Guest Post by Amirali Esfandiari Senior Financial Expert
As more brands turn to influencers as a source for content creation, it becomes more important for these individuals to be business savvy to take maximum advantage of this competitive market. In these financial literacy series, we will be discussing some of the most important topics that can help influencers get better prepared.
Starting your influencer business can seem overwhelming. From developing your business idea to researching your market, from registering your business to opening a business bank account any individual without a financial background can easily be overwhelmed. The most common question that I get asked when I talk to influencers is why do I need to register as a business. In the first part of our financial literacy series we will be focusing on why should an influencer register their business and how should they go about doing it.
While seemingly registering a company is not essential, it has proven that it is indeed important and sometimes your success can be dependent upon it. Registration of your business gives it a professionalism that is required to deal with bigger and more established brands. It allows for the protection of your name, image, and branding. A registered business also allows for the separation of one’s personal and business transactions and dealings.
The most advantageous aspect of having a registered business is the tax advantages that are available. When you operate without a registered business the income that is generated from your brand partnerships is considered all personal income and unfortunately you don’t get any tax deductions for the expenses you incur in running the business. Expenses such as your business travel costs, business phone expenses, business meeting expenses to name a few are all regarded as personal expenses, more or less. While registering your business allows you to receive tax deductions for all these business-related expenses, including the use of your car and home office, and more. Further, reported business income can provide you the ability to secure financing when you are ready to expand your operation or with any of your personal financial needs, such as a mortgage or retirement savings, which we will discuss in detail in the future.
After you decide to register your influencer business, you need to understand what type of business structure best fits your requirements. In Canada, there are four types of business structures: sole proprietorship, partnership, corporation and co-operative. Here, I will briefly touch upon all these business types and compare their advantages and disadvantages. However please discuss with an accountant or a legal professional before setting up your business as there are a lot more intricacies involved.
As the name alludes to this structure, you are the sole owner, and fully responsible for all debts and obligations related to your business. All profits generated belongs to the owner. Because of the personal liability of this structure, any creditor can make a claim against your personal assets and holdings as well as your business assets in order to satisfy any outstanding debts.
It is very easy and inexpensive to register and set up
It has a very limited regulatory requirement to maintain
You have all the control in your decision-making process
It carries a few tax advantages if your business is not doing well (for example, deducting your business losses from your personal income, and a lower tax bracket when profits are low)
All profits belong to the sole owner
The income is taxable at your personal rate and, if your business is profitable, this could put you in a higher tax bracket. Especially if you are doing this as a side business and you have other personal income, the income generated will be added
It has unlimited liability (if you have accrued business debts, claims can be made against your personal assets to pay them off)
Lack of permanency for your business if you are unavailable to work for any reason
Can be difficult to raise capital on your own
A partnership is a non-incorporated business that is formed between two or more people. In a partnership, your capital is combined with those of your business partner(s), and invested in the business. The profit from the business is then divided based on the original agreement that has been established between you and your partner(s). In a general partnership, each partner is jointly liable for the debts of the partnership.
When establishing a partnership, you should have a partnership agreement in place. This is important because it establishes the terms of the partnership and can help you avoid disputes later on. Hiring a lawyer or other legal professionals to help you draw up a partnership agreement will save you time and protect your interests.
Relatively easy and inexpensive to establish a partnership
Costs for establishing is equally distributed between you and your partner(s)
Tax advantage — if income from the partnership is low or negative (you and your partner(s) include your shares of the partnership in your individual tax returns)
You and your partner(s) equally share in the management, profits, and assets
Same as a sole proprietorship, there is no legal differentiation between you and your business
It has unlimited liability (if you have accrued business debts, claims can be made against the partner's personal assets to pay them off)
Finding a suitable partner is a challenge, especially when you are held financially responsible for business decisions made by your partner(s); for example, contracts that are broken, which can develop conflict between you and your partner(s)
Most common type of business structure is a corporation. It is always wise to seek out legal advice before incorporating. Incorporation can be done at the federal or provincial/territorial level. it is considered to be its own stand-alone legal entity that is separate from its shareholders. As a shareholder of a corporation, you will not be personally liable for the debts, obligations or actions of the corporation.
Succession planning as the ownership is transferable and can survive even after shareholders are deceased.
Limited liability as the incorporation is its own legal entity
Possible tax advantage due to the fact that taxes may be lower for an incorporated business
Higher upfront cost to set up a corporation than other business forms
There are higher regulatory requirements for incorporations. There are more extensive corporate records required, including annual filing of documentation with the government
Possible clash between shareholders and directors
This is the least common form of business but can be appropriate in circumstances where a group of individuals or businesses decide to pool their resources and provide access to common needs, such as the delivery of products or services, the sale of products or services, employment, and more. A co-operative is owned and controlled by an association of members. It can be set up as a for-profit or as a not-for-profit organization.
Limited liability (same as incorporation)
It is owned and democratically controlled by its members (one member, one vote)
It allows for the distribution of Profit distribution
Longer decision-making process and the possibility of conflict between members
Participation of all members is essential in order to succeed
There are higher regulatory requirements
Less incentive to invest additional capital
Guest Post by Amirali Esfandiari Senior Financial Expert