Dear Alex:
I am starting a blog and podcast to talk about sports.
I haven’t started publishing any material yet, and do not expect to generate any revenue from these activities. A friend of mine told me that I should form an LLC in case I get sued for defamation.
What do you think?
It sounds like you are starting a great hobby. At this stage, it is probably too early to worry about forming a business entity.
In the future, an LLC might be a good idea. While it goes without saying that I hope you don’t say anything that would constitute defamation, here are three more reasons why you probably don’t need a business entity:
First, your risk is very low at this stage.
If you have readership and podcast subscribers, the number of subscribers is probably very small. Even if you accidentally defamed a famous sports star, there is almost no risk that the individual would find out or care. Even if the person did find out, there is not likely to be any measurable harm to that sports star.
An LLC costs $800 per year in state franchise taxes, as well as initial costs of formation. Due to your very low-risk exposure, the annual cost of the entity does not appear to be worth the protection that it might offer you.
Second, while an LLC is an effective business entity type for insulating the individual owners against liability of the business, your activities at this point have no business purpose.
The business’s liability protection would probably fail if you were sued, leaving you personally exposed. With no revenue or chance of revenue, the only assets of the entity will be the money that you contribute, and all of the activities conducted through the entity will be drawn off of those personal funds. Any expenses of the LLC will serve no real business purpose.
This means all spending of the LLC would be for your personal use of LLC’s assets. Spending entity assets on personal activities may be called “commingling” of funds, and commingling of funds is one method of “piercing the corporate veil,” which is a legal term for holding the owners of a business liable for activities conducted by the business.
The third reason is that you can always be held accountable for your own negligence.
If the LLC did make money, the main activity driving the revenue would be your own personal commentary in the blog and radio. If you were negligent and accidentally committed defamation on a podcast or blog posting, that writing would be a personal act of negligence that the LLC may not protect you against.
As your hobby grows in subscribers and you start to gain paid sponsorships, then you might want to revisit the idea of forming an LLC or other limited liability entity from which to conduct your activities.
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