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> I've heard lots of other freelance artists say this too. I wonder if
> it's a liability issue. Does incorporation or agency coverage offer a
> more "secure" contact for corporations? Is it easier to sue an
> incorporated entity than a person? Do they see unincorporated
> freelancers as fly-by-night or amateurs? No one has ever insisted that
> I incorporate, but I'm wondering what the benefits or issues are...
You have a really great name, Annamaria. Anyway - moving right along...
It is not necessarily easier to sue a person than a corporation.
When (intelligent) lawyers consider suing people or corporations they ask
themselves two big questions:
1) Can this person pay?
2) Can we win?
If either question is "no" then the lawyer most likely won't sue. It is rather
pointless to sue somebody who cannot pay.
As an individual or sole-prop, you have the "protection of smallness" as my dad
used to call it. Big companies don't like suing small, little nothing
companies or individuals because there is no money in it.
Apart from the occasionally scumbag company that sues because they have nothing
better to waste their money on, being small has other advantages. Namely, you
can slip under the intense scrutiny of bored bureaucrats in governmental
agencies.
Now - some corporations will not do business with independents. There is a wide
variety of reasons, such as:
A) Incorporated consultants "seem" more established. In a way, sole-props do
have a certain "amateur" air about them. Incorporation is a bit harder and
shows a certain "level of commitment"
B) Taxes. The unincorporated can much easier cheat on their taxes. Also, with
all the litigation over independents really being employees - it is very
dangerous to contract independents.
C) Accounting. Payments made to another corporation are usually accounted as a
professional expense and can be removed directly from the profit margin (profit
is not always a good thing at tax time). 1099s are a murkier area and trigger
many alarms at IRS HQ.
D) Liability insurance. As an incorporated entity it is easier to get liability
insurance. Most agents can sell you a complete business package with Worker's
comp, theft, and such.
So, yes, going through an agency or incorporating is safer. An agency offers
you even more protection since you are one layer removed from the client.
However, you will pay for that security in terms of the margin the agency
charges.
Sole-prop'ing is fine for tiny stuff as long as you don't make more than about
$30-50K. Otherwise - just go get an incorporation kit and incorporate. If
you're paranoid, have a lawyer incorporate you. You'll pay for it, but if that
form of security is important to you, then it is worth it.
Also - you can incorporate in another state (like Oregon) where the rules for
incorporation are very lax. All you need to do is maintain an "agent" in the
state where you are incorporated. An agent can be any relative, friend, or
anybody who agrees to forward mail to you. You'll need to register to do
business in your state, but you won't be tangled into the laws of your state.
For example, if you live in California or New York - forget it. You'll spend
half your natural born life pleasing the morons in the thousands of
bureaucracies where you must get approvals and licenses to incorporate. But the
forms just to do business are quite easy.
Ever wonder why there are so many "Delaware" corporations. That's where all
the companies on the east coast incorporate. Oregon is becoming the "Delaware
of the west cost" because the incorporation rules are very lax here. And
you're allowed to boot tech writers in the head when they don't write their
documents
