Arts & Entertainment

I am a photographer who travels on assignments for my job across state lines. I want to incorporate or form an LLC. In which state should I form my company?

In deciding where to form a company, our clients consider many factors, such as where their company intends to conduct its business. In addition, with respect to several states being considered as the place of formation, it is necessary to evaluate, among other things, the cost of forming the company in the state, the tax laws and business laws of the state, and whether it will be necessary for the company to qualify/register to conduct business in one or more other states.

Many business owners elect to incorporate or form their LLC in the state where their company conducts, or intends to conduct, the majority of its business. That determination often makes sense in cases where the company is expected to conduct its operations primarily or exclusively in one state.

In addition, many of our customers choose to incorporate in Delaware. Among its many benefits, Delaware has no minimum capital requirement, no sales tax, no personal property tax, a relatively low franchise tax, and advanced and flexible laws governing corporations and LLCs. Also, Delaware is one of the few states that permit series LLCs, which may be an attractive option for business owners with multiple business assets.

In deciding where to form the company, it is also necessary to consider the costs of qualifying the company to do business in other states. For example, if a business owner is considering forming a company in Delaware, but all of company's assets and operations are located in New York, then the owner may elect to form the company in New York (and not Delaware), and avoid the dual costs associated with forming the entity in Delaware and then qualifying that entity to do business in New York.

Will I have to qualify to do business in other states with respect to my company?

Whether or not a company must register or qualify in a particular state depends upon the laws of that state, which may vary from state to state. However, if an LLC or corporation does business in a state other than the state in which it was formed, it is generally required to register or "qualify" to do business in that state. The LLC or corporation is referred to as a "foreign" LLC or corporation in states other than the state in which it was formed. Also, a company may have to obtain a separate business license to conduct business in certain states or municipalities. Once again, the laws of the state or municipality involved will determine whether or not the company will be required to obtain a separate business license.

Generally, qualifying a company to do business in a state other than its state of formation is similar to the formation process, and the LLC or corporation may be required to pay filing fees and provide certain information and documentation to the state. Also, if a company is required to qualify to do business in a state but fails to do so, it may be subject to penalties. incorporate.com can help business owners form and qualify an LLC or corporation in any state and in a cost effective manner.

Will I have to file tax returns and/or pay taxes in other states with respect to my company?

Many states require companies that conduct business in the state to file a separate tax return and pay taxes directly to that state based upon the business conducted in that state, even if the company is not organized in that state. Additionally, states may allow a credit for taxes paid to other states with regard to income from business conducted in those other states. Generally, in determining whether or not a company must file tax returns or pay taxes to a particular state, the state may consider the connection or "nexus" that the company has to the state.

In making such a determination, states typically consider factors such as the frequency and magnitude of business the company provides in a particular state or for customers in a particular state, or whether the company has a physical presence in a particular state, such as employees who conduct business activities or an office located in that state. It is important to note that whether or not a company must file a tax return in a specific state is not necessarily determined by whether that company is required to register or qualify to do business in that state. For example, a company may not be required to qualify to do business in a state, but could nonetheless be required to file a tax return.

The amount of income that must be reported, permissible deductions, tax rates, required tax forms, and tax-filing dates may differ significantly by state. In light of the differences in the tax laws between the states, we typically recommend that our customers hire qualified tax professionals to provide tax advice and prepare the company's tax filings in each of the states where required.

I am part of a rock band with several members and we are looking to form a corporation or an LLC to operate the band. Which business structure is the best for our band?

Selecting the best entity to operate a business is typically dependent on the particular circumstances involved, such as the size of the company's business, and the number of owners or members. Although both a corporation and an LLC can help protect a business owner from liability, our customers often form an LLC to conduct their business.

An LLC can offer more flexibility in how the owners can manage the company, and may not require some of the typical formalities of a corporation, such as annual meetings of stockholders. For example, the owners of the LLC can expressly set forth and/or limit the rights, powers and obligations of the LLC's managers and members. Essentially, LLCs are contractual in nature, and therefore, the owners have broad "freedom of contract" in connection with how the entity will be managed and how profits will be allocated and/or distributed.

An LLC also may have tax advantages over a corporation with respect to federal and/or state taxes. For example, an LLC with only one owner may not have to file a separate federal tax return and its profit or loss can be included on the owner's federal tax filing. In contrast, a corporation must file a separate federal tax return. In some situations, however, an s corporation can provide tax advantages not available to an LLC.

Due to the significant tax issues implicated by the type of entity formed to operate the business, we typically recommend that our customers hire qualified tax professionals to provide tax advice and prepare the company's tax filings.

I am an author looking to start my own publishing company. Can my business own the rights to my work?

Corporations and LLCs often own intellectual property rights, including copyrights. Authors who want absolute control over and beneficial ownership of the intellectual property often hold the intellectual property personally or transfer it to a corporation or LLC where they are the sole owner (sole stockholder or sole member). Additionally, authors may wish to limit their business entity's assets to the intellectual property, which would require forming a separate corporation or LLC to conduct the publishing company business. The publishing company might then license the intellectual property from the author or the separate corporation or LLC in exchange for royalty or other payments.

Certain states provide tax benefits to entities that limit their activities to the ownership and management of intangible assets. Under certain circumstances, the tax savings could be substantial for an enterprise with significant intellectual property. However, this is a complex matter of state tax law and we therefore typically recommend that our customers hire qualified tax professionals to provide tax advice with respect to such issues.

I want to purchase a building and open an art gallery to display and sell my art. What are the benefits of forming a business to conduct my business and own my gallery and art assets?

Our customers often form a corporation or LLC to conduct, operate and manage their business in order to help protect their other assets from liabilities or lawsuits that might result from their business. If the corporation or LLC is formed and managed correctly and there is a claim or lawsuit relating to the business, then generally only the assets owned by the corporation or the LLC, and not the business owner's other personal assets, will be subject to the claim or lawsuit. In other words, by forming a corporation or an LLC to operate their business, business owners may be able to limit their potential liability and avoid personal liability if there is a claim or lawsuit relating to their business.

Should I form one business or multiple businesses?

If a business owner owns multiple business assets (for example, a building on the one hand and gallery assets and artwork on the other hand), he or she may be able to further protect his or her assets by forming a separate corporation or LLC to own and hold each separate asset or group of related assets. If the separate corporations or LLCs are properly formed and maintained, then theoretically only the assets owned by a specific corporation or LLC would be subject to claims or lawsuits against that corporation or LLC. However, there are costs and administrative burdens associated with forming, qualifying (if necessary), and properly maintaining multiple corporations or LLCs, which should be considered in deciding whether to form separate entities for each business asset.

Another option to consider, if permitted under applicable law, is a series LLC, which is an umbrella entity consisting of one LLC with multiple "series" or "cells." Series LLCs may be of interest to individuals who have assets for which they desire to maintain separate liability protection.

To best understand how an LLC and a series LLC differ, a typical non-series LLC (if properly formed and maintained) will generally protect its owner's personal assets from the LLC's business obligations. However, it will not protect one asset owned by the LLC from being used to satisfy a judgment relating to another LLC asset. Under a non-series LLC, all assets owned by the LLC are potentially subject to any claim or lawsuit against the LLC. For example, assume that a typical non-series LLC holds several assets. If a person is injured by one of the LLC's assets and sues and wins, then all of that LLC's assets -- even the other assets that it owns -- can be used to satisfy the judgment obtained against the non-series LLC. The LLC could potentially lose all of its assets based on a lawsuit or claim that is related to only one of its assets.

A properly formed and maintained series LLC will treat each created series as a separate entity, with its own rights and obligations. Theoretically, under a series LLC, if someone is injured by Asset #1 (which is an asset of Series #1) and sues the LLC and wins, then only the assets of Series #1 should be at risk with regard to the claim.

The series LLC originated in Delaware, but the laws of some other states (such as Illinois and Oklahoma) also provide for the formation of a series LLC. It should be noted that the proper tax treatment of the separate series is still an evolving area of the law.

Should I form a corporation or an LLC? Are there any benefits associated with using one business structure versus another?

Selecting the best structure to operate a business typically depends upon the particular circumstances involved, such as the size of the company's business and the number of owners or members. Although both a corporation or an LLC can help protect a business owner from liability, our customers often form an LLC to conduct their business. An LLC can offer more flexibility in how the owners can manage the company, and may not require some of the typical formalities of a corporation, such as annual meetings of stockholders. For example, the owners of the LLC can expressly set forth and/or limit the rights, powers and obligations of the LLC's managers and members. Essentially, LLCs are contractual in nature, and therefore, the owners have broad "freedom of contract" in connection with how the entity will be managed and how profits will be allocated and/or distributed. An LLC also may have tax advantages over a corporation with respect to federal and/or state taxes. For example, an LLC with only one owner may not have to file a separate federal tax return and its profit or loss can be included on the owner's federal tax filing. In contrast, a corporation must file a separate federal tax return. In some situations, however, an S Corporation can provide tax advantages not available to an LLC. Due to the significant tax issues implicated by the type of entity formed to operate the business, we typically recommend that our customers hire qualified tax professionals to provide tax advice and prepare the company's tax filings.

I own a music venue and am concerned about customers getting hurt on my property. How can incorporating or forming an LLC to own and operate my venue protect me?

Our customers often form a corporation or an LLC to conduct, operate and manage their business in order to help protect their other assets from liabilities or lawsuits that might result from their business. If the corporation or LLC is formed and managed correctly and there is a claim or lawsuit relating to the business, then generally only the assets owned by the corporation or the LLC, and not the business owner's other personal assets, will be subject to the claim or lawsuit. In other words, by forming a corporation or an LLC to operate their business, business owners may be able to limit their potential liability and avoid personal liability if there is a claim or lawsuit relating to their business.

If a business owner owns multiple business assets (for example, a building on the one hand and a business that operates a music venue on the other hand), he or she may be able to further protect his or her assets by forming a separate corporation or LLC to own and hold each separate asset or group of related assets. If the separate corporations or LLCs are properly formed and maintained, then theoretically only the assets owned by a specific corporation or LLC would be subject to claims or lawsuits against that corporation or LLC. However, there are costs and administrative burdens associated with forming, qualifying (if necessary), and properly maintaining multiple corporations or LLCs, which should be considered in deciding whether to form separate entities for each business asset.

What is a partnership agreement and can it be used with our band members?

Depending upon the business structure, the business owners may enter into an agreement that sets forth, among other things, their respective rights and obligations with respect to their ownership interests in the business (including their right to distributions of profits generated by the entity), and provisions governing the conduct and affairs of the business. If the business is a partnership, that agreement is generally referred to as a "partnership agreement". If the business is an LLC, that agreement is generally referred to as a "Limited Liability Company agreement" or "operating agreement." Essentially, partnerships and LLCs are contractual in nature, and therefore, the owners have broad "freedom of contract" in connection with how the entity will be managed and how profits will be allocated and/or distributed.

There are different types of partnerships, such a general partnerships and limited partnerships. The type of partnership selected will determine, among other things, whether the partners are personally liable for the obligations of the partnership. For example, partners in a limited partnership typically are not personally liable for the partnership's obligations, but partners in a general partnership may be personally liable for such obligations.

I am an artist and I sell my work over the Internet through my company. Does my company need to be registered in states where people buy my art?

Whether or not a company must register or qualify in a particular state depends upon the laws of that state, which may vary from state to state. Generally, if a company has no physical presence in a particular state and limits its activity to using a common carrier to transport goods to customers located in that state, it will not need to qualify to do business. There are exceptions, however, and active solicitation of customers in the state (including by e-mail) or the sale of certain goods may require qualification. If a company has a physical presence in a state other than the state in which it was formed, it is generally required to register or "qualify" to do business in that state. The company is referred to as a "foreign" company in states other than the state in which it was formed. Also, a company may have to obtain a separate business license to conduct business in certain states or municipalities. Once again, the laws of the state or municipality involved will determine whether or not the company will be required to obtain a separate business license.

Generally, qualifying a company to do business in a state other than its state of formation is similar to the formation process, and the company may be required to pay filing fees and provide certain information and documentation to the state. Also, if a company is required to qualify to do business in a state but fails to do so, it may be subject to penalties. incorporate.com can help business owners form and qualify a company in any state and in a cost effective manner.

I have worked hard in my career to build a brand around my art. How do I protect my rights in my intellectual property and business information?

The rights to intellectual property fall into four general categories: patents, copyrights, trademarks, and trade secrets.

A patent is a certificate granted by the U.S. Patent and Trademark Office to an inventor that grants the inventor the right to the sole use of an invention for a fixed period of time. Patentable materials include new, useful and non-obvious inventions such as processes, machines, manufactured products, business methods, software, and even pharmaceuticals, microorganisms, and plants. To obtain a patent, an inventor must apply with the U.S. Patent Office to register an invention, and, if the invention meets the criteria for registration, the inventor receives a patent registration certificate that grants the inventor the right to exclude anyone from using that invention without the inventor's permission for 20 years from the date of the application. Once obtained, an inventor may either practice or use the invention, or sell, mortgage, assign or license it to others to use.

Copyrights protect creative works such as literary works, dramatic works, motion pictures, sound recordings, pictorial works, graphic and sculptural works, characters and computer software from copying by others, but do not give the author or artist the exclusive right to use the work. Copyrights exist from the moment of creation of the work, require no special registration, and exist for the life of the author plus 70 years, or, for anonymous works or works made for hire, 75 years from the date of first publication or 100 years from creation. Ideas, catch phrases, mottoes, slogans and short advertising expressions are not copyrightable, but may be entitled to protection as trademarks which are discussed below. While copyrights exist without registration, a copyright owner may register their work with the U.S. Copyright Office, and, in fact, must do so before the owner may sue for infringement of the owner's copyrights. Copyrights can be sold, mortgaged, assigned or licensed to others.

A trademark is any word, phrase, symbol or design, which identifies and distinguishes the source of the goods or services of one party from those of others. A service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. The purpose of a trade or service mark is to protect consumers from deception, and to protect the goodwill of the business from misappropriation by others. A trademark only entitles the owner to exclusive use of the mark in advertising or identification of the goods or services associated with the mark. It does not permit the owner to prevent others from using words or symbols in the mark in other ways. Rights to a trademark arise when the owner uses the mark to identify their goods or services, and continue as long as the mark remains in use. These rights apply, however, only in the areas where the mark has actually been used. In other words, another person may use the same mark as long as the areas in which they are used do not overlap. A trademark owner may apply to register the mark with the U.S. Patent and Trademark Office, which, among other things, extends the owner's rights to the use of that mark throughout the U.S. and serves as notice to others of the owner's rights in the mark.

A trade secret can be anything that provides a commercial advantage to a business because it is not generally known to others including, customer lists, formulas, recipes, technical data, business methods, blueprints, and business plans. A trade secret requires no registration, and is valid for as long as it remains a secret. The owner of a trade secret has no right to prevent others from using the secret if it becomes known to them through legal and ethical means. The owner may legally seek to prevent someone from using the trade secret, if it is obtained through theft, espionage or other illegal or unethical means. The only requirement to maintain rights in a trade secret is that the owner take reasonable measures to maintain the secrecy of the information such as marking documents as confidential, limiting access to the information, prohibiting copying of documents, keeping documents in a locked location, and requiring non-disclosure agreements with others before allowing access to the information.

I am concerned about receiving my official documents from the state. Do I need a registered agent? What services does a registered agent provide? Can incorporate.comŽ assist me by providing those services?

The statutes of virtually all states require a business entity to (1) specify and maintain a registered office and (2) specify, appoint and maintain a registered agent, in the state in which it is formed and/or registered to conduct business. Failure to maintain a registered agent and registered office in a state may result in administrative dissolution of the entity or revocation of its certificate of authority to conduct business in a state.

Registered agent service consists of providing a corporation, LLC or other business entity with a registered agent and/or registered office in the state where the company is formed and/or the states in which it is qualified or registered to conduct business. A registered agent receives legal process and compliance mail (e.g., annual reports and tax documents) on behalf of a business at a registered office in the applicable state and will forward such items to the company's designated contact for handling.

incorporate.com can provide not only the basic registered agent services as required by statute, but also a suite of integrated services that, among other things, will help a business keep in compliance with law and file necessary corporate forms.

I am starting a record label and looking to attract investors. How does incorporating or forming an LLC help me raise investment funds?

Our customers often raise investment funds for use in the conduct of their business by forming a corporation or an LLC and issuing interests in such entities to investors in exchange for money or property. Customers who form a corporation to conduct their business often issue shares of stock of the corporation to investors in exchange for money or property and the investors become shareholders in the corporation. Customers who form an LLC to conduct their business often issue membership interests in the LLC to investors in exchange for money or property and the investors become members of the LLC. By becoming a shareholder of a corporation or member of an LLC, the investors may be entitled to certain rights (e.g., voting rights and the right to share in the profits and distributions of the company) and have certain responsibilities with respect to the corporation or the LLC. Due to the significant issues associated with forming an entity and issuing interests in such entity to investors, we typically recommend that our customers consult with an licensed attorney to obtain advice before issuing interests in the company to investors.

As a sole proprietor conducting business, I used my social security number. Can I use that number after I incorporate or form an LLC? Do I need something else?

A corporation or multi-member limited liability company must have its own tax identification number, referred to as an employer identification number or EIN. The company may not use the social security number of any of its stockholders or members for company business or tax filings. Its stockholders or members continue to use their own social security numbers for filing their individual income tax returns.

A single-member limited liability company generally may use the social security number of its sole member for tax purposes. It is not unusual, however, for banks to require a single-member limited liability company to obtain its own EIN in order to open banking and other financial accounts.

I get my own health insurance as a freelance writer. Can I purchase my health insurance through a business entity?

Generally, business entities may acquire health insurance coverage for their employees and, in some instances, their owners. Most insurance brokers are sufficiently knowledgeable to be able to discuss the types of health insurance available to a business entity and the scope of the insurance coverage. The analysis of whether this is the most tax-efficient way to provide health insurance depends on the entity's specific circumstances. Due to the issues associated with purchasing and maintaining health insurance through a business entity, we typically recommend that our customers hire qualified professionals to provide advice relating to such actions.

I own a photography studio and am thinking about incorporating or forming an LLC. Can forming a business entity help in dealing with self-employment tax?

Sole proprietors (that is, individuals who conduct a business without a business entity) generally must pay periodic taxes on net self-employment earnings. Many of our customers who conduct business as a limited liability company, and who are also a member or owner of the company, are subject to self-employment taxes, generally based on the entire share of the profits of the company even if only a portion of the profits is taken as salary. For customers who conduct business as a corporation, we find that the corporation typically hires the owners as employees and the corporation then pays such employees a reasonable salary. The corporation is responsible for withholding from the employees' salaries certain required income and employment taxes and, also, paying the employer's share of the employment taxes. The withholdings and payments, however, are based only on the reasonable salary and not on the profits of the corporation. Therefore, some customers find that this is one factor that may favor choosing a corporation over a limited liability company in certain circumstances.

For a full list of products and services offered by incorporate.com, check out Our Services. We'd like to offer the following services in particular to your art or entertainment business:

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