Recently Observer posted on a topic well worth considering – artists forming limited liability corporations (LLC) to shield their personal assets from being subject to lawsuits. By separating personal assets like home, car, personal bank accounts, etc., from the entity controlling the ownership and production of professional work, the personal assets are protected from lawsuits due to injury due to a sculptural piece falling, claims of copyright violations, breach of contract etc. Similarly, personal assets can be protected from creditors seeking payment for materials and services used in the creation of the work.
The article also mentions other situations like divorce which removes the LLC from consideration in splitting assets when the spouse is not an officer or partner in the LLC.
….but most artists operating as one-man shops set up limited liability companies, according to Powers, where the LLC is the employer and the artist is technically the employee. When a sale or commission is made, the money is paid directly to the corporate entity, which then pays the artist, either in a lump sum or in increments (as a salary), and the artist pays taxes on that money as ordinary income. But not all the money transfers directly through to the artist. The corporate entity retains some cash to purchase art supplies, health insurance, workmen’s compensation to protect employees who may get injured during transit or installation, commercial premises and liability insurance—and, assuming the artist is successful enough, to hire employees or consultants.
– https://observer.com/2024/04/artists-forming-limited-liability-corporations/
The article mentions that a lot of visual artists begin to consider placing their work in an LLC when they start to get bigger commissions, especially for the purpose of public art installations, due to the increased risk of injury and the contractual requirements imposed by governmental entities which require the artist to indemnify the government agency and defend them against any lawsuits connected with their work.
The article references people getting injured skateboarding off a sculpture, but in my personal experience, everyday I walk by parents lifting their kids on a sculpture right next to the sign that says not to climb the sculpture.
Obviously, there is work involved in incorporating as an LLC. In addition to filling out paperwork, there are filing fees, annual renewals with associated fees, and corporate taxes. There are some visual artists like Cristo who created a separate LLC for each work so that the most he could be sued for was the total value of each commission. But that multiplies the amount of associated paperwork.
On the positive side, as the article notes, an LLC can provide an opportunity for investment. Investors can enjoy similar protections from lawsuits that the artist enjoys. Broadway theatrical productions have solicited investments for over a century. Broadway investors are warned not to expect a return on their investment given that few shows ever recoup their costs and generate a return.
Visual art pieces potentially have better odds of providing a return based on the artist’s documented history of accurately estimating cost of labor and materials as well as obviously selling their work at a certain price range.
Disclaimer: What is a blog post about a legal or financial topic without a disclaimer? This is not legal advice. You should not be getting your legal advice from a blog post. The purpose of this post is to give you things to think about before taking action. Speak to an accountant and/or a lawyer about specifics.
