So, you’re an artist and want to turn what you love to do into a business. The idea can be daunting, especially if you have limited experience and resources and just have no idea where to start. In “The Business of Being an Artist,” Theresa Simpson of Garvey Schubert Barer and Gary Swearingen, in-house counsel for Costco Wholesale, use their experience as business attorneys to lay out the following significant issues to be aware when setting up a business as an artist or entrepreneur.
1. Setting Up Shop
Make a Plan
- As in any other situation where you are going to have to devote sweat, time, and resources, you should make a plan. What is your ultimate goal? Think about what you plan to do, how you’re going to do it, and with whom.
- Although it is great to be ambitious, be realistic and flexible, and expect for plans to go astray. Similarly, know what your resources are and how you can use them.
- A plan isn’t inflexible. Once you get going, remember to revisit your plan and refine periodically and as needed.
Working With Partners
- As a part of your plan, identify whether or not you want to work with partners. If you do, you should right away identify duties and obligations: who’s going to do what? If you want to avoid any legal complications, it is always best to do this earlier on rather than later.
- Common disputes often arise when duties and obligations are not designated. This issue is not unfamiliar to musicians. When a song or track becomes a huge hit, who takes the credit for writing it? Who collects the most royalties?
- Other questions that you should be thinking about if you have a partner are the following: Who is responsible for what? Who gets to make the decisions? Who owns what? Who gets paid, and how much? Who gets the kids?
- Next step: decide what kind of legal entity you want to be. There are several types of business structures, and choosing the right kind of structure will depend on your individual business and tax issues.
- The following are some of the types of structures to consider: sole proprietorship; partnership; limited liability company (LLC); corporation; or a non-profit.
- Keep in mind that when you’re starting a business, you’re not just dealing with your own money–you have a separate obligation to the entity in regards to the business.
- To get a feel for which legal structure is the best for your business, the U.S. Small Business Administration offers helpful articles on the differences among each structure.
Paperwork: Licenses and Other Filings
- Hopefully when you decided to start a business, you were prepared for all of the paperwork. After you decide which legal entity is the best for you, the next step is to register with your state’s Secretary of State. If you’re looking to set up a Washington business that is going to operate in Washington, check out these resources. You’re also allowed to set up an entity in Washington as a foreign entity.
- As a business, you’ll also have to obtain various licenses; which licenses you’ll need depends on your specific business. You will need to apply for a master business license for your state. For Washington, the State of Washington Business Licensing Service has a helpful guide.
- Some business will also need to obtain a license from the county of your city; you should look to your county website to determine if you will need to apply for a license. In King County, for example, only businesses that participate in a regulated activity and operate or are located in unincorporated King County need to apply for a license.
- And of course, there are taxes. What taxes you have to report depends on your legal entity status (for example, certain non-profits in Washington are exempt from liability for the B&O tax), and since there is not nearly enough time in one blog, getting an accountant is highly suggested.
2. Working With Employees (or not)
- Maintaining a business can be a lot of work, so hiring employees, interns, independent contractors, or volunteers may be something to consider. But remember to keep in mind that different sets of obligations come with hiring a full-time employee as opposed to hiring an independent contractor.
- The following are the obligations that you owe to an employee as an employer: pay, benefits, and taxes. You have to pay your workers regularly or else you will be held liable. Several payroll services, such as Paychex or Intuit Payroll, are available to help. As for providing benefits, small employers are not obligated to do so, but that obligation will grow as your business does.
- Independent contractors are not employees–they are hired for a specific service and are in charge of their own work.
- When you’re looking to hire an independent contractor, there should be a written agreement that clearly says the individual is an independent contractor. The IRS looks to a few factors in determining whether you have an independent contractor working for you or an employee.
- If you are anticipating your business will have intellectual property, be aware that there are different rules if your independent contractor is the one who is creating the IP. Unlike when actual employees create your IP, in which case your business owns the IP under the work-made-for-hire doctrine, independent contractors will own the IP, unless the work agreement says otherwise.
Interns and Volunteers
- Having volunteers and interns also come with different obligations. When it comes to volunteers, the simple rule is this: while it is perfectly fine to have volunteers, you cannot pay them.
- Interns also are perfectly fine to have…so long as you are not asking them to fetch you a cup of coffee or to make you a sandwich. Under the Fair Labor Standards Act, the work you give to interns has to be educational and beneficial for them.
- Washington, as with most other states, is an at-will state, meaning that an employer can fire an employee for any reason except for on the basis of race, color, religion, sexuality, age, or national origin. Likewise, an employee can quit a job for any reason.
Role of Contracts
- For any transaction you make, you are making a contract. Unless you’re making a transaction involving real property, a contract does not have to be in writing–an oral agreement can still be valid.
- Having a contract is not a good idea just because you can point at a document later on in case if there is a disagreement. Having a contract is a good idea because it encourages people to talk and think. Preparing a contract is when all of the “what-ifs?” should be addressed. This leads to a “meeting of the minds,” where both parties are in agreement of what the contract should include. Without a meeting of the minds, then there is no valid contract.
All contracts should address the following:
- What one party is selling and what the other party is receiving;
- How the party receiving is going to get paid. Will it be in cash? Will it be an advanced payment? Is there a fixed fee?
- What the parties’ obligations are;
- The contract’s impact on the future. For example, if a writer is selling manuscript, the contract should make clear whether the writer is only selling that specific manuscript, and not just that specific manuscript plus all future manuscripts.
- Termination rights: there must be an end date to any contract. What will it take for a party to be excused from under a contract, and what will happen afterwards?
- As mentioned above, an oral contract can be legally binding if all the factors to create a contract exist. However, oral agreements risk misunderstanding (“That’s not what we said!”) and possible disputes.
- When you read a contract and don’t understand what you’re reading, don’t just assume it’s legal jargon and agree. Rather, make the other person read it and have them explain it. If it’s not what you originally had agreed to, ask them to change it. Another option would be to make a second agreement that changes what was said in the first one. If you see something you don’t understand in a contract, address it immediately while you have more leverage.
4. Working With Advisors
When to Get a Lawyer
- Not many people want to deal with lawyers, but when you have big money at stake, the best idea would be to get one. Lawyers can help you draft a contract to prevent future disputes, or if it’s the other side that’s doing the drafting, lawyers can help you to understand them.
- Lawyers can be pricey, so it is okay to ask the lawyer to set an hourly limit spent on an assignment. You can also ask to pay a fixed fee, especially for creative projects.
- If you’re in a specialized field such as music, find an attorney who specializes in that field. Some online resources to find an attorney include Avvo or your state’s bar association. It is also not a bad idea to just ask around–find just any attorney and ask them if they know of another attorney who can help you. And in Washington, of course, the WLA’s clinic is a great resource.
Who Else and What Else?
- When a business gets big, it is not unheard of to have several people on your team to help with specific duties. If you’re in the entertainment field, consider a booking agent to help you with scheduling shows. If you’re looking to raise awareness of your business, consider someone who knows how to effectively use social media sites. If you’ve got tax issues or are trying to figure which taxes are applicable for your business, definitely consider an accountant.
- Two things to also consider are insurance and protecting your intellectual property. Insurance is optional, but if you have clients, then having errors and omissions insurance to protect you from mistakes you make is advisable.
- If your business is going to involve creating a new brand, a new song, a new book, or a new anything, figure out how you’re going to protect your intellectual property. Consider getting a lawyer for this!
Still have questions about setting up your business? Stop by the WLA’s free legal clinic to have them answered.
Special thanks goes out to Theresa Simpson and Gary Swearingen for their words of wisdom, and to Garvey Schubert Barer for hosting the seminar!
This post represents the views of the author identified above and does not necessarily reflect the views of Washington Lawyers for the Arts (“WLA”). WLA provides this content as a public resource of general information. WLA does not warrant that the content is or will be complete and accurate. It is not intended by WLA, nor should it be considered by you, to be a source of legal advice. You should not rely upon the information provided. Rather, you should seek legal counsel for consultation and advice.