Short answer: Maybe, but it depends on a few things...

For many who are less than familiar with the idea of incorporation, the process brings to mind lawyer’s fees, administrative headaches, and increased complexity. While these realities are not figments of the imagination, a full and fair assessment of the pros and cons of incorporation should also include the substantial benefits shareholders and directors of corporations enjoy.

Below, I’ll explain three benefits of incorporating your freelance writing Business and the sorts of people who might be particularly well-suited to incorporation.

Note: This article is not legal advice and does not create a solicitor-client relationship between the writer and reader. It contains only general information that shouldn’t solely inform the reader’s choices regarding incorporation. As is always the case, you should consult with a qualified lawyer before making any decision that impacts your legal rights and responsibilities.

Limited liability

You know how a lot of companies have the letters “Ltd.” or the word “Limited” after them? That indicates you’re dealing with an entity who’s liability is limited to the amount invested in the business. Put another way, the Personal Assets of the shareholders, directors, and officers of that company are not typically at risk, regardless of the amount or type of debts incurred by the company. (There are exceptions to this general rule, which I’ll explain in a moment.)

What does this mean for you? An example should suffice. Let’s say you’re ghostwriting blogs for Company X as an unincorporated sole proprietor. A reader of the blogs, Person Y, takes the advice contained within and absorbs a significant business loss as a result. Person Y sues Company X for damages. In turn, Company X sues you (through what’s called a third-party claim), arguing you’re ultimately responsible for the loss.

Assuming no contractual limitations of liability are in play, all of your Personal assets are vulnerable. This is because you’re being sued in your personal capacity. You did the work in your personal capacity and that’s why you’re being personally sued.

Now, let’s say you operate a limited liability entity like a typical corporation. Person Y sues Company X just like in the last example. This time, however, the prospects of success of Company X’s suit against you personally are much lower. Instead, they’ll likely sue the corporation you operate. And, if they do that, your losses are limited to the assets available in the corporation. Your personal assets are (probably) safe.

The reason I keep qualifying my statements is that there’s a legal concept called “piercing the corporate veil.” In certain, rare cases — like where the corporation is determined to be a mere vehicle for fraud committed by a corporate actor — some courts have “looked behind” the corporate structure and held an individual personally liable for damages. How exactly this concept operates depends heavily on the jurisdiction you find yourself in and the facts of your case. For our purposes, it’s safe to say that most corporate shareholders, directors, and officers can usually rely on limitations of liability.

If you find yourself regularly writing in areas with a perpetual risk of litigation (blogs for law firms, technical manuals, advice for business professionals, etc.) or you’re otherwise exposed to a higher-than-average risk of being sued, you may wish to strongly consider incorporation (amongst other strategies).

Separate legal personality with perpetual existence

This concept is related to the first one. To “incorporate” means, roughly, to “form a body.” What you’re doing, in a legal sense, is creating a “person” with rights and responsibilities that belong to it alone. This separate personality makes it much easier to do things like get a business bank account separate from your personal account, and to enter into contracts and other agreements between your business and a third party.

I don’t mean to say that it’s impossible to maintain a distinction between your business and your personal assets without incorporating. There are strategies you can use to “wall off” your business from your personal assets even as an unincorporated sole proprietor. Typically, though, those strategies are more complicated than simply forming a limited corporation.

So, what does “perpetual existence” refer to in the subhead above? Basically, corporations continue to exist even if one or more of its shareholders move out of the country, become incapacitated, or even pass away. This has several consequences.

First, it can make your business more valuable in the eyes of a third party considering an acquisition, merger, or other strategic transaction.

Second, it can be used as a store of value that persists after your own death. Many wealthy individuals have built their nest eggs through a corporation and use corporations, trusts, and other legal structures to help distribute their assets after they pass away.

Third, many people prefer to deal with limited companies (despite the limitation of liability) because they know any agreements they make with the company will persist even if there is a major change of circumstances with the shareholders, including a death.

People who’s personal circumstances are likely to change dramatically can significantly benefit from the stability and predictability of a corporation.

Branding

While it’s possible to build a brand around your own person, it’s much easier to do it within a corporation. Because the corporation is its own person, you’re free to imbue it with any qualities you think will please your client base. You can choose the company’s name (within certain limitations), slogan, vision, mission, and more. You can choose how it interacts with clients and customers. Basically, you get to decide what this new “person” looks, acts, and sounds like.

The expanded branding possibilities opened up by incorporation can allow you to achieve new, and previously unrealized, credibility with your clients.

Anyone who is particularly skilled in branding, marketing, and advertising can reap tremendous benefits from the separate personality of a corporation. This is also true of anyone who intends to hire someone who’s particularly skilled in branding, marketing, and advertising.

Bad with the good

Yes, incorporation brings a few extra headaches. You’ll have to file two tax returns. You’ll need to maintain your company’s registration and consider how to structure it for maximum benefit. But the pros can definitely outweigh the cons for many freelance writers. It’s not for everyone, but it’s worth a conversation with a qualified lawyer.

Should Freelance Writers Incorporate? was originally published in The Writing Cooperative on Medium, where people are continuing the conversation by highlighting and responding to this story.