If you’re a YouTuber, you may or may not have considered forming a limited liability company (LLC) for your business. The LLC is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.
Of course, forming an LLC isn’t the only option for your YouTube channel, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for your YouTube business, so let’s dive into the details of the LLC to figure out if you should form one.
What Is an LLC?
First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
Why Starting an LLC for a YouTuber Is Important
The top reason to form an LLC for a YouTuber is to gain access to the personal asset protection provided by this business structure. Whether you operate a simple channel where you post occasional videos or if you’ve fleshed out your YouTube presence with an integrated eCommerce website, you need the limited liability protections that an LLC can provide.
Even with a basic YouTube channel, you run the risk of (either knowingly or unknowingly) violating copyright laws, or committing libel or slander. If you find yourself on the business end of a defamation lawsuit or copyright claim, a sole proprietorship or general partnership will not provide the asset protection you need.
On the other hand, if you form an LLC for your YouTube channel, and you operate and maintain that LLC in a compliant fashion, the scope of your viewer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
Typically, we would say that the LLC’s options for taxation are another major advantage, but that’s not as much the case with YouTube businesses. Your YouTube channel’s LLC can be taxed as a sole proprietorship, which is the default option. With this tax structure, your business itself does not pay taxes, but rather the profits are passed through the business entity and you pay taxes on that money when you file your own personal taxes.
You can also choose for your YouTube business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to you.
The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most U.S.-based YouTubers have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.
In theory, S corp taxation can help your YouTube business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself a reasonable salary for your role and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
The problem with electing S corp taxation for YouTubers is that you simply don’t have many business expenses to invest that extra money into. Therefore, the IRS might (rightfully) have some questions if it sees you leaving lots of money in your business structure.
Finally, an LLC structure can enhance the credibility of your YouTube business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a YouTube channel, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a business.
In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights. This means that if another YouTuber wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because sponsors respect the professionalism displayed by an LLC. Also, customers typically feel more comfortable writing checks to a business entity rather than to an individual.
How to Start an LLC for a YouTuber
The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:
The 3 Best LLC Services
When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.
The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.
This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.
If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC formation services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:
- ZenBusiness ($39): ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s hard to go wrong with an offer like this.
- Northwest Registered Agent ($79): Northwest is a bit more expensive than ZenBusiness, but their industry-best registered agent service (included at no extra charge) includes local scanning of every document they receive on your behalf. They also have the best customer support available for LLC formation services. If you’re looking for more of a premium service, Northwest is an excellent choice.
- Incfile (FREE): Incfile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent. Throw in their strong customer feedback, and Incfile is an excellent choice for LLC formations.
Additional Resources for Starting a YouTube Channel
- Practical Ecommerce: Practical Ecommerce’s “16 Tools to Grow a YouTube Channel” is a great place to start for any YouTuber looking to expand their viewership. This list includes both free and paid tools, ranging from channel management tools to social media integration, and just about any YouTuber can learn something from combing through these resources.
- Out of the 925: Out of the 925 is a tool that helps people expand their digital reach through social media, and their “How to Start a YouTube Channel on a Budget” article is an excellent resource. They include recommendations for cameras, audio equipment, lighting, and software. They even have an “Under $200 YouTuber Kit” that enables you to start your own professional YouTube channel for less than $200.
- The Small YouTuber Zone: This site refers to itself as “the ultimate hub for small YouTubers” and they have a wealth of resources for YouTubers of any experience level. They have plenty of resources to help small YouTubers expand their viewership, along with directories of recommended small YouTubers, and their “Small YouTuber Podcast” is worth a listen as well.
- VloggerPro: VloggerPro says that they can provide “everything you need to start a YouTube channel and the tools to monetize it effectively.” They provide a ton of value when it comes to recommendations, as they point out plenty of great products and services that are either free or low-cost tools to help YouTubers grow their channels.
- GeekFlare’s Best YouTube Tools: GeekFlare provides a list of their top 22 YouTube tools “to grow audience, revenue, and more.” They have links to editing and recording software, SEO boosters, productivity management programs, social media integration tools, keyword tools, and so much more.