Selecting the right legal structure for your brand is one of the most important decisions you’ll make when starting your business. It shapes everything from how your business operates day-to-day to who bears responsibility for its debts and liabilities if anything goes wrong.
Creating content on social media can generate serious revenue and open up doors for dream brand deals – but have you thought about the risks and how you should be operating your business? In today’s digital landscape, it’s easier than ever to build a following and monetise your influence, yet the legal and financial implications of running a brand are often overlooked. Choosing the right legal structure isn’t just a formality; understanding these implications upfront can set the foundation for long-term success. In this second article of our creator series, Molly Ripley, corporate solicitor and member of our Creators team outlines some of the available options for creators when looking to protect their business.
1. Sole trader: the simplest structure
When you’re just starting out or in the early stages of your business development becoming a sole trader is often the beginning; it offers the opportunity to test your brand out without incurring any registration fees and with minimal admin. You have full control of the business. As far as the law is concerned, you are the business, so any contracts or brand protection mechanisms will be in your personal name. You therefore keep all of the profits (after tax) and have full flexibility.
However, as a sole trader there is no separation between you and your business. Practically, this means that if something goes wrong, you are personally responsible for all of the debts of the business. Your personal assets could be put at risk. It can also be harder to work with more established brands or attract outside investors, who prefer the sophistication of a limited company. This could put you at risk of missing out on valuable brand deals.
As a sole trader, you will not have to pay corporation tax but will need to register with HMRC for self-assessment and pay income tax on your profits.
2. Limited company: a more structured approach
A limited company offers a more professional structure that can elevate your brand credibility to clients, investors and other collaborators. This involves registering your business name with Companies House (there is a fee involved for this) and then trading under that company name. From a practical perspective, any contracts or brand protection will then be registered in the name of the company and not your personal name. Assets and funds are also the property of the company.
However, it’s important to note that registering a company name does not automatically guarantee brand protection, such as securing your trade marks or intellectual property. Brand protection is a separate step, involving specific legal processes to ensure your brand’s assets are properly safeguarded and where appropriate, registered. Our Creators team guide influencers and creators through the brand protection procedures, helping to secure intellectual property and defend brands from potential infringement.
The biggest advantage of a limited company is the concept of limited liability. This means the business is treated as a separate legal entity to you, meaning that your personal assets are protected if the business faces financial or legal difficulties. It is treated as its own “legal” person. This is often called the “corporate veil”.
In addition, this model offers scalability for your business and the ability to attract investment which can easily be achieved by issuing shares in the company.
However, there are some key drawbacks. Operating a limited company involves more administration. For example, you must make annual filings to Companies House for various aspects of the business. Directors of the business will also owe legal duties under the Companies Act which must be complied with at all times.
From a tax perspective, limited companies pay corporation tax on their profits. In addition, the business model offers tax efficient means of remuneration through salaries and dividend payments.
3. Partnership: working collaboratively with another person
General partnerships offer a straightforward model which allows two or more creators to pool their collective skills and resources together with a view to running a business. You trade under the partnership name, but the partners are still personally liable for debts, similar to a sole trader. Any brand protection and contracts would need to be entered into by the partners collectively.
The structure is relatively easy to establish with few administrative hurdles to overcome. It is however, advisable to have a written partnership agreement drawn up to set out your roles and responsibilities, including an IP ownership clause to set out who owns what intellectual property, and to avoid costly and obstructive disagreements arising. Decisions can be taken informally without the constraints of corporate governance.
Turning to tax, each partner is treated as self-employed and will pay income tax and national insurance on their profits.
Conclusions
Ultimately, because general partnerships and sole traders have no legal separation from the individuals behind the business, creators often turn to limited companies. The meaningful advantages of this includes:
- Personal liability protection
- Professional credibility
- Scalability
- Investment opportunity
- Tax benefits
If you are a creator exploring the next steps for your business, our specialist creator team at Stephens Scown is here to help. We can support you at every stage, to build your business in the digital economy, from drafting or reviewing talent management agreements, to brand deal reviews, brand protection, business incorporation, contract disputes and more.
Disclaimer: The information provided above does not constitute financial advice. For personalised guidance, please consult a qualified accountant. We work closely with professional accountants to ensure our clients receive sound advice tailored to their circumstances.
To read the first article in our creator series, please click here.