If you’re serious about affiliate marketing, you need to run your campaigns like a business. And if you’re running a business, you should incorporate as an LLC (limited liability company) if you live in the United States.
I can’t really comment on how it’s done in other countries, but I’m sure there are similar designations for one-man businesses.
If you’re an affiliate right now and have no idea what I’m talking about, it’s safe to assume you’re something known as a “Sole Proprietor”. Basically this means at the end of the year when you do your taxes (hopefully you’re doing them lol), you just use your social security number and file as an individual.
However if you plan on getting more serious, or even semi-serious into affiliate marketing, incorporating yourself into a single member LLC offers a lot of benefits that can help you grow.
Before going further I have to put a disclaimer out there that I am not offering you legal advice, I am just sharing my own personal opinion. Consult with your attorney or licensed professional before making any decisions about incorporating your business.
Ok now that’s out of the way, lets dive right in!
An LLC Offers You Legal Protections
Generally the biggest reason people incorporate from a Sole Proprietor into a single member LLC is for the legal protections. Generally if you take losses or get sued, the LLC designation limits your losses just to the assets of the business.
Now the protection goes away if you’re sued for being say negligent or engaging in things like illegal activity or fraud, but generally these circumstances won’t apply to most people and probably won’t apply to you either (hopefully).
Why As An Affiliate You Should Incorporate
There are many reasons why as an affiliate you should incorporate into a single member LLC. To be honest yes it does provide you some legal protections, but really from a tax and operational standpoint not much changes when you go from a Sole Proprietor to an LLC.
However the benefits from a business standpoint are great, so again I highly recommend you consider it, especially if you’re making any sort of money as an affiliate marketer.
Here are a few reasons you should consider incorporating:
Business Bank Accounts
You can only get a business bank account if you have a business (duh).
Having a business bank account makes you appear more legitimate to the people you work with.
For example when you ask for payments from your clients, asking them to make the payment payable to “My Business LLC” sounds a lot more professional than your own name.
Also when you have a business bank account it gets your foot in the door for things at your bank like lines of credit and other banking benefits, and you also start to build a relationship with your bank which will help when trying to get loans later.
Some Companies Only Work With Businesses
Another reason to incorporate into an LLC is because some companies only work with businesses and not individuals.
This is especially true if you are looking for funding sources. Even if you’re making bank as an affiliate and can show a lender massive revenue on your personal bank account statements, many companies just have policies to not work with individuals.
Also some vendors just won’t sell products to individuals. This is especially true if you want to get into e-commerce or just selling anything really online.
Sometimes the companies that have the products you want to buy won’t work with you just because you’re not a company.
You Need It To Secure Larger Loans
Later on down the line as an affiliate if you ever want to get into paid traffic, you may need large sums of money to run your campaigns. Maybe you’re buying out an ad placement for a few months, or just need some working capital.
Generally if you’re trying to borrow over $50k it’s damn near impossible as an individual unless you’re willing to put up some form of collateral like a home.
If you take your personal bank statements to a lender they’ll usually just laugh at you. However as an LLC you’ll be able to take them your “financial statements” and show them your revenue and cash flow to secure a loan.
This reason is actually why I incorporated myself years ago. I was an affiliate operating as a Sole Proprietor using my personal bank account, and even though I was pulling in $50-60k/mo in revenue, every lender told me they couldn’t accept personal bank statements to underwrite a loan.
So basically I couldn’t scale my campaigns at the time up as much as I wanted to because I couldn’t secure funding. So I pretty much had to incorporate, wait a full year, and then go back to the lenders again.
You Establish Yourself As A Real Business
Establishing yourself as a “real business” is important, especially when you’re seeking business loans or any other financial instruments.
And generally the longer you can show you’ve been in business officially, the better your chances are of securing these loans and approvals. So that’s why I recommend if you haven’t already, to incorporate ASAP so you can get the clock going.
For example many lenders only work with businesses that are at least 1-2 years old. Even if you’ve been technically “in business” as a sole proprietor for the last 20 years, if you decide to incorporate into an LLC today, most financial institutions consider you a brand new business.
To use a “real life” example, as you may know the federal government issued a lot of relief money to businesses in the form of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) this year due to the Covid-19 pandemic.
To make it short, LLCs fared a lot better than Sole Proprietors in getting relief money because they didn’t have the additional burden of proving that they were an “actual business” unlike many of the Sole Proprietors.
I’ve seen many individuals running their businesses as Sole Proprietors not get Covid-19 relief money simply because they couldn’t prove they were legit businesses to the federal government.
So again it’s important to incorporate ASAP so you can get the clock going when it comes to the all important “time in business” question as well as establishing yourself as a legitimate business in the eyes of financial institutions.
How To Get Started
If you have no business or legal background, I would recommend using a service like Legal Zoom or something similar to do all the official paperwork to incorporate into a single member LLC. Since you aren’t doing the paperwork, the whole process will probably take you 15-20 minutes just to fill out your information.
For example Legal Zoom costs $79 + legal fees which depending where you are will probably come out to somewhere between $150-200 depending on what you need specific to your state.
Also note that once you become an LLC, there may be additional fees you need to pay your state. For example I’m based in California, so annually I have to pay a $800 franchise tax just to operate as an LLC in the state. Every state will have their own fees, so definitely do your research before you decide to dive in.
If you can afford the fees, I definitely would consider incorporating ASAP just to get the “time in business” clock going and the business bank account. The benefits in my opinion far outweigh the cost of these fees, so again if you’re an affiliate and plan to do this for a while, you definitely want to consider incorporating.