Doug Stockdale's Singular Images

July 12, 2007

ArtBiz101 – Legal Structure

Filed under: Art Market, Photography — Doug Stockdale @ 12:02 am

Tranquility

Tranquility  (from the series: Insomnia; Hotel Noir)

…My Friday ArtBiz101 is early this week as we will be leaving Friday for a holiday/client project in Northern California, so next week may have some posts, just not many images!

This week I am going to discuss for the U.S. artists a little about lawyers and the legal structure of a business. Last week I had discussed suppliers and support team, but I left off the lawyers for this week. For most artist, a lawyer will probably not be neccesary, but it is nice to know one. If you are going to incorporate yourself, sign binding contracts for representation, sign a building lease for a studio or gallery, a legal review of the documents may save your skin in the long run. Realize that most of these contracts have already been reviewed by their lawyer to cover their best interests. Especially if you are signing a lease for five years, or some other exclusive arrangement.

In the U.S. there are three principal business entities that is recognized by the IRS; indivdual/sole propiertor, partnership and a corporation. For corporations, there are three different basic types: Type C, Type S and a Limited Liablity Company (LLC). Most artists will probably only need to worry about being an indivdual propiertor or perhaps a partnership. If you are considering a corporation because you are going to start a gallery or have a large organization for commercial art, you should be working with BOTH your accountant (CPA) and your lawyer as there are a lot of tax implications and risk managment with each of the forms of corporation.

For tax purposes, you should have a separate checking account to keep your personnal money seperate from your business money. The IRS then has an easier time recognizing that you are really in business. For most states, if your business name is the same as your own name (e.g. Douglas Stockdale), then you will not need a dba (doing business as). The dba is also known as a fictious name (e.g. “Big Tripod Photographic Artist”) and your will have to usually have a seperate checking account and do a dba announcement in your local newspaper. Again, each communnity and state have unique requirements, check with them.

The other item that you will want is a resale license/permitt (called by different names in each state) so that you can purchase items at wholesale without the state tax. There are also a lot of do’s and don’ts with resale permitts, again, your local state office should have a lot of literature explaining what you can and cannot do. The “cannot does” can get you fined, lose your permit or go the hoose-cow (jail).

Last advice is that if you do choose to go into partnership with someone, then you should write out a formal partnership contract that explains who does what and what each is responsible for. Since 50% of marriages end up in divorce, then probably a 50% chance that you and your partner are going to part ways some time in the future.

Best regards, Doug

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4 Comments »

  1. The art biz series is turning into very interesting reading: certainly makes one think carefully about the whole idea of photography-as-(side)business.

    Even more than that, I’m really enjoying the “Insomnia; Hotel Noir” series: any thoughts of putting slightly larger versions on the web?

    Comment by Martin Doonan — July 12, 2007 @ 12:40 pm

  2. Martin, I am not sure of the legal and business ramifications in Europe, but here in the US there are some basics you have to be aware of.

    As to the series “Insomnia: Hotel Noir”, I am slowly bringing it together (identified about 45 images so far for the series. My first priority is to finish the first serie “Bad Trip – Sad Trip”, I just use the ArtBiz101 as an excuss to finish one image per week in the mean time:- )

    Comment by Doug Stockdale — July 12, 2007 @ 3:10 pm

  3. Doug, as a software developer, I’ve been an S-Corp and let me tell you, it is a lot of paperwork and hassle such as weekly tax deposits, quarterly estimated tax payments, yearly tax returns, etc. Mind you, I did it when I was in Texas where there was no state income tax, so less paperwork. I didn’t even consider it for North Carolina, where there seems to be a tax on everything, including my dog!

    Most people tend to become an S-Corp or an LLC, to get the corporate protection. As we know, the U.S. is a very litigious society. People like to sue! The corporations provide a clear separation of assets. There is no way to get to personal assets through your business, unless you have violated the law. However, there are things, as you know, that you have to do to keep your status, like have meetings, keep minutes, etc.

    I prefer the simplicity of the sole proprietorship, but for some reason, it makes me a bit uneasy. :-) I would certainly have to agree that you should talk to a CPA or tax attorney for the best advice for your situation.

    Comment by paul — July 13, 2007 @ 2:12 am

  4. Paul, we’ve had two parnterships (my wife and I as equal partners) and one C – Corp and I agree about the paperwork required if you incorporate. The corporation is for our current technical and management consulting business. So we have a lot of experience with each type of business entity, always trade offs between them.

    Comment by Doug Stockdale — July 13, 2007 @ 5:22 am


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