If an individual is looking to business-incorporation/”>form a new business, they may want to consider forming a Limited Liability Company. This type of business structure is similar to a corporation but is less formal, more flexible and offers several benefits, including personal liability protection, for its owners.

What is an LLC?

A “Limited Liability Company” (LLC) is a hybrid between a partnership and a corporation. It has the operating flexibility and “pass through” tax treatment of a partnership with the limited liability for its “members” accorded to corporate shareholders. “While an LLC is a business entity, it is best to think of it as an unincorporated association,” said Anthony Spotora, an extremely experienced business attorney. “Although sometimes incorrectly referred to as Limited Liability Corporations, they are in fact not corporations.” See California Corporations Code, Title 2.6.

Further Benefits

LLCs are highly attractive to some because of the flexibility in tax choices. LLC business ventures qualify for a single layer of taxation, which prevents ownership from being double-taxed under the corporate tax structure.

“However, LLCs may also elect to be taxed under a corporate tax structure if they wish,” Spotora advised. “In fact, the full list of taxation choices for LLCs are as a sole proprietor, a partnership and either an S- or C- Corporation.”

LLCs also often require much less administrative paperwork and record-keeping than do corporations. The laws also allow LLCs to customize the rules for how the LLC is best operated.

Drawbacks

Some people feel that LLCs do have disadvantages, however.

In California and a handful of other states, LLCs must pay a franchise or capital values tax on the business.

LLC’s in California must pay an annual tax to the state’s Franchise Tax Board. The fee is $800 per year, though if the LLC’s net annual income exceeds $250,000, then there will be an additional fee that must be paid, too.

Also, some people believe LLCs have a more difficult time raising financial capital because investors may be more comfortable investing funds into corporate firms.

If a person is considering forming a Limited Liability Company or other business entity, it is important for them to speak with a knowledgeable attorney. Anthony Spotora is a Los Angeles business attorney who specializes in incorporation and can guide you on the best strategy for your business.

You can visit our blog to learn more about corporate formation and other topics in business law, including the impact of RULLCA, California’s 2014 revision of the laws governing LLCs.

This past spring, one of the Department heads we work with at FremantleMedia invited us to attend the live performance of an “American Idol” taping. This taping, or rather, pop-hysteria, led to conversations relating to the management of those that do not win the title of the next “American Idol”.

Now we all know that the winner is locked into a contract with Music Label/Management Company, “19”, but what of the other near-Idols? Who gets to run their proverbial show? This question, in accompaniment to some of the surrounding conversations and eager talent managers, reminded us of a piece of legalese that has come up time and time again in our practice. The issue: Managers vs. Agents.

Whether you are a bona fide Talent Manager, a Stage Mom, or the girlfriend who listened to her boyfriend’s band play one night at the local pub and decided to serve as its manager, you should understand the differences between the roles that managers and agents are legally entitled to play. . . for your own good!

For starters, agents are licensed by the state they work in and most commonly earn their money by negotiating deals for their clients. Typically, they also enter into a client agreement which is, in pertinent part, regulated by industry labor unions such as, the Screen Actors Guild (SAG), the Writers Guild of America (WGA) and, the Directors Guild of America (DGA). Through these regulated agreements, the commissions that agents charge their clients are legally bound to a prescribed percentage. Furthermore, it should be noted that agents may not serve as a producer on their clients’ projects.

On the other hand, managers are not commission-regulated, do not need a license to ‘manage’ and, can charge their clients 15% or more. . . and often do. Moreover, managers may produce film or television if they wish to and so of course, they are also afforded the ‘glamour’ element in that they might find themselves in the spotlight one Award evening with an Emmy or an Oscar in tow.

In light of these representative differences, and as you might imagine, the ever-evolving entertainment industry has shifted gears over the years to accommodate and benefit from both of these roles. Without surprise to anyone, these specialty services have impacted not only the way talent pursues work, but the manner in which movies and television are actually made.

So what’s the big deal!? We all have a job to do, right!?

Well, one common issue arises from infuriated agents who argue that managers who attach themselves to their clients’ projects as producers are not legitimate producers and are consequently driving up production costs. Subsequent to such a contention, agents have put pressure on industry guilds by lobbying to either deregulate agents, or regulate managers. And, while no exact resolution has been reached to date, SAG has begun to pay closer attention to the black letter law and has consequently cracked down on the procurement of employment by managers for their clients. On the what you ask? On getting the talent a gig!

In California, Labor Code Sec. 1700.4(a) defines “talent agency” as “a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment of engagements for an artist.” Moreover, Sec. 1700.5 provides that “[n]o person shall engage in or carry on the occupation of a talent agency without first procuring a license…from the Labor Commissioner.”

Therefore, ATTENTION ALL MANAGERS: Be Weary of The Services You Provide!

Procuring employment for your artist-client is not only illegal without proper licensing but, should you attempt to collect any unpaid fees, you can rightfully not only be denied those monies for having performed a service you were not licensed to perform but, you can also be ordered to return any fees already received!

So what’s the bottom-line? Both forms of talent reps are still widely used and widely needed in the ‘industry’. However, it is important that Managers know their role in their clients’ professional lives and also know the potential consequences they may face if they knowingly (or even unknowingly) provide services reserved for licensed Agents.

Businesses looking to raise capital by selling securities have options that will offer them exemption from the SEC’s registration requirements. The Regulation D exemptions allow companies to raise capital by using a Private Placement Memorandum document as the official disclosure paperwork for investors.

Issuers of private placement memorandums (PPMs) should familiarize themselves with Regulation D, the rules that establish three transactional exemptions from the registration requirements of the Securities Act of 1933. These exemptions allow some smaller companies to offer and sell their securities without having to register securities with the SEC.

Rule 504 provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $1,000,000 of their securities in any consecutive twelve-month period. This rule does not put a limit on the number of investors, permits the payment of commissions, and imposes no restrictions on the manner of offering or on the resale of securities. In addition, no specific disclosure or registration requirements apply under this rule.

Rule 505 allows some companies which offer securities exemption from the registration requirements of federal securities laws. A company can offer and sell up to $5,000,000 of securities sold in any consecutive twelve-month period. An unlimited number of accredited investors are allowed under this rule, and sales are permitted for up to thirty-five non-accredited investors. However, Rule 505 requires the issuer to notify the prospective investors that they will receive “restricted” securities. Furthermore, under Rule 505, an issuer may not use any general solicitation or advertising in order to sell securities.

Rule 506 allows companies to raise an unlimited amount of money.  This rule is available to all issuers for offerings sold to an unlimited number of accredited investors and no more than thirty-five non-accredited purchasers. However, this rule requires that all non-accredited investors, if they are alone or with a purchaser representative, be sophisticated. This means that they must have sufficient knowledge and experience in business and financial matters that will allow them to evaluate the merits and risks of the proposed investment. Rule 506 also prohibits any general solicitation or general advertising in the sale of securities.

Los Angeles business attorney Anthony Spotora, Managing Attorney to his eponymous Century City law firm, Spotora & Associates, advises that, “Time and time again the exemptions provided by Regulation D have offered our clients a reasonable and business savvy means of achieving their often long-desired goals.  From film financing and real estate to product development, we have drafted and had the good fortune to then witness how a properly prepared PPM, inclusive of the apposite rules of Regulation D, can serve as a necessary conduit between an undercapitalized company and the investors vital to its success.”

Companies who choose to use the exemptions offered under Regulation D do not have to register their securities and generally are not required to file reports with the SEC. PPMs should be prepared in consultation with a lawyer who has experience drafting private placement memorandum and dealing with federal and state securities law.

Music publishing is a complex process that requires extensive knowledge of proper business practices and copyright law. A music publisher can help songwriters reap the benefits of their creativity.

While publishing their own music is a viable option for artists, the legal issues involved can be messy and complex. In order to avoid dealing with these issues, many artists turn to music publishers for help. Music publishers perform a variety of different functions for songwriters, as they have the expertise required to manage licenses and collect royalties.

One of the most important functions of a music publisher is to help an artist collect royalties. Royalties fall into two main categories: mechanical royalties and public performance royalties. Mechanical royalties are those fees paid to the copyright owner, usually the songwriter and the publisher, for the right to reproduce the song on some type of recording. Under the U.S. Copyright Act, once a song has been commercially released, any other artist can record and release their own version of the song, provided that they pay the copyright owner the minimum statutory royalty rate for every single copy of their version that is pressed or distributed.  This rate increases periodically and is calculated differently for songs that are over five minutes in length.

Public performance royalties are collected when a song gets played in public at a concert, in a nightclub, on television or the radio, etc. The copyright owner of the work is entitled to payment for each performance of the song. However, in order to collect this money, the songwriter will need to register as a member of a performance rights society which will collect royalties from those playing the songwriter’s music.

Not only do music publishers handle the collection of royalties, they also help songwriters manage the licensing of their songs to record companies and other interested parties. There are two main types of licenses that generate income for songwriters: synchronization licenses and print licenses. Any time the performance of a song is accompanied by a visual, a synchronization license is required. These licenses are issued when a song is used in a movie, television show, video game, or other type of visual medium, and the fee varies based on the usage and importance of the song.

A final way of earning income is through print licenses. While sheet music is not as popular as it once was, many songs are still available in print form. A music publisher will issue print licenses and collect income from the sheet music company, and the songwriter will receive a small royalty derived from the sale of his or her song.

Navigating these four possible sources of income can be difficult for an artist to do alone, and the knowledge a music publisher possesses in these areas can be a great benefit to artists. Entertainment and intellectual property lawyer Anthony Spotora commented, “Whereas music publishing seems to exist somewhere in the shadows of the music industry, good music publishers can be worth their weight in gold to songwriters.  In fact, hidden behind many of the ‘majors’ commonly lies a publishing division which often generates more annual revenue than does its label cohort.  And yet, even those who have been cast deep into the music industry itself often do not fully realize the role that a music publisher can play in the life of a songwriter and, more importantly, in the life of his or her music.  A good music publisher satisfies 5 primary duties: exploitation, administration, collection, protection and acquisition.  When they do their job well, many songwriters can finally begin to appreciate what it means to receive ‘pennies from heaven.’ ”

Music publishers can be a great asset to artists, but it is important that songwriters know their rights before entering into an agreement.  As a full-services business law firm Spotora and Associates provides exceptional guidance to songwriters considering entering into a publishing agreement, and has specialized in advising entertainment artists of their legal rights in the areas of intellectual property and entertainment law for over 15 years.

For more information, contact us.

A Private Placement Memorandum (PPM) is a document that outlines the terms of securities to be offered in a private placement. A private placement is the issuance and sale of a company’s stock to a small number of select investors and is utilized as a means of raising capital; private placement is the opposite of a public issue, in which securities are available for sale in the open market. A PPM resembles a business plan both in its content and in its structure, except these documents tend to be lengthy and extremely thorough, are broken into several components — one of which is a business plan — and are most commonly used in business to provide information to potential investors, so that they may evaluate the merits of an investment in the company.

While the content of a PPM might vary based on the particular offering or the circumstances of the company, most PPMs typically contain the following elements:

• A complete description of the security being offered for sale, including the terms of the sales and the associated fees;
• A description of the issuer which includes organizational structure, the history of the company and the context of the offering;
• A detailed business plan providing information related to market opportunity, the company’s value proposition, its products and/or services, marketing and sales plans, management, financials, and proposed use of proceeds;
• Detailed instructions on how to participate in the offer;
• A summary of relevant or possible conflicts of interests with the issuer, its principals, its affiliates, or a combination of any of the foregoing;
• The numerous risk factors associated with the investment, including risks that are common to similar investments and those risks which are unique to the issuer and its securities.

In certain contexts, particularly if securities are being offered to prospective investors who lack accreditation (unaccredited investors are less sophisticated investors who do not meet the net worth requirements under the SEC’s Regulation D and require special protection when buying stock), a PPM will be required by law. If this is the case, the contents of the PPM will be subject to and regulated by the disclosure requirements of applicable securities regulations, inclusive of state blue sky laws.

Even when a PPM is not required by law, it can provide an invaluable amount of protection for the issuer. For example, statements of an issuer, whether they are written or oral, are subject to both federal and state anti-fraud laws. Among other possible actions, a well-prepared PPM can help issuers avoid a potential securities fraud claim. The PPM will establish a record of exactly what was communicated to the investors about the offering as well as the company, and what was subsequently accepted.

Our business attorney have decades of corporate law experience in private placement and can help you navigate through the regulatory requirements and draft your private placement memorandum.

For more information contact our firm:

Spotora & Associates, P.C.
(310) 556-9641
1801 Century Park East, Floor 24
Los Angeles, CA 90067

There are various reasons why business owners elect to incorporate and the privilege of limited liability is often at the top of their list.  It is important to remember, however, that it is in fact a privilege that’s granted and can therefore be taken away.  Business owners must recognize that it is called “Limited Liability” because their liability is just as it’s named to be – limited; not eliminated.

In order for a corporation’s directors, officers and shareholders to maintain the protection afforded them, it is essential that, amongst other things, corporate formalities are observed. What are corporate formalities?  They are formal actions that, by law, must be performed by the corporation’s directors, officers and/or shareholders on behalf of the corporation. Failure to observe and implement these formalities will not only diminish the protection afforded the corporation’s directors, officers and shareholders, but it can allow third-parties to “pierce the corporate veil” and subsequently hold those directors, officers and/or shareholders personally liable for what should have otherwise been corporate actions.

One formality that must be maintained is adequate corporate minutes.  It is imperative that significant corporation transactions, both internal and external, be properly documented. Failure to do so can serve as but one means for third-parties to “pierce the corporate veil.”  For example, undocumented officer compensation deemed by the IRS as excessive can result in a reclassification; amounts claimed as deductions can be viewed as dividends and consequently lead to increased, unpaid tax liabilities.  Infamous as well is the case for a plaintiff whereby it has become nearly commonplace to seek to hold both the corporation and its directors, officers and/or shareholders responsible for their claims.  Many times, they attempt to achieve this by proving that the corporation did not adhere to legal formalities such as its minute/record keeping.

Everything has its price but, the benefits received from investing some time into maintaining your corporation’s meeting minutes far outweighs the consequences you may endure by distributing that time elsewhere and leaving to chance the outcome of this legal requirement.