Liability and Publisher Business Structure

Somebody asked a very good question about the business structure of my publishing company in a blog comment yesterday. I'm currently a sole proprietor, but I've spent quite a bit of time researching the options, including talking to multiple lawyers and accountants. In brief, as a self publisher, it doesn't appear that incorporating would limit the liability I already have as an author. On the business side, the immediate advantage of incorporating is to take a salary and limit self-employment taxes, but there are plenty of new expenses for maintaining the corporate structure that can cancel the savings.

Publisher liability is a hotly debated subject on discussion lists, with some publishers swearing by relatively expensive insurance and others operating on a wink and a nod. I'm no lawyer but it seems to me that the primary liability publishers face is lawsuits over intellectual property (like plagiarism) and libel. Publisher contracts always include language that tries to shift any expenses for plagiarism and slander onto the author, but it's the publisher who normally has the deeper pockets. If you are a self publisher, you are also the author, and a corporate structure is unlikely to help with liability protection, unless somebody is suing because one of your books fell off a delivery truck and put out their eye. In that case, you might be in the clear as the author, and only the publishing business would be liable. Another worry for publishers is errors and omissions, but it's debatable when errors and omissions are a liability such as libel or harmful recipes, as opposed to freedom of speech.

Many self publishers rush into an LLC or an S-Corp in the theory that they'll save a ton on their taxes. Unfortunately, they might spend that ton on legal and accounting help, not to mention unemployment and workers compensation insurance. You shouldn't ignore the time required to maintain a corporate entity. An LLC might have simple requirements, it depends on your state, but other forms of corporations require you to do things like keep minutes of meetings when you take decisions, even if you are having the meeting with yourself. If you don't keep up the paperwork, you may find that your corporate veil against personal liability has no value. On the other hand, a properly maintained corporation is probably easier to sell than a sole proprietorship if you decide to get out of the business, and may command a higher price.