Should I set up a corporation?

Q. I recently set up a one-person corporation and assigned all my copyrights to it. Can the corporation sign my next publishing contract so I could avoid personal liability in the event of a lawsuit against the publisher involving my new book or a breach of any of the representations in the contract?

A. Doing that will not help if your publisher has even a modicum of business sense or, if lacking that, at least knows enough to consult a lawyer, either professionally or at a cocktail party. Although having a corporation or limited liability corporation (LLC) can be very helpful in insulating a person from personal liability if all the corporate and LLC formalities are observed, any knowledgeable publisher that permits the corporation or LLC to sign will also require you to personally guarantee all of its obligations under the publishing contract so you won’t be avoiding the problem. Anyone who sues because of something in the book would undoubtedly sue the publisher too and your guarantee would require you to personally reimburse the publisher if liability was found. In addition, people suing would likely sue both you and your corporation (or LLC) also and, since you wrote the book, it’s unlikely that you would avoid liability if liability exists.

There may be good reasons to establish a one-person corporation or LLC—e.g., income tax, investing for retirement or health care coverage—but you should check with your accountant, financial adviser or a tax lawyer to find out about those.

(Originally published in the Summer 2010 issue of the Authors Guild Bulletin. © Mark L. Levine)

Answers to questions on this site are general in nature only. You should consult a lawyer for information about a particular situation. For more information about book publishing contracts and issues, see Levine’s book.