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A common question asked by an amateur photographer looking to turn professional is, “what equipment do I need?” We'll skip the discussion around skill and experience being more important than equipment, but before you rush out and buy any equipment or start offering your services to others, you should consider the various liability issues and the options for operating as a legal entity that are available for your business and obtain the proper insurance for both your equipment and liability. We'll cover specific options available in the United States in this article, although similar concepts are available in other countries.
Legal Entities
The most common mistake for beginners is to operate a business as a sole proprietorship, meaning there is no legal distinction between the owner and the business. This may sound easy and convenient, but it also means that you have unlimited personal liability for the actions of your business, and this includes the actions of your employees or even volunteer assistants. Operating as a general partnership is even riskier because all the partners are personally liable, even if it is for something done by the other partner that you didn’t know about. Even if you have liability insurance coverage for yourself, an accident caused by one of your partners or assistants (paid or not) could significantly expose you to liability.
Imagine you invite a friend to be a voice activated light stand at a wedding and he accidentally drops the boom on the bride. Worse yet, imagine he misplaces an electrical cord and someone is electrocuted. Even if your friend drives their personal car on an errand or trip for your business, such as on the way to the church for the wedding, and causes a bad accident or injury, they are liable for their negligence, but so are you since they were acting as an agent or employee of your business. If you are doing business as a sole proprietor then you are in essence personally guaranteeing everything that the business and any agents or employees do. Your spouse likely won’t appreciate you etting sued for something an assistant did which results in a judgment lien against your house because you didn’t have proper liability coverage.
A much better idea is to separate your personal matters from the business by forming a Limited Liability Company (LLC) or a corporation. In most instances, the LLC (not you) bears the responsibility for the liability of its other workers (paid or unpaid). You cannot escape liability for your own acts or negligence through an LLC, including possible claims for negligent supervision or training of employees or helpers, but you can significantly limit exposure for the acts or omissions of employees, agents or other members of the LLC. Filing as an LLC is a fairly simple process in most states and after the initial setup requires only a small fee and annual report to be sent to your state each year. Under current IRS rules, you can even include your single member LLC income and loss on your “Schedule C” form on your personal tax return.
Some photographers choose to form their business as a corporation, including making an election to become a “Sub S” Corporation (which eliminates the double taxation issue found with the C Corporation). While organizing as a corporation does provide certain benefits under unique circumstances, including the ability to carry forward a net loss from one year to the next (such as using the high startup costs for equipment this year to offset your profits next year) and has a longer track record of liability protection going back hundreds of years, often times the additional complexities outweigh the benefits. A corporation will require a separate tax return for the corporation even if there is only one stockholder. Either way, you should seek the initial advice of an attorney and an accountant to ensure your business entity is setup to your greatest benefit and protection.
Insurance
Once you’ve created the correct business entity for your operations, you should always obtain an adequate amount of liability insurance. Otherwise, you may be one accident away from financial ruin…even if you are setup as an LLC or corporation or were not even the one who caused the accident.
General Liability policies can often be purchased for a very reasonable premium and if properly written can provide you and any of your employees, assistants, or even volunteers with adequate coverage. Be very sceptical if your insurance agent advises you that protection is already provided under your homeowner’s policy or tries to sell you a personal umbrella policy: personal policies almost always exclude liability or property protection for any commercial or business purposes…even part-time ventures. Always check your policy documents and get confirmation from your agent in writing! If you have filed as an LLC, both the LLC and you as the Member should be listed as “named insured.” Often times your employees, assistants and other non-members or non-officers of the company are not insured.
General Liability policies can often be purchased for a very reasonable premium and if properly written can provide you and any of your employees, assistants, or even volunteers with adequate coverage. Be very sceptical if your insurance agent advises you that protection is already provided under your homeowner’s policy or tries to sell you a personal umbrella policy: personal policies almost always exclude liability or property protection for any commercial or business purposes…even part-time ventures. Always check your policy documents and get confirmation from your agent in writing! If you have filed as an LLC, both the LLC and you as the Member should be listed as “named insured.” Often times your employees, assistants and other non-members or non-officers of the company are not insured.
Finally, consider insuring your equipment. Many insurance companies who offer a commercial liability policy also offer inland marine policies, which is a strange name for a plan that protects your camera equipment from theft and accidental damage. These policies are often more expensive than the options available for personal equipment on your homeowners policy, but again, most personal policies exclude any commercial use. One exception to this rule is the popular “Personal Articles Policy” offered by State Farm, which in most states provides a “professional use” option to waive the commercial use exception specifically for camera equipment, but at a much lower in price than a full inland marine policy.
