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Legal Information for Creative Professionals

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Presentation on theme: "Legal Information for Creative Professionals"— Presentation transcript:

1 Legal Information for Creative Professionals
By: Kirk W. Morgan & Sheila E. Eddy, Attorneys

2 Question I’m an artist and I want to start a business.
What should I do first?

3 Entrepreneurship Business Basics – Develop a Team of Advisors
Make-Up of Your Team Accountant tax questions tax strategies book keeping withholding Business Insurance Agent general business liability insurance specialized policies Attorney (General Counsel) business formation contracting employees intellectual property Banker

4 Entrepreneurship Methods of Conducting Business Sole proprietor
Partnership Limited Liability Company Corporation L3C

5 Sole Proprietorship One owner
No paperwork to file with the State of Michigan Register with county clerk if doing business under an assumed name

6 Sole Proprietorship Advantages Disadvantages
Little to no expense to establish Income taxed at Owner’s rate (and pay self-employment tax) Disadvantages Unlimited personal liability for all business debts Only one owner Business is not perpetual

7 Partnerships – General
Two Types: General and Limited Partnership. More than one owner No paperwork to file with the State of Michigan Register with county clerk if doing business under an assumed name

8 Partnerships – General
Advantages Easy to form Each partners share of the profit taxed at owner’s rate Disadvantages General partners have unlimited liability for business debts The partnership is responsible for the acts of each partner Federal taxation rules are highly complex Business is not perpetual General partners cannot sell or transfer their interest without consent of all partners

9 Partnerships – Limited
Two Types: General and Limited Partnership One or more general and limited partners General partners liable for all business debt Limited partners usually investors do not participate in the business business liability limited to investment Register with State of Michigan

10 Partnerships – Limited
Advantages Very limited and mainly for limited partner investors Disadvantages Complex tax structure Full liability for general partners Must register limited partnerships with the State of Michigan

11 Limited Liability Company (LLC)
One or more owners Articles of Organization with State of Michigan May conduct business under an assumed name (file with State of Michigan)

12 Limited Liability Company (LLC)
Advantages Limited liability for business debts Taxed similarly to sole proprietor (single owner) or a partnership (multiple owners) Easier to maintain than a corporation Perpetual existence Disadvantages More cost to form than sole proprietorship/partnership ($50 filing fee, $25 for each assumed name and yearly renewal fee of $25) More complex start-up requirements than partnerships or sole proprietorships Members do pay themselves wages but may receive money out of business profit Every member must pay taxes his his/her share of the profits and is not exempt from self-employment taxes

13 Corporation One or more shareholder
Articles of Incorporation with the State of Michigan May conduct business under an assumed name (file with State of Michigan)

14 Corporation Advantages Disadvantages
Easier to raise capital through sale of stock Limited liability for business debts – shareholders only risk their investment Easy to transfer ownership Disadvantages Costly to set up and maintain Corporate formalities are complex but must be strictly followed to maintain corporate status and limited liability of shareholders Closely regulated by both federal and state government Double taxation

15 L3C Hybrid of a nonprofit and for-profit organization
Purpose of encouraging private and/or philanthropic investment in businesses Designed for social benefit

16 L3C Advantages Disadvantages All the benefits of LLC structure
Qualification as PRI (Program Related Investment), facilitating foundation investments Not subject to nonprofit regulation Branding and marketing opportunities Disadvantages PRI investments are rare and considered risky, with potential excise tax liability to the foundation So new that there are many unresolved questions about how rules and regulations will be interpreted and/or applied

17 Entrepreneurship – Issues
Co-owners Operating agreement/ by-laws Licenses, permits and other regulations What are they and are you in compliance? Zoning and Building Codes What are they and do they apply? Employees Required signage: Health/safety; immigration law; Minimum wage

18 Entrepreneurship – Issues
Taxes Self-Employment Taxes Employee(s) and withholding applicable income tax (state/federal) Withholding social security, medicare, unemployment (state/federal) Worker’s compensation insurance Sales tax Employer Identification Number (EIN) Funding Family/friends Investors Banks Crowd-sourced financing

19 Question When should I pay taxes for work from which I receive compensation? ALWAYS!

20 Question If I hire employees, am I required to form an entity?
No, but…

21 Question What do I need to know about my individual taxes versus those of an entity such as an LLC? When in doubt, call your accountant!

22 Question I have a studio space in my home. What are the tax implications of this? When in doubt, call your accountant!

23 Protecting IP in business
Have contracts in place for all relationships within and outside of the company. Employment agreements Independent contractor agreements

24 Employment Agreements
Employment relationship Ownership of IP Possession and treatment of confidential information

25 Independent Contractor Agreements
Independent contractor relationship responsible for own expenses, responsible for paying own taxes on income, no benefits, etc. Ownership of IP Work made for hire and assignment provisions

26 Protecting IP in business
Contracts, Contracts, Contracts! Employer Employee / Contractor WANT these: Work made for hire Assignment Non-disclosure Non-competition/non-solicitation (specialized) DON’T WANT these (but check bargaining power): Work made for hire (if contractor) Assignment Non-competition/non-solicitation (specialized)

27 Helpful Links general information regarding entity formation in Michigan search for existing names in the State of Michigan federally registered trade names and service marks federal trademarks Dept of Natural resources information Dept of Environmental Quality information Michigan construction and Barrier free information Federal Tax information State of Michigan tax information and business registration Michigan Dept of Treasury information Specific information pertaining to Michigan Business taxes Michigan unemployment Insurance information Helpful information regarding small businesses in Michigan and assistance

28 Questions? Kirk W. Morgan, Attorney | kmorgan@shrr.com | 616-458-3319
Sheila E. Eddy, Attorney | |

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