Loan companies for creative professionals: should artists join?

If you work in the entertainment industry as a creative professional, it may be beneficial for you to form a “loan” company for liability and tax protection. Loan companies are entities that are owned by talent; These companies then contract with third parties, such as movie studios, and agree to provide the owner’s services. The talent is essentially hired by the lending company, which performs the services required by the company’s contract with the third party. Typically, the talent will form a Corporation or, more likely, an S Corporation. (The single-member LLC is also becoming a popular vehicle for loan companies, depending on the state in which the talent forms the business.) ).

In other words, when MegaStudio contracts its lead actor, the contract is between MegaStudio and ActorCorp. Typically, the actor will provide MegaStudio with a letter of encouragement pledging to provide their services to the studio and to abide by the terms of the contract. Expenses incurred by Actor (attorney fees, agent commissions, office/assistant expenses, travel expenses, costumes, advertising, etc.) are paid as business expenses through ActorCorp. The balance, after deducting payroll taxes, is paid to the creative professional as salary, bonus, or dividends, depending on the individual’s tax circumstances.

But when should you use a loan company?

If you’re a writer, actor or director, you should consider a lending company if your gross income from creative services is between $75,000 and $150,000 per year. However, this is only a general guide. Depending on your personal financial situation, the corporate form may be beneficial for creative professionals who earn less, especially if you have assets that you need to protect. If your gross earnings exceed $150,000 per year, a loan company should be considered a necessity.

In the music business, the need for a band to use a loan company has additional aspects that need to be considered. Bands are unique because, unlike other creative professionals, there are two sides to their business: (a) the creation/ownership/exploitation of copyrights and (b) the performance/marketing rights. Unless you’re a solo artist, your band is made up of a couple of members, and you probably have a handshake deal where you’ve agreed to split whatever you make. This is fine if you’re a cover band that plays at the local lounge on Friday nights. However, most professional bands are operated through a corporation or LLC that has a contract with the label and contracts for their performances and marketing, with each member receiving a pro rata share of the profits/losses.

So the band usually does one of two things. If all the members are going to share the publishing royalties for the song copyrights, the band will set up a separate entity to hold the copyright. Publishing royalties are then divided into proportionate shares or membership interests in the lending company. Alternatively, each member sets up their own company, and each author’s fractional share is designated in the publishing contract with the company contracted to manage publishing rights.

In other bands, one or more (but fewer than all) of the members write the songs. Many of the big music associations, like Lennon/McCartney, Page/Plant, Morrissey/Marr, managed their publications this way. Depending on how your band agrees to divide general band income and music publishing income, all professional bands should have at least one established business entity and good documents in place detailing their agreement on how the various sources of income will be divided. income.

Finally, what if you’re on the production side of the entertainment industry, i.e. producing a movie, album, or play? In this case, it is imperative that your company is organized as a corporation or an LLC. Have you ever seen a movie where only one producer appears in the credits? Me neither. Most growers have at least one, if not many, partners in the project. Even the smallest independent film is likely to cost upwards of $100,000 to produce, and for every film that makes it to market, there are dozens where the project never makes a dime. As such, it is important that producers protect themselves from liability to their investors and the myriad of third parties with whom they must contract to complete the project. It is essential to establish a formal business entity that spells out the respective obligations of the parties and protects individuals from personal liability.