Does my very small business need a lawyer?
December 6, 2013 3:59 PM   Subscribe

This question made me wonder if I need to do any legal stuff for my small business.

I've been a behind-the-scenes freelance fiction editor for years. (Meaning, all of my clients came to me via word of mouth.)

In the last six months I've gotten more serious (and more public) about it. I now have a website and a Facebook and a Twitter account. I'm about to have print ads appearing in a trade magazine. My idenity everwhere has a name that's not my own -- along the lines of AcmeEdits, @AcmeEdits, #AcmeEdits, etc.

At this point, the business is pretty much small potatoes - less than $10,000 income this year. But I have reason to believe I will earn double that amount next year, and perhaps even triple.

I do declare my income, and do my taxes w/a professional, but beyond that I haven't taken any legal steps for my business. Do I need to?
posted by BlahLaLa to Work & Money (13 answers total) 3 users marked this as a favorite
Limiting personal liability comes foremost to my mind why you'd want to seek legal counsel about how to structure your business.

+operating as a service or business might mean certain taxes that income tax doesn't cover, etc. Lawyer+/accountant fees are minor compared to possible liability or fines.

Tl;Dr better safe than sorry.
posted by TheAdamist at 4:20 PM on December 6, 2013

Response by poster: With regards to personal liability - I'm having a hard time imagining a scenario where this would come up. Someone pays me $X to copy edit their manuscript. I edit it. The end. If they…say I did a bad job, I might, under some circumstances, give them their money back.

Virtually 100% of my work & contact with clients is online and via email.

But I'm sure one of you can explain it to me - how could personal liability come into play here? Thanks!
posted by BlahLaLa at 4:28 PM on December 6, 2013 [1 favorite]

Sure, if someone complains you did a bad job, you'll consider refunding their money..... the thing is, people can and WILL sue just about anyone for anything; and even if their suit ended up getting tossed out of court for being totally without merit, it'd cost you time and money to defend yourself.

Or as TheAdamist wrote above, Better Safe Than Sorry.

Surely you use contracts that were written by a lawyer? (And if not, WHY not?!?) So, since you hopefully already have a business relationship with a lawyer, go talk to them.
posted by easily confused at 4:43 PM on December 6, 2013

With regards to personal liability - I'm having a hard time imagining a scenario where this would come up.

For example, if you edited a manuscript and someone shopped it around, failed to get a bite, and then "discovered" that the edits you made actually were more than stylistic and compromised an important substantive point in the text; they blame you for their failure to get a decent publishing contract, which they estimate would have been $75K "but for" your error.

Etc. I'm not saying it WILL happen, but it COULD happen. And yes, small time editing is less intuitive for incurring personal liability than, say, part time roofing work (where if you step in the wrong place or drop the wrong thing, you could easily cause more damage than the entire value of the job).

Anyway, that is the theory behind limiting personal liability.
posted by Joey Buttafoucault at 4:48 PM on December 6, 2013

Response by poster: (I have no business relationship with a lawyer currently.)
posted by BlahLaLa at 4:54 PM on December 6, 2013

Can't hurt to ask around for someone who is experienced with your specific situation -- they would probably talk to you for free for 15-20 minutes to determine whether you actually need legal help. Since you don't have any pressing matters, you can take your time asking colleagues in your industry for someone who sounds like they have relevant experience.

A few things you might need help with:

- Establishing a business entity (LLC or something) - as others have said, this is mainly for liability purposes and I would guess your liability is so limited here it's unlikely to be worth it. Still, your call based on the amount of risk involved. Keep in mind there are fees to establish the entity and annual fees to keep it running, typically a few hundred dollars per year.

- Form contracts. A lawyer should be able to develop something simple for you in maybe 2 hours.

- Occasional help if, for instance, copyright issues come up (someone accuses you of violating your IP, or you find someone violating yours). You don't necessarily need a lawyer now, but again, if you already know somebody it could be helpful to keep their card for later.

(IAAL, IANYL, I have worked with small businesses but not ones similar to yours.)
posted by chickenmagazine at 5:11 PM on December 6, 2013

How can you have liability? You must not be in America - because in 'Merica you can sue anyone for anything.

Limiting liability is one important advantage of having a company - but it is certainly not the only advantage.

There are all sorts of tax issues - some bad, but most good. Many business expenses can be written off as profit loss to the company, for example. An individual person pays income tax on their money, and then they can buy a computer. If a company buys a computer, and it is a necessary tool for the operation of the company, then there is no income tax paid on the money to buy that computer.

Corporations can own property, have bank accounts, take loans, and have investors. You can take the risk of a loan to grow your company, by buying an office building for example - and if the risk flops, you can protect your personal assets.

If the company really grows, corporations have easy to allow partners to buy in and expand, through the sale of shares.

Also, and I think importantly, having a company looks professional. It says: this business is well organized and properly structured. It makes it a business, not a hobby.
posted by Flood at 5:15 PM on December 6, 2013

I work for a major university, and we require consultants/vendors doing business with us — including translators and editors — to have professional liability insurance, which for them generally takes the form of errors & omissions (E&O) coverage. (Both of those links include examples of the kinds of things that could be devastating to a small business if it doesn't have insurance for it.)

If a client sues you, even if it's groundless and gets dismissed or you win, your legal fees and expenses could easily exceed $10,000. An E&O policy could cover all those costs.
posted by Lexica at 5:54 PM on December 6, 2013 [1 favorite]

BlahLaLa: "With regards to personal liability - I'm having a hard time imagining a scenario where this would come up. Someone pays me $X to copy edit their manuscript. I edit it. The end. If they…say I did a bad job, I might, under some circumstances, give them their money back. "

Sorry for double-commenting, but re this, the first scenario that comes to mind is one in which you edit something and the edited version is somehow considered libelous. Not necessarily that a court rules it's libel, but that somebody thinks it is and sues your client over it. IANAL but I work in an area where we deal with lots of them, and if that happens your client will almost certainly come after you to try to recover some of their damages or expenses. Without insurance or incorporation, you could lose everything you own.
posted by Lexica at 5:59 PM on December 6, 2013

Best answer: I'm going to go against the grain here and say that no, you don't need to worry about liability or incorporating. I would be more worried about paying your taxes correctly, which you have covered. I guess hypothetically someone can sue you for anything here in the land of the free, but I'm in a similar creative business and I only carry liability insurance because I physically bring tools to other people's property and there's a real risk someone could trip over an extension cord or put a hole in a wall or whatever.

I have contracts but I use the boilerplate my professional organization provides, none of it is rocket science that requires a lawyer (licensing, which you probably don't do?).

I think most freelancers I know would consider incorporating or taking out tons of insurance for a $10k/year side gig that has no physical production a little overkill. My tax professional is also licensed to advise on business legal issues like this, so maybe ask yours? Personally I would spend the money on marketing and think about this again if this becomes your day job.
posted by bradbane at 6:02 PM on December 6, 2013 [1 favorite]

Best answer: Assuming that you're a fiction editor, and that your edits are tracked changes and not changes without any markup, I think that you're fine. My partner and I are both editors, and we have many friends who've gone from working for a publishing house to freelancing (which is also what I've done)--none of us have insurance or incorporation, and my instinct is that it's overkill.

I'd be sure that you have a contract that states that the work you do is subjective, and your edits don't mean that their book will be picked up for publication or that a future editor won't feel that other/different/more edits aren't needed. Having a clear policy about going back and forth and answering questions is a good plan, too.

Fiction editing is so subjective that I honestly can't imagine a world in which an editor could be sued for something they did or didn't do with a manuscript. If you're doing nonfiction (especially if doing nonfic and not tracking changes) it might be worth considering incorporation, though I know a bunch of people who freelance edit for academic journals and haven't. Anecdotes != data, obviously, but none of them have ever had a problem, nor have I heard of anyone who has.
posted by MeghanC at 8:07 PM on December 6, 2013 [1 favorite]

IAAL, IANYL. I advise a variety of small businesses, though no fiction editors. My clients are mostly guys-in-a-garage inventors, start-ups, designers and creative people.

One thing that comes up distressingly often is copyright problems. There are some quirks of copyright law, and if you don't do things just right, one person ends up being able to shut down a multi-person project, even though that person has been paid for the work that they agreed to do. It's a douchebag maneuver, but it happens fairly regularly, and there's very little I can do to help people once it happens.

I prefer to have clients come to me before they have a problem. Not so I can bill them, but so I can talk to them about the kinds of things that might go wrong, and how to recognize them if they start to happen. I figure that if you avoid a problem, your business will go better and you'll use me for something more fun in the future.

Shop around for a lawyer you like and trust. If they ask for a bigger retainer than you want to advance, keep looking. If your lawyer taps your retainer every month, even if nothing is going on, CHANGE LAWYERS. If your lawyer bills you every time he answers the phone, CHANGE LAWYERS.
posted by spacewrench at 10:48 PM on December 6, 2013 [1 favorite]

Does my very small business need a lawyer?

For liability. No. You really should form an S-Corp though if you haven't all ready. There are huge tax and expense advantages.

The best resource for our old company, and one that I was embarassed to have not accessed earlier, was an accountant. Especially an accountant with relevant experience. Accountants see failure and success and in my experience they are happy to help [if you are succesful they can bill you] and relieved to talk to a person - as opposed to going through reciepts.

Accountant. I can't overstate the benefits of even a decent accountant, let alone a skilled accountant. I did the math once and found that our accountant was worth nearly ten times what we paid their firm just in tax benefits - neverminid advice. It was absurd. Having an accounting firms signature on the bottom of your return means that they, not you, are liable and reduces the likelihood of an audit.

Your accountant will know the less expensive and the more successful lawyers too.

Seriously. Accountant.
posted by vapidave at 11:28 PM on December 6, 2013

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