Presentation given at the Program for Launching Artistic Entrepreneurs: Getting Started panel.

1. Getting Started: Start-up Basics
for Creative Professionals
Program for Launching Artistic Entrepreneurs
(PLAE)
November 12, 2011
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2. About the Speaker
Ronald L. Barabas, Esq., Corporate & Entertainment Attorney, Di Santo LLP
Ron’s practice is focused primarily on corporate and entertainment law. His
entertainment law experience spans a variety of intellectual property, litigation and
transactional matters related to film, music, radio, visual art, fashion, interactive
development, publishing, and sports. Ron also has general corporate law experience
with significant mergers and acquisitions expertise. In addition, Ron was engaged in
the business of independent film production prior to pursuing his legal career.
Di Santo LLP is a full service law firm with offices in New York and Miami that
specializes in all aspects of corporate and securities law, commercial litigation and
regulatory investigations, entertainment and new media matters, intellectual property,
and real estate transactions and finance. We have extensive experience in representing a
variety of business entities, including real estate investment trusts (or REITs),
investment banks, venture capital firms, real estate developers and small businesses.
We have structured and negotiated a wide range of transactions from multi-million
dollar securities offerings and private placements to complex mergers and acquisitions.
We also counsel start-up businesses and entrepreneurs in entity formation and venture
capital financing.
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3. Starting Your Own Business
• Advantages: independence; opportunity to
pursue your passion; tax benefits; earnings
potential.
• Disadvantages: no job or income security; no
unemployment insurance; total responsibility;
client non-payments; personal liability for
debts (which can be addressed); having to deal
with ongoing legal and tax issues.
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4. Initial Business Considerations
1. Market Opportunity: Define the market opportunity for
your company.
2. Competitive Advantages: Identify competitive advantages
that distinguish your product or service.
3. Valuation: Create a workable revenue model and
supportable financial projections.
4. Management Team: Select management team candidates
and advisors, preferably with experience in start-ups in
your industry.
5. Funding: Determine project funding needs for 12-18
month period.
6. Objective: Define the exit strategy for the company and
investors.
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5. Plan Ahead
• First-time entrepreneur artists often get started
without fully considering and planning around the
legal implications of their endeavor.
• Even if (or especially if) you’re going into
business with someone close to you, it’s important
to document expectations by agreement.
• An upfront investment in time and effort could
save major costs and headaches in the future.
• While it is advisable to consult an attorney to help
you plan within the unique circumstances of your
new business, there are some other low-cost
resources available to you that can help.
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6. Initial Legal Considerations
1. Choice of Entity: Determine which type of entity is
appropriate and file all initial founding documents as
necessary.
2. IP Protection: File patents, trademarks and/or
copyrights.
3. Operational Agreements: Execute protective
agreements needed to operate your business.
4. Employees and Independent Contractors: Assess needs.
5. Funding Options: Consider all funding options for
working capital needs.
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7. Choosing an Entity Type
• Why it’s important: limit personal liability
from business debts and lawsuits; added
credibility; prepare for the company’s future.
• Key considerations: limited liability; tax
treatment; costs involved; simplicity of entity
maintenance; flexibility on allocation of profits
and losses between multiple owners.
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8. Sole Proprietorship
Advantages Disadvantages
• No cost to form (excluding • Personal liability for
business license or fictitious business debts and lawsuit
name registration, if judgments
applicable) • Not a separate legal entity
• Simple tax returns • In certain circumstances,
• No unemployment taxes clients may be concerned
• Flow-through taxation that you will be considered
their employee for tax
purposes
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9. Corporation (C or S Corp.)
Advantages Disadvantages
• Limited personal liability • Costs to form and maintain
for business • Must maintain corporate
formalities in order to
debts/judgments preserve limited liability
• Is a separate legal entity • Profits/losses can only be
allocated in proportion to
• Provides some degree of ownership
credibility and comfort to • C Corp: taxed as a separate
clients regarding tax entity; dividends or income
treatment distributions are taxed again
• S Corp: taxed like a sole
• Audited less frequently than proprietorship but shareholders
sole proprietorships must split profit based on %
ownership
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10. Limited Liability Company
Advantages Disadvantages
• Limited personal liability • Costs to form
for business
debts/judgments • Self-employment taxes (like
• No corporate formalities sole proprietorship but
unlike corporation)
• Is a separate legal entity
• Provides some degree of
credibility and comfort to
clients regarding tax
treatment
• Flexibility for allocating
profits/losses
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11. Trade Name
• Should not be substantially similar to the name of
another business in your field
• Conduct a name search in advance (Google;
USPTO Trademark Database; Thomas Register;
state corporation and business entity database)
• If operating as a sole proprietorship or partnership
may need to register fictitious business name
• Be careful not to infringe upon a name that has
been federally registered as a trademark or used in
the marketplace
• Consider filing registration with state trademark
office or USPTO
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12. Intellectual Property Issues
• All businesses need to protect their own and
not infringe on others’ intellectual property
• Arts-related businesses in particular are more
likely to draw revenue from the commercial
exploitation of copyrighted material (e.g.,
writings, graphics, designs, music, software)
• If your business relies on intellectual property
owned by another party, a license will likely be
needed
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13. Types of Intellectual Property
• Patent: protects inventions that are new, useful
and nonobvious as judged by the USPTO
• Trademark: protects names, logos and other
marks used to identify a business or product
• Copyright: protects original works of
authorship that are fixed in a tangible medium
of expression
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14. Copyright
• Copyright protection vests when an original
work is created, whether or not the work is
registered (though registration is advisable)
• Categories include: literary works; musical
works, including any accompanying words;
dramatic works, including any accompanying
music; pantomimes and choreographic works;
pictorial, graphic, and sculptural works; motion
pictures and other audiovisual works; sound
recordings; and architectural works (See Section
102 of the US Copyright Law).
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15. The Importance of Copyright Ownership
• Only the copyright owner can (or can authorize
others to) reproduce, prepare derivatives of,
perform, display or otherwise commercially
exploit the copyrighted work.
• Who is the owner? When more than one person is
involved, copyright ownership should be
addressed before the work is created.
• Joint owners are entitled to license a work without
the other owners’ approval but must share profits.
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16. Generating Revenue from Copyrighted Works
• It’s up to you determine which rights you grant or
acquire.
– Transfer all rights: work-for-hire or assignment
(creator may be able to get a higher fee but loses all
potential future income from the work).
– Transfer some rights and keep others (exclusive or
non-exclusive licenses can be granted).
• Exclusive licenses (including work-for-hire and
assignments) must be in writing to be valid.
• Although nonexclusive licenses can be oral, a
written agreement is highly advisable.
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17. NDAs, Employment and other
Considerations
• Nondisclosure agreements are sometimes used with
potential business partners, investors, contractors,
employees and customers; they make clear that the
party receiving trade secrets is bound not to disclose
the information.
• How your company structures relationships with
workers (employee vs. contractor) has important
copyright, tax and various other ramifications.
• Other issues should be considered as necessary,
including insurance and financing.
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18. Conclusion
• Entrepreneurs working in entertainment and the
arts need to carefully consider basic legal issues
like entity structure and intellectual property (IP)
to protect themselves and meet their business
goals.
• Confront legal issues right away to avoid future
problems.
• While it is important to consult legal and tax
professionals, a general working knowledge of IP
law and contracts will be extremely useful in
effectively managing your business.
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19. Some Helpful Resources
While there are many books, groups and other resources
geared to specific disciplines that can help (e.g., All You Need
to Know About the Music Business), below are some resources
of more general applicability.
- Volunteer Lawyers for the Arts: non-profit that provides pro
bono legal referrals, legal education and other services for
low-income artists.
- New York Foundation for the Arts: free professional
workshops, panels and other programs including their
summer Artist As Entrepreneur Boot Camp.
• Books by the legal publisher Nolo, including Working for
Yourself: Law & Taxes for Independent Contractors,
Freelancers & Consultants.
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20. For Questions:
Ronald L. Barabas, Esq.
Corporate and Entertainment Attorney
Di Santo LLP
• Email: rbarabas@disantolaw.com
• Phone: 212.766.2467 (Office) or 516.528.9961
(Cell)
• Fax: 866.428.3369
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