Organizing the publishing entity

February 17, 2012 

Once you’ve written your masterpiece, and either hired an editor or used beta readers to perfect the manuscript, what’s next? If this is your first foray into self-publishing you should first determine how you plan to operate and establish your business structure. In considering what type of independent publisher you want to be, seek legal counsel, preferably an expert in literary matters. A good place to begin is with your local Small Business Administration, also often local college business schools offer clinics and assistance for fledgling entrepreneurs. Selecting a business entity is one of the most important decisions a business owner can make. Choosing the most favorable business structure will affect the protection of personal assets, taxation and a smooth continuation of the business upon change in ownership. There are three types of business structures to consider.

Sole Proprietorship is usually the form in which most self publishers begin. The sole proprietor operates and controls his publishing venture alone. Profits and losses are considered part of your personal income. Funds can easily be transferred between personal and business accounts. Most entrepreneurs operate as sole proprietorships, but if your business takes off with let’s say an eBook with a millions in sales profit you might want to reconsider this business structure. Sole proprietors may have to depend on the owner’s personal credit rating to obtain business loans. In other instances, sole proprietors may end up using their personal savings to finance their business. If the individual owner of a sole proprietorship incurs any liability in the course of doing business, the creditors can look for recovery against the owner’s individual assets, such as a house or savings account. As your business grows and you take on more risk you might want to consider another structure.

Partnerships may be appropriate where friends, relatives, or a financial backers join in a venture and it becomes necessary to share in the profits and the losses. There are several types of partnerships, General, Limited, and Limited Liability. A general partnership is defined as the association of two or more persons to carry on as co-owners as a business for profit. Partners generally share control, gross returns, and property. Partners in a general partnership are jointly and severally liable for all the obligations arising from any wrongful act or omissions. Partnership like all relationships can get complicated and messy. A partnership agreement anticipates addressing possible disagreements and as such should be drafted by an attorney establishing the rights and liabilities of each partner. Partners have been known to overstep their prescribed boundaries in the ordinary course of business sometime incurring debts and liabilities without disclosure to the other partners. Partnerships can sometimes sour, and its best to choose a partner you can trust and knowing where you stand in a dissolution.

Corporations like partnerships come in different forms. Operating as a corporation offers protection to the directors, shareholders, and employees. As your business grows it would be in your best interest to transition into a corporation. Anyone dealing with a corporation and has a complaint against the business entity, be it from a contract or other losses, recovery is limited to whatever business assets exist. It insulates the principals, directors, employees and shareholders from personal liability. There are various forms of corporations which are distinguished by tax liability. Whether you adopt to operate as a Limited Liability Company or a Subchapter S Corporation there are related matters which should be explored with an attorney. Corporations are charge with more regulatory obligations.

There are numerous important issues to be considered in building a publishing business including licensing, regulations, the treatment of inventory, leases, contracts with vendors or customers, tax filings, intellectual property protection and employee issues. An attorney will aid in developing and reviewing your future business plans.

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