracts that are less expensive than having a custom one created by an attorney.

It’s also worth adding that, even without spending money, it’s great to find your attorney before you actually need one. Create that relationship, even if you don’t necessarily have any work for them in that moment. That way, when something does go awry, you know exactly who to call and don’t have to panic trying to find someone in that moment.

About LaConya LaConya Murray is an Intellectual Property Attorney and Entrepreneur at MarkedLegal.com. Through her legal subscription program, the Genius Insider, LaConya provides subject matter experts in various industries with ongoing legal support and business mentorship to help them protect and grow their brand. She absolutely loves what she does and finds joy in helping innovators take the proper steps to secure their intellectual property –or as she likes to say, “own their Genius.”

About Leah Leah Weinberg—co-founder of Oduberg Law LLP and co-owner of contract template shop Legally Set—is an attorney, a recovering wedding planner, and the author of “The Wedding Roller Coaster.”

After nearly a decade in the wedding industry as the owner of Color Pop Events, a New York City-based wedding planning company, Leah is returning to her roots as an attorney to assist her former colleagues in the events industry, along with other entrepreneurs and business owners.

Her work and insights have been published online and in print with Vogue, the New York Times, People, CNN, CNBC, Bravo, Martha Stewart, and The Knot, among others.

A WeddingPro Educator with The Knot + WeddingWire since 2020, Leah travels throughout the country sharing insight with her peers regionally, as well as at national conferences such as Alt Summit, NACE Experience, and The Special Event.