This is the first in a series of posts calling attention to some of the topics covered in the recently launched Citizen Media Law Project Legal Guide. The first topic I’ll take up is choosing a business form
for your online publishing activities. There is increasing awareness that,
especially if you publish content in collaboration with others, it may
not be smart to simply leave the relationship “natural” or informal.
But this realization raises other questions: What are your options? What
are the benefits of legal formality? Will it be expensive to obtain
these benefits? Will you have to sacrifice control?

I’ve pasted an excerpt below from the legal guide that provides a brief introduction to
some of the most commonly adopted business structures and points out
some of their most salient advantages and disadvantages. This page in
the guide is just a jumping-off point for in-depth discussions on each
of the business forms that you can find in the guide. In the end, the
choice between business forms is a personal one. Our hope is that the
legal guide will help you understand the issues and make a
better-informed decision.


Whether you’re already publishing material on your website or just
getting started, the question of what business structure to operate
under is an important one. Depending on whether you work alone or in
conjunction with other content creators, you may face hard questions
about ownership of assets, management structure, payment of taxes,
splitting up of profits (if any), transfer of ownership, and
dissolution of your working relationship. Additionally, as we address
in detail in other parts of this guide, publishing material online
exposes you to the risk of liability for defamation, invasion of
privacy, copyright infringement, and other legal claims. What kind of
business structure you choose to adopt can have a significant impact on
these and other issues.

Before proceeding, a word or two of caution is in order.
There is no magic business structure that will make all legal risks and
problems go away. Each person or group of people must make the choice
based on their goals and personal preferences. What’s more, there is a
great deal of uncertainty about how old-school business law applies to
the online publishing context, so the guidance found here should be
taken with a grain of salt.

So what are your options?

  • Sole Proprietor: You
    can carry on your online publishing activities, alone or in conjunction
    with employees, as a “sole proprietor.” This form is only
    appropriate if you contemplate being the only owner of the business.
    There are some adverse liability consequences of this choice (which
    we’ll discuss), but this form gives you direct control over management
    of your business and its assets, generally involves less up-front,
    out-of-pocket cost and hassle than the limited liability entities
    below, and is generally easier from a tax filing perspective because no separate income tax return is required.

  • Informal Group: You
    can carry on your online publishing activities in conjunction with
    others without a formal agreement or entity structure governing the
    terms of your relationship. In this case, your legal status is
    uncertain, and a court might view you and your collaborators as
    partners, as employers and employees, or as independent contractors.
    This may feel like the natural form for collaborators to adopt, and it
    is low on hassle and up-front, out-of-pocket costs, but it has
    potentially serious negative consequences in terms of liability and tax implications and can
    lead to major complications in managing and/or dissolving the
    enterprise. Under this section, we will discuss the usefulness of
    so-called “co-publishing” or “co-blogging” agreements as a mechanism
    for bringing some clarity to your group endeavor.

  • Partnership: You
    can carry on your online publishing activities in conjunction with
    others under the auspices of a formal partnership agreement. This
    choice generally only makes sense if you are carrying on your business
    for profit. There are some adverse liability consequences of this
    choice (which we’ll discuss), but this form lets you order your group
    affairs contractually and generally involves less up-front,
    out-of-pocket cost and hassle than the limited liability entities
    below. In addition, this form can be advantageous for tax reasons
    because it allows for pass-through tax treatment (that is, there is
    generally no entity-level taxation).

  • Limited Liability Company: You
    can carry on your online publishing activities, alone or in conjunction
    with others, as a limited liability company. Limited liability
    companies (LLCs) offer limited liability for the debts and obligations of the company, with somewhat fewer operating formalities than corporations.
    LLCs are also advantageous because they combine the potential tax benefits of a partnership with the limited liability of a corporation. That said, they generally involve more up-front, out-of-pocket cost and
    hassle than getting started as and running a sole proprietorship,
    informal group, or partnership.

  • Corporation: You
    can carry on your online publishing activities, alone or in conjunction
    with others, as a corporation. Most big, publicly traded companies
    that are “household names” are corporations. This form of business has
    the benefit of limited liability,
    but forming and operating a corporation involves costly and burdensome
    filing and record-keeping requirements and observation of “corporate
    formalities.” Forming a corporation can also have potentially adverse tax
    consequences because the corporation is taxed on its income at the entity level and the shareholders are also taxed on any dividends that are distributed (see the section on “double taxation“ for more information) in the case of a corporation classified under subchapter C of the Internal Revenue Code (a “C Corporation”).

  • Nonprofit Organization:
    You can carry on your online publishing activities in conjunction with
    others as a nonprofit corporation. Those who operate a nonprofit
    corporation enjoy limited liability
    for the debts and obligations of the organization, and the organization
    is not subject to income tax on the federal
    and (usually) the state level. There are important restrictions
    involved in operating a nonprofit, however, including limits on the
    purposes of the organization’s activities, a ban on personal benefit
    from those activities, and restrictions on political and lobbying
    activities, and the process of filing for tax-exempt status can be time
    consuming in contrast to the obligations imposed on other business
    forms discussed above. Also, keep in mind that a nonprofit has no
    owner(s) in the ordinary sense, and therefore creating one involves
    relinquishing control. In addition, nonprofits have strict dissolution
    requirements, they cannot pay dividends, and employees can only receive
    reasonable salaries. Nevertheless, this may be a good option for
    members of a collaborative venture that does not aim at making a
    profit, who want increased legal certainty about their status, and to
    enjoy limited liability and tax benefits.

For a chart synthesizing the major points identified above, please see our Business Form Comparison Chart.

Keep in mind that operating as a business (as opposed to as an
individual or as part of an informal group) may provide certain legal
and non-legal benefits. For example, operating as a business can give
your enterprise an air of legitimacy, which may influence the reception
of your work or make it easier for you to raise capital or obtain
grants (some granting organizations only give money to qualified
501©(3) nonprofit organizations). It may also help you get press
credentials.

Importantly, you may have a better argument for inclusion
under some state shield laws
if you are affiliated with a business, and you may have a better chance
of invoking the reporter’s privilege to avoid having to testify in a
legal proceeding regarding your sources and/or information gathered in
the course of your news gathering activities.  You can refer to the State Shield Laws page for more information, and we will be dealing with the reporter’s privilege in forthcoming sections of this guide.