Tuesday, May 31, 2022

Copyright and LLCs


            Something I have seen discussed in the general entertainment realm, but less so in comics is the use of loan-out companies or LLCs and the implications on copyright. As I believe this is a valuable topic, I want to briefly touch on the issues below.

            For those unfamiliar with the concept, a loan-out company is when a person, usually a creative individual, forms a company. This company then hires the performer, and contracts their services out to other companies. It is primarily done to lower the ultimate tax burden on the creative. However, because the company is hiring the creative, the creative could be considered an employee of the creative’s company. This might have serious implications on the copyright status of any works created.

            As a brief reminder, copyright protection initially vests in the author of the work.[1] If the work is being created as a work-made-for-hire, then the initial owner of the work would be the person or entity for whom the work was prepared.[2] A work-for-hire is a work created by an employee, or a work created pursuant to a written agreement and falling within one of the nine categories of works specified in the Copyright Act.[3] (Click the link for a more detailed summary of work-made-for-hire.)

            If a work is not a work-made-for-hire, then the length of copyright protection for works created after 1978 is typically the life of the author plus 70 years.[4] If the work is a work-made-for-hire, then the term of copyright protection for works created after 1978 is “95 years from the year of its first publication, or a term of 120 years from the year of its creation, whichever expires first.”[5] The 1976 Copyright Act also that an author can terminate a transfer of copyright 35 years after the date of the transfer, or publication of the work.[6] However, the right to terminate a transfer does not apply to a work-made-for-hire.[7]

            If a creator is using an LLC or other type of company to hire out their services, then they could be inadvertently impacting their copyright rights. They may be changing the term of copyright protection for the work, and they may be removing their ability to reclaim a work after it has been assigned pursuant to the transfer termination provision mentioned above.

            It is important for creator’s considering utilizing a corporate entity for their work to consult with both their accountant and a copyright lawyer. By doing so, the creator might be able to craft a plan to utilize the tax benefits while also protecting their copyright rights.

[1] 17 U.S.C. §201(a)

[2] 17 U.S.C. §201(b)

[3] 17 U.S.C. §101

[4] 17 U.S.C. §301(a)

[5] 17 U.S.C. §301(c)

[6] 17 U.S.C. §203(a)(3)

[7] 17 U.S.C. §203(a)