In 2022, more and more people are carving out lucrative careers by producing content on YouTube. This includes me too! What begins as a hobby for most can quickly turn into a major source of income if you are able to grow your following across any number of topics like food, cooking, beauty, product reviews, and more.
Once a YouTube channel starts to make some money, though, forming an LLC is a smart way to reduce your tax burden, limit your liability, and maintain personal privacy. In this article, I take an in-depth look at what an LLC is, how to form one, and why forming an LLC is a beneficial option for YouTubers making $50,000 or more per year from their channel.
- Form an LLC for Your YouTube Channel with ZenBusiness ($39 + State Fees)
What is an LLC?
LLC stands for “limited liability corporation” and is a business structure that combines the pass-through taxation of a sole proprietorship with the limited liability of a corporation. This means that when you form an LLC, all of the company’s profits or losses are passed through to your personal returns, enabling you to avoid the complexities and expenses of corporate taxes.
Most important of all, though, is the fact that owners of an LLC are not personally liable for the business. This means that if someone sues your LLC, your personal assets like car, home, or savings are not at risk. In an environment where more and more people are get sued, knowing you’ve got a superior level of legal protection will help you sleep at night.
- Form an LLC with ZenBusiness ($39 + State Fees)
Advantages of an LLC
Forming an LLC is an option that offers a number of considerable benefits to business owners such as YouTubers, including advantages such as:
- Personal Liability Protection – Without an LLC, someone suing your YouTube channel could mean that all of your personal assets are up for grabs in the lawsuit. When you form an LLC, however, only the company itself is liable and only the company’s assets are at-risk. In the event that you find yourself facing a defamation lawsuit or any other lawsuit against your YouTube channel, having an LLC is one of the best ways to shield yourself from financial damage.
- Protect Personal Privacy – Forming an LLC enables you to limit the amount of personal information you publish to the world by making the LLC the face of your brand rather than you yourself. This is a major benefit for YouTubers who want to protect their personal privacy and address of their company. With a YouTube Channel, you have the power to build a global audience. But that doesn’t mean you want your fans dropping by a home / business address unexpectedly in hope of meeting their favorite star. For those who wish to remain as anonymous as possible, forming an LLC is an appealing option.
- Tax Benefits – An LLC enables business owners to take advantage of the benefits offered by forming a corporation – such as personal liability protection, credibility, and beyond – without having to pay corporate taxes. Since all income that an LLC receives is passed through to the owner’s personal returns, forming an LLC will not subject you to any taxes you wouldn’t otherwise pay as a sole proprietor. Consult a tax expert for unique advise, but generally speaking many experts agree if you’re making $50,000 or more on YouTube, you will benefit from forming an LLC from a tax perspective.
- Growth Potential – An LLC is an incredibly flexible structure that works as well for small businesses as it does for massive companies. While most popular among small business owners, even the e-commerce giant Amazon is set up as an LLC. This high degree of flexibility enables you to grow and expand your business as much as possible without having to worry about changing its corporate status along the way. As a YouTube Channel owner you have many ways to grow your business including advertising, sponsorship deals, selling digital products to name a few. This entity has the power to grow with your media empire.
- Credibility and Consumer Trust – Forming an LLC provides your brand with a certain degree of credibility just by identifying it as a legitimate corporation. For YouTubers, this degree of extra credibility can be useful if you plan to partner with larger brands through sponsorships.
Disadvantages to Forming a YouTube Channel LLC
Depending on where you are at in your creator journey, you may not be ready to form an LLC just yet. Here are a few situations where vloggers decide to hold off on forming their LLC.
- One big question you need to consider is whether or not you make enough income from your YouTube Channel to benefit from a tax perspective with an LLC. Generally speaking and knowing everyone’s tax situation is different, once you hit $50,000 in annual revenue you can expect to get some tax benefit. The higher you go beyond $50,000 in annual income the more of a no brainer forming an LLC will be.
- While forming an LLC is extremely low-cost, forming a sole proprietorship will be cheaper. You can form a sole proprietor in most states for less than $100. The filing fee for an LLC will be $40 – $500 depending on the state. While you’ll miss out on the benefits of an LLC, the initial filing cost for a sole proprietorship will be lower.
How to Start an LLC for a YouTube Channel
If you decide that forming an LLC is the right choice for your YouTube channel, here are the steps that you’ll need to follow:
Step 1: Choosing a Name for Your YouTube Channel LLC
The first step in creating an LLC is to choose a name for your company. Note that this name does not necessarily have to be the same as the name of your brand or YouTube channel. However, there are rules regarding the name that you choose that will vary from state to state.
Most states, for example, require that your company’s name end with “Limited Liability Company”, “Limited Company”, or some abbreviation of these phrases. As a best practice, you don’t want to select a controversial name for your LLC if you intend to partner with big brands in the future. This can be a warning sign for companies that are careful about the influencers they choose to partner.
Step 3: Choosing a Registered Agent
When you form an LLC, you will need to choose a registered agent who will act as the primary point of contact for all legal matters regarding your business. By law, you need this person to be contacted 5 days a week during normal business hours. This is not as big of a deal as it sounds in theory, however.
It is acceptable for the LLC owner to choose themselves as the registered agent, but not recommended since you’ve got video to film and edit. You could also list your CPA or attorney as the registered agent for your LLC, but that could get expensive.
Most LLC service companies also provide the option to get a registered agent assigned for your company for around $150 – $250 per year. This is an easy and affordable way to meet this requirement for an LLC.
Step 3: Filing Articles of Organization
Once you have chosen a name and a registered agent for your LLC, the next step in the process is to file articles of organization with your state’s corporate filing office. In most cases, this will mean filing your articles of organization with your state’s Secretary of State.
Articles of organization can either be completed and submitted online or completed via a downloadable form that you can complete and send in by mail. It’s also worth noting that there is a fee associated with filing articles of organization.
However, this fee is typically modest and is usually somewhere around $100 in most states. The information that you will need to have available when completing articles of organization includes information such as the name of your LLC, the name and address of your LLC’s registered agent, the name(s) of the LLC owners, and other basic information regarding you and the nature of your company. You may also need to provide some information about what your business does (i.e. records, edits, and publishes video content).
Step 4: Creating an LLC Operating Agreement for a YouTube Channel
An LLC operating agreement is a document that establishes guidelines for how your LLC will be managed. In many states, an operating agreement is a requirement to form an LLC. Even if an LLC operating agreement is not required by your state, however, it is still a good idea to create one.
So what is an LLC operating agreement? While the details of this agreement can vary from business to business, LLC operating agreements typically cover factors such as:
- Identifying Information: The indemnifying information of your LLC is a basic element of any LLC operating agreement and includes information such as your LLC’s name, its address, the name and address of your registered agent, and other basic identifying information.
- Statement of Intent: The statement of intent is a simple agreement stating that your LLC will operate in accordance with the LLC laws of your state and will come into existence once all official LLC documents have been filed.
- Business Purpose: This section of an LLC operating agreement outlines the purpose of your business. For a YouTube channel, this purpose is likely to be something along the lines of “creating content on YouTube that will generate advertising revenue”. However, if you are marketing and selling your own products through your YouTube channel – whether they are actual physical products or digital products such as subscriptions – you will want to include this in your business purpose statement as well. It’s also a good idea to include a phrase such as “and for any other lawful business purpose” in order to cover any changes that you might wish to make to your business model in the future.
- Term: The term of your LLC defines how long your LLC will be in existence. In most cases, you will want to state that your LLC will continue to exist until terminated in accordance with the termination guidelines in the LLC’s operating agreement or until dissolved according to your state’s laws. However, you do have the option to set a specific date or event that will automatically terminate your LLC if you wish to do so.
- Tax Treatment: This section of your LLC operating agreement states whether your LLC will be taxed as a partnership, corporation, or sole proprietorship. Each of these options come with their own set of advantages and drawbacks, so it may be wise to speak with your accountant in order to determine which tax treatment will be best for you and your company before you make a decision.
- Admission of New Members: The ‘Admission of New Members” provision of your LLC operating agreement defines the process by which new members are able to acquire an interest in your company. It is worth pointing out, however, that if you do not include such a section in your operating agreement it is still possible to add new members simply by creating a new LLC operating agreement before they are brought in.
Sample LLC Operating Agreement for YouTubers
To help you get started completing the operating agreement for your LLC, here is a sample sole-member LLC operating agreement that one might use if they are forming an LLC for a YouTube channel:
OPERATING AGREEMENT OF _______________________________________, LLC
This Operating Agreement is made and adopted effective ________________ [date] by _______________________, LLC, a limited liability company organized under the laws of _____________[state] (the Company) and _________________, its sole member (the Member).
ARTICLE I – ORGANIZATION
Section 1.1 – Company Formation and Duration. The Company has been organized as a limited liability company managed by its members. The Company shall commence on the date of filing of the Articles of Organization and shall exist until the Company dissolves and its affairs are wound up in accordance with this Operating Agreement or applicable law.
Section 1.2 – Single Member. The Member is the sole member of the Company, and is the only person having rights in the Company, including, but not limited to, the right to receive distributions of the Company’s assets and the right to vote and manage Company affairs.
Section 1.3 – Books and Records. The Company shall maintain complete and accurate books and records of the Company’s business and affairs.
Section 1.4 – Amendment; Entire Agreement. This Operating Agreement may be amended at any time by the Member, for any reason. This Operating Agreement, as may be amended, constitutes the entire agreement between the Member and Company with respect to the subject matter hereof.
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ARTICLE II – MANAGEMENT AND VOTING
Section 2.1 – Member Management. The Company shall be managed solely by the Member, who may be known as and hold whatever title(s) the Member chooses. Section 2.2 – Voting. The Member is entitled to 1 vote on each matter submitted to a vote. Any and all Company actions or decisions shall require an affirmative vote of the Member.
Section 2.3 – Member Authority. The Member has the sole power and authority, on behalf of the Company, to carry out the Company’s business and affairs, including, without limitation, the sole power and authority to acquire, encumber, or convey real or personal property from any source and through any means; engage in any financial transactions on behalf of the Company, including opening, maintaining, or closing accounts, borrowing money, or the like; entering into contracts on behalf of the Company; commence, prosecute, or defend any legal proceedings in the Company’s name; and carry on any other business or affairs of the Company not specifically provided herein, that is not in contravention of applicable law.
Section 2.4 – Indemnification. Unless otherwise provided by law, the Member is not liable for the acts, debts, or obligations of the Company. The Company shall indemnify, defend, and hold the Member harmless from and against any losses, claims, costs, damages, and liabilities, including, without limitation, judgments, fines, amounts paid in settlement, and expenses incurred by the Member in any civil, criminal, or investigative proceeding in which he or she is involved or threatened to be involved by reason of the Member’s membership in or management of the Company.
ARTICLE III – CAPITAL CONTRIBUTIONS
Section 3.1 – Capital Contributions. The Member has made or will make an initial contribution to the capital of the Company, as set forth in Company records. If the Member determines that additional funds are needed for the working capital of the Company, the Member may contribute additional capital.
ARTICLE IV –DISTRIBUTIONS
Section 4.1 – Allocations and Distributions. Any and all profits and losses shall be allocated to the Member. Distributions may be made to the Member as determined by the Member unless otherwise provided by applicable law.
ARTICLE V – MEMBERSHIP CHANGES
Section 5.1 – New Members. The Member may by majority vote admit new member in the Company and issue additional membership interests to new members. Any new members shall, before being admitted and as a condition to admission, execute any document or documents required by the Company, agree to be and become a member of the Company, and agree to be bound by the terms of the Company Operating Agreement, which shall be amended by the Member prior to the admission of any new members to include terms and conditions suitable for a multi-member limited liability company.
Section 5.2 –Transfers. The Member may voluntarily sell, transfer, assign, encumber, pledge, convey, or otherwise dispose of part or all of Member’s membership interest in Company, and in such instance, the transferee is automatically admitted as a new member, subject to Section 5.1.
ARTICLE VI – DISSOLUTION
Section 6.1 – Dissolution. The Company shall dissolve and its affairs shall be wound up on the consent of the Member. On dissolution, the Company shall cease carrying on its business and affairs and shall begin to wind them up. The Company shall complete the winding up as soon as practicable. On the winding-up of the Company, its assets shall be distributed in a manner consistent with applicable law.
THE COMPANY: ____________________________________, LLC By: ___________________________ Its: Sole Member
SOLE MEMBER: ____________________________________
Do I Need an LLC Operating Agreement?
In most states, completing an LLC operating agreement is a requirement for forming an LLC. Even if your state does not require you to complete an operating agreement, though, they are still recommended.
In the event that you do not have an LLC operating agreement in place, it is ultimately left up to the state to determine how your company is run, including how profits are distributed among members. To avoid losing control over your company in this manner, an LLC operating agreement is a necessity.
Currently, there are only three states where new LLCs are required to publish a notice in the newspaper after they are formed: Nebraska, Arizona, and New York. If you happen to be forming an LLC in one of these states, though, you will need to publish a notice of your LLC’s formation once a week for six consecutive weeks in two different newspapers located in the same county as your LLC’s office.
The County Clerk will designate which newspapers you are to use, and once you have met the publishing requirements, you will be provided with an Affidavit of Publication that you can provide to the Department of State.
How Much Does an LLC Cost for a YouTube Channel?
Overall, starting an LLC is surprisingly affordable. However, there are a few expenses that you will need to keep in mind. The first is the filing fee, which ranges from $40-$500 depending on your state and must be paid every one to two years.
If you hire an accountant to help you form your LLC, you will of course be required to pay for their services as well. However, forming an LLC online is choice that is rapidly growing in popularity and one that is typically much more affordable than paying for an LLC formation service.
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Q: Is an LLC a Good Option for a YouTube Channel?
A: Since an LLC offers liability protection to its owners – a key point of concern for many YouTubers – forming an LLC is indeed an excellent option to consider if you own a YouTube channel.
Q: What is the cost to file when forming an LLC?
A: The filing fee associated with forming an LLC can vary dramatically from state to state, with the filing fee being as low as $40 in Kentucky and as high as $500 in Massachusetts.
Q: What is the difference between a single-member and multi-member LLC?
A: In a single-member LLC, a single individual has sole ownership and control of the company. In a multi-member LLC there are two or more partners who share ownership and control of the company. Note, however, that you can always change your YouTube Channel LLC from single-member to multi-member and vise versa simply by changing its operating agreement. Click here to form an LLC for your YouTube channel with ZenBusiness for $39 + State Fees.