LLC’s, Corporations, And Other Business Structures - Part I: Written By New York Entertainment Lawyer And LLC Counsel John J. Tormey III, Esq.

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LLC’s, Corporations, And Other Business Structures - Part I: Written By New York Entertainment Lawyer And LLC Counsel John J. Tormey III, Esq.

© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

While many artists continue to do business as individuals, there often comes a point in their career when it makes sense to ascend to the next level - to create a business, to create a company, usually in this day and age a limited liability company (LLC) or a corporation, with its own name and identity. In the fields of arts and entertainment, this process is often handled by and through an entertainment lawyer, and is often the first reason for which a new client seeks counsel. If you are an artist who has reached that point in your career, or even if you have already surpassed it and want to revisit your decision, then this article is for you. I am a New York entertainment lawyer who regularly handles corporate and LLC matters and my contact information appears below.

1. Choosing a Name For A New Business

If one is choosing a structure for a small business, there are a number of different types of business entities that can be formed. At minimum, one likely will need to assess the relative merits of the subchapter-”S” corporation (“S-corp”); the subchapter-“C” corporation (“C-corp”); and the limited liability company (“LLC”). This choice will be described in more detail, below, and in Part II and Part II of this Article. But the first issues one should address, also typically addressed with and through one’s entertainment lawyer, are the trademark considerations which may arise as a result of the chosen name for the limited liability company (LLC), corporation, or other form of company.

“Fanciful” (i.e., fictitious) new business names for a limited liability company (LLC), corporation, or other form of entity should be searched as trademarks, especially in fields like entertainment where name recognition can be so important. Entertainment lawyers will routinely search and then issue opinions on proposed trademarks of properties for clients, including trademark-searches on LLC names and corporation names themselves. Why go through this process? Because a new LLC, corporation, or other form of business needs to confirm that no other businesses have prior rights or viable claims to its newly-proposed name (or a name substantially similar to its newly-proposed name). In any event, one may be barred from registering a corporate, LLC, or other business name, if someone else has already registered the same name in the jurisdiction in which the entity-filing is intended. Moreover, if one’s business is intended to ultimately be national or international in scope, as is often the case in entertainment-related and Internet-related LLC’s and corporations, a careful trademark search conducted through one’s entertainment lawyer becomes all the more important. One doesn’t want to invest sweat and equity in a fanciful business name, only to later find out that he or she is legally prevented from using it, or is unable to stop others from infringing on the newly-chosen business name.

Principal owners of a new business do sometimes elect to incorporate or form a limited liability company (LLC) under their own legal and given name (i.e., “John Doe, Inc., or “John Doe LLC”), instead of a fanciful name, in the hopes of saving money that they would otherwise spend on a trademark search through an entertainment lawyer. But there are at least two potential drawbacks to doing so:

Incorporating or forming a limited liability company (LLC) under one’s given name often makes it more difficult to later successfully develop a separate and distinct brand identity for one’s products and services.

Incorporating or forming a limited liability company (LLC) under one’s given name (or even a variant thereof) marginally increases the chances that a court may be inclined to let a plaintiff “pierce” one’s “corporate veil” in a litigation, if the “corporate veil” issue ever arises. “Piercing” means “finding individual economic liability” on the part of the owner/principal. The plaintiff’s argument would be that a self-titled corporation (or LLC) is more likely to be the “alter ego” of its individual principal. Now, although the odds of one’s “veil” being “pierced” may not be that high - assuming that the business owner observes all other corporate or LLC filings and formalities up until that point - the risk of individual liability is still worth mentioning. After all, for many people, the avoidance of “personal liability” and the avoidance of possible “veil piercing” is the whole reason for their incorporating or forming an LLC in the first instance.

What do I mean by “personal liability”? That is probably the most important legal concept that a limited liability company (LLC) owner, corporation owner, or other form of business owner will ever seek to avoid! Please read the next installment of this article.

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My law practice as an entertainment attorney includes incorporations and the formation of limited liability companies (LLC’s), as well as work relating to trademarks and service marks. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

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Business Structures - Part I

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Publishing and Digital and Electronic Rights - Part II: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

http://www.tormey.org/publishing2.htm

Law Office of John J. Tormey III, Esq. – Entertainment Lawyer, Entertainment Attorney

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

Publishing and Digital and Electronic Rights - Part II: Written By New York Entertainment Attorney And Publishing Lawyer John J. Tormey III, Esq.

© John J. Tormey III, PLLC. All Rights Reserved.

This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.

Part I of this article discussed how phrases like the “digital right” or “electronic right” should not be assumed to be self-defining, even by and between publishing lawyers and entertainment attorneys, and how it is incumbent upon authors to reserve needed rights like the digital right or the electronic right to themselves in the context of a publishing deal. Next up, this Part II examines concepts such as the digital right or electronic right from the perspective of the publishing lawyer and entertainment attorney, and the standpoint of fairness - who between author and publisher should in fact hold on to the digital right and electronic right, once and assuming that they are first properly defined?

3. Yes, Digital Right And Electronic Right Uses Do Compete With Traditional Book Publishing Uses.

A publishing lawyer or entertainment attorney may be called upon to handle an author-side deal. A publishing lawyer or entertainment attorney may also be called upon to handle, under different factual circumstances, a publisher-side deal. So, now, a few words in defense of publishers, I suppose.

There is a perception in the author and Internet communities that publishers should not be taking broad grants of the digital right or electronic right from authors, since “digital rights and electronic rights do not compete or interfere with traditional book publishing and other media rights”.

Not true. Not anymore. For proof of that fact, ask a few veteran news desk editors whether or not they followed, or were otherwise concerned about, what appeared on the Drudge Report during the Clinton administration. Ask the CFO’s or in-house publishing lawyers of a few traditional encyclopedia companies how they feel about Wikipedia.

Incidentally, although as a publishing lawyer and entertainment attorney and unlike some others, I tend to use the phrase “electronic right” or even “digital right” in the singular number, there probably tends to be no single consensus as to what constitutes and collectively comprises the singular “electronic right” or “digital right”. There has not been sufficient time for the publishing, media, or entertainment industries to fully crystallize accurate and complete definitions of phrases like “electronic publishing”, “web publishing”, “electronic right[s]”, “e-rights”, “digital right[s]”, or “first electronic rights”.

Nevertheless, electronic media and specifically the digital right and electronic right, have already changed our history. You can be sure that they will have some effect, at a minimum, on most author’s individual publishing deals henceforth, and will be the fodder of publishing lawyer and entertainment attorney discussion for years to come. The fact is, electronic uses inherent in the digital right and the electronic right already do compete with older, more traditional uses - particularly because digital and electronic uses are cheaper and faster to deploy, and can potentially reach millions of users in less than, as Jackson Browne might say, the blink of an eye.

Commerce is increasingly relying upon the Internet and other electronic phenomena, and the linchpin of this reliance is the digital right and electronic right. After all, you are reading this article, and ostensibly gleaning some information or material from it. The Web, for example, has already put a sizable dent in dictionary and encyclopedia sales, and anyone who tells you otherwise is probably an employee in a dictionary or encyclopedia publishing company or publishing lawyer in-houser in denial of the digital and electronic right, trying to protect his/her stock options. As the recent and well-known Stephen King pilot program will attest, fiction is the next subject matter area to be affected. Many of us book lovers including publishing lawyers and entertainment attorneys don’t like to think about it, but bound hard-copy books may soon become the sole province of book collectors and publishing lawyer vanity bookcases alone. The vast majority of book readers, however, may so wholly embrace the digital right and electronic right that they soon even lose the patience to wait for their http://www.amazon.com/ mailed shipment.

Very few people who work in the publishing, media, and entertainment industries, including as amongst fair-minded publishing lawyers and entertainment attorneys, should dispute that electronic uses inherent in the digital right and electronic right can easily cannibalize the older and more traditional forms and formats. This cannibalization will only increase, not decrease, as time goes on. Again, the author should put himself/herself in the mind-set of the publisher or its in-house publishing lawyer, when having this digital right/electronic right argument with the publisher or publishing lawyer. The publisher otherwise may want to invest marketing and personnel support in the author’s work, and perhaps even pay the author an advance for the writing. In their view, though, the publisher’s publishing lawyer or entertainment attorney argues, why should they do so, and not also capture the author’s digital right or electronic right?

The last thing that the publisher or its publishing lawyer or entertainment attorney wants to do is to pay the author - and then discover that the author has “scooped” the publication with the author-reserved digital right or electronic right, stolen the publisher’s proverbial fire, and undermined the publisher’s investment in the author and the writing. The concern of the publisher and the book company’s in-house publishing lawyer or outside entertainment attorney is rational and valid. If the publisher allows the author to potentially undercut the book by exploiting author’s reserved digital right or electronic right, then the publisher is threatening the publisher’s own investment in the author and in the written work. (And on some subliminal level at least, the company’s in-house publishing lawyer also knows that this could come out of his or her future comp).

Compromises are available. One traditional compromise effected between publishing lawyers or entertainment attorneys is a so-called “hold-back” on the digital right or electronic right, whereby the author promises not to use or license-out any author-reserved digital right or electronic right for a certain period of time following publication. The author will need some leverage to get a publisher to agree to such a compromise, though. And a publishing lawyer or entertainment attorney should draft the clause - the author’s publishing lawyer or entertainment attorney, not the publisher’s counsel!

An author may think that small “portfolio” uses (e.g., tucked inside greeting cards, on an author’s personal web site, etc.) are so minor, that they will never compete with publishing rights granted for the same work, and may tell the publisher or the company’s publishing lawyer or entertainment attorney as much. The greeting card example does seem innocuous enough, but the publisher and its entertainment or publishing lawyer will likely not agree with the author regarding the author’s personal web site. It is the electronic right or the digital right that really scares publishers and their publishing lawyers and entertainment attorneys, and is perceived as threatening to their long-term investment in the author and his or her work.

The distinction to be made here is between hard-copy portfolio uses, and digital right or electronic right “portfolio uses”. The fact is that computer-uploaded text is so easy and quick to transmit, receive, and read. The posted content’s popularity could also spread like digital wildfire, so quickly - for example, if a company hyper-links to the author’s site, or if “Yahoo” bumps the author’s site up in their search-engine pecking-order. Many successes have already been made by virtue of digital right and electronic right self-publishing, and more will follow. Traditional (book) publishers and their publishing lawyers and entertainment attorneys already realize this fact. Accordingly, traditional book publishers and their counsel also realize that once they acknowledge an author’s reservation of a “self-promotion” digital right or electronic right, they risk losing control of a potential wildfire dissemination method. Again, this would put the publisher’s investment at risk - but smart business people and companies and the publishing lawyers and entertainment attorneys that represent them, don’t put their own investments at risk.

4. The Party To The Contract That Has The Better And More Immediate Means and Resources To Exploit The Electronic Rights, Should Be The One Who Takes The Electronic Rights.

Here is the final point. If a contracting party has no means and resources to exploit a digital right or electronic right or a given bundle of them, then that same party has no business taking (or reserving to themselves) those same digital or electronic rights by contract or even negotiating such a position by and between publishing lawyers or entertainment attorneys. To analogize, if I am a screenwriter who options or sells my script to the Acme Production Company, LLC, through an entertainment lawyer, how should I react if Acme asks me to specifically and contractually grant them “theme park rights” in my literary property in the negotiation between the entertainment attorneys? (Don’t laugh - this practice is now very prevalent in film and entertainment deals).

Well, if Acme doesn’t have its own theme park, I (or my entertainment attorney) now have a powerful argument for reserving the theme park rights to myself instead. “Hey, Acme”, I (or my entertainment attorney) say, “... how do you have the unmitigated gall to ask me for my theme park rights, when you don’t even have the ability to exploit or use them yourself? You don’t even have a theme park!” I (or my entertainment attorney) then make it clear to Acme that I don’t intend to be giving them any trophies that they can put on a shelf to collect proverbial dust.

The same argument can work in the publishing context, particularly as argued between publishing lawyers and entertainment attorneys, regarding the digital right or the electronic right. The author can proverbially cross-examine the publisher (or try to cross-examine the company’s publishing lawyer or entertainment attorney) as to what successful past uses they have made of other author’s digital rights or electronic rights across multiple books. The company President may fudge the answer, but the publishing lawyer or entertainment attorney representing the publisher must answer truthfully. (One good reason to negotiate through counsel).

If the true answer to the question is “none”, then the author can use the “trophy” argument stated above. If the true answer is, alternatively, “some”, then the author has a negotiating opportunity to compel the publisher and its publishing lawyer and entertainment attorney to contractually commit to digitally and electronically publish the author’s work, too. The author can argue: “I won’t grant you the digital right or electronic right unless you, publisher, contractually commit in advance as to how specifically you will exploit them, and how much money you will spend in their development and marketing”. The author or the author’s publishing lawyer or entertainment attorney can then carve those electronic right and digital right commitments right directly into the contract, if the author has the leverage to do so. Again, one should not try this at home - but instead use a publishing lawyer or entertainment attorney.

Needless to say, once the author makes the publisher commit, presumably through publishing lawyer or entertainment attorney counsel, to a development budget or other marketing or “release” commitment for the digital right or the electronic right, then both the author and the publisher might thereby also have some basis for numerical valuation of the rights themselves. And, it is an entirely reasonable argument for an author or author’s publishing lawyer or entertainment attorney to say to a publisher that: “I will license/sell you the following listed digital right[s] or electronic right[s] if you pay me the following additional amounts for them:_____________________. And in the blank space, the rights can be listed like menu options as they have been broken out in Item #1 above, each to which separate dollar values – that is, price-tags - are now assigned.

Click the “Articles” button at:

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My media law practice as a publishing lawyer and entertainment attorney includes the drafting, editing, negotiation, and closure of agreements including digital and electronic rights matters as they may arise therein, as well as in the fields of film, music, television, Internet, and other media and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me:

Law Office of John J. Tormey III, Esq.

John J. Tormey III, PLLC

1324 Lexington Avenue, PMB 188

New York, NY  10128  USA

(212) 410-4142 (phone)

(212) 410-2380 (fax)

brightline@att.net

http://www.tormey.org/

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Publishing and Digital and Electronic Rights - Part II

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