Social media marketing is becoming big business. And while we often treat it as something companies should build into their internal operations, it’s also giving rise to a lot of independent agencies. These agencies can provide external marketing services to businesses in need, and in doing so become successful businesses unto themselves.
With this in mind, we’ve looked into how to start a social media marketing agency. This look at the process covered several of the key building blocks necessary in such a company — such as niche focus, client scouting, performance-tracking capability, and a social media presence. There’s another key consideration for those looking into starting agencies like this also, however. A legal structure for the company needs to be determined.
This may not be necessary in the very beginning, when the business is more of an idea, or it’s in its earliest stages of operation. Anyone looking to build a true social media marketing agency, though, will need to give some thought to the different legal structures available.
A sole proprietorship is the most common type of business, and arguably the simplest as well. This is essentially a privately owned but unincorporated company that you operate as the “sole” owner of. The advantage of this particular legal structure is that it’s simple to form (and easy to dissolve if necessary). There are no complex requirements, there are no tricky registration processes, and so on. So this can be appealing for an independent social media marketer who’s just considering getting started with an agency, and may have limited time and resources.
There are some downsides as well, though — most notably that sole proprietorship owners remain liable for business assets, and may also have trouble raising capital. From a bank lender or investor standpoint, a sole proprietorship is often thought of as being riskier than other types of businesses.
An LLC is another very common structure, and in fact is a popular next step for people who start sole proprietorships and then decide to determine new structure. As you might expect it is marginally more complex than a sole proprietorship, though the steps to forming a new LLC are quite simple as well. This status can be attained by way of some quick decisions and — in most states — a few forms that you can find and submit on government websites. And the benefits once this process is complete are significant.
An LLC formally separates business and personal assets, such that a marketing agency owner is no longer liable for losses, debts, or even lawsuits involving the business. An LLC also garners employer tax status as an independent entity, which enables easier hiring and growth processes — something to keep in mind for anyone hoping to expand a marketing agency past individual operation.
Incorporating a marketing agency is a little bit more complex still, but this is another fairly popular option for people growing their businesses. By and large, the idea is to further protect personal assets from business liabilities, as well as to set up more protection against departing shareholders (such that a shareholder can leave without dramatically impacting the company). However, it’s also important to understand that a corporation can be structured in different ways. The different types of corporations are “S-Corp” and “C-Corp” companies, both of which can be valid options for a growing agency.
Differences between them concern varied tax benefits (though one is not definitively favorable), as well as general structure. Generally, the requirements for forming a C-Corp are somewhat more flexible, whereas an S-Corp has to adhere to certain rules, such as a maximum of 100 shareholders and a lack of affiliation with a corporation, sole proprietorship, or LLC. For most social media marketing agencies though, these conditions likely won’t matter; 100 shareholders would make for a massive company of this nature. Thus, marketing agency owners interested in incorporating should look carefully at the different tax situations and simply choose the more favorable option on those grounds.
The last truly common legal structure for a business of this sort is a partnership. And it’s popular almost entirely for its simplicity. While there are pros and cons of partnerships, the pros can be extremely appealing to first-time business owners — especially if there happen to be two people starting a company together. Those “pros” are basically that there is no need to sign any forms or obtain any documents to launch this sort of business. Merely partnering with someone else and beginning to do business establishes a partnership. This also keeps things simple when it comes to payment and taxes; partners simply split profits and are taxed as individuals (whereas the partnership itself is not a taxable entity, though earnings do need to be reported).
In a sense, it’s the most casual structure, though there are some cons as well. Most significant is that partners risk their own assets and are liable for business losses and debts. Additionally, any partnership can dissolve in a way that can be tricky when it comes to sorting out finances, given the lack of legal protections.
Understanding the differences between these structures can help you on your way to setting up a social media marketing agency just the way you want to. But they’re all worth considering and analyzing with your specific business goals in mind.