Three Steps to a Solid Legal Framework for Creatives
By Grant Atkinson
I know approaching legal for your business can feel overwhelming. I am a creative too, and every day I help simplify legal for my creative clients. Really, setting up a solid legal framework for your business can be broken down into three steps, and that’s what I’ll cover in this brief article. Note, this guide is specific to U.S. businesses, and steps may vary in other countries.
Step One: Pick and Register the Right Business Entity
There are a few common business entity types you can use to operate your creative business, and they each have their own perks and drawbacks. Let’s walk through each.
Sole Proprietor
Probably the easiest way to run your business is just as you, yourself, an individual. That’s called a sole-proprietorship. Generally, all you need to do to run your business as an individual is register a few basic licenses and permits to make your business legally official. These may include:
A business license with the city,
A seller’s permit if you are selling physical goods,
And maybe a “DBA” if you are doing business as a name different than your name as an individual.
Of course, local requirements may vary and certain businesses may need extra licenses and permits for certain regulated activities – like selling booze or cannabis.
Pros & Cons
On the plus side, this may be the cheapest and easiest way to legally operate your business. But on the downside, if you run your business as an individual, you are personally liable for all of your business’s debts and damages. This means that if you are in breach of a business contract or if your products hurt someone, then your personal assets are all at risk, like your home, car, and bank account. So, if you are ok with the risks, this may be a cheap and easy way to get started, but there are perks in setting up a separate business entity.
Setting up a Separate Entity
When you setup an LLC or corporation, you are setting up a new legal entity to run your business out of. This is like creating a new fake person with special privileges that assumes most liability for your business. Some of the perks include:
Limited Liability – Generally, you will not be personally responsible for any of your business’s debts or damages. Usually, in the worst-case scenario, the entity could go bankrupt, but you yourself would be isolated and not liable for any business damages. There are some exceptions, like if you personally guarantee something or act in bad faith, but otherwise setting up a separate entity is a great way to protect your personal assets.
Taxation Options – In addition, with a corporation or an LLC you can make certain tax elections that might help you save money. For example, an accountant might recommend you make an S-Corp election to take advantage of lower tax rates on certain business profits. That can often be done for an LLC or a corporation.
Other Reasons – Beyond that, setting up a separate business entity can be helpful if you are working with business partners, taking on investors, or just want to look and feel more official.
Picking Between LLCs, S-Corps, and C-Corps
Here is a quick snapshot of some common entity types for creatives:
LLCs – This is a popular choice for many creative entrepreneurs. It’s often cheaper and easier to setup and maintain than a corporation, and can be more flexible in its structure and operations. This is often a good choice for creatives unless an S-Corp or C-Corp makes more sense.
S-Corps – Sometimes an accountant will recommend an S-Corp over an LLC for tax purposes, and if the S-Corp otherwise works for the business, this may be a fine choice. Generally, you will get a lot of the same perks as an LLC, it may just be a bit more rigid to structure and maintain.
C-Corps – If you are a start-up looking to raise venture capital, then a C-Corp may be the best route as these have well established laws and structuring options well suited to take on professional investors. Note, if you are just taking investments from friends and family or angel investors, an LLC or S-Corp may be fine.
Of course, picking the right business entity is always something to assess on a case by case basis with professional legal and tax support.
Step Two: Secure your intellectual property
Next, you should identify and secure your intellectual property, including your business name, creative content, confidential information, and any inventions. Let’s walk through each of those.
Trademarks – These are a shield and a sword for your brand identity. They protect things like your business name, logo, slogans, and unique product names. With trademark rights, you can stop others from using a trademark too similar to yours in connection with similar goods and services. In some cases, you can have trademark rights without a registration, but your rights will be broader and stronger with an official registration.
Trademark protection is anchored in connection with the goods and services associated with your trademark. So, if you use your trademark to sell branding services, someone else could potentially use the same trademark to sell jewelry because the goods and services are sufficiently distinct, and confusion between the brands is less likely.
Generally, ownership to a trademark is based on either whoever was first to use the trademark to actively sell goods and services in commerce, or whoever was first to file for rights with the USPTO. At the common law level, you can establish certain rights to a trademark simply by using it in commerce. However, with a registration you will have better established rights and privileges to use and defend your trademark.
Copyrights – These protect your creative content, like graphics, photos, videos, text, and audio. Similar to a trademark, you can own a copyright without a registration, but you will have more rights and privileges to protect and defend your content with a registration.
Trade Secrets – These protect information that have economic value to you because they are a secret. This includes things like your e-mail list or secret recipes. There are no registrations for trade secrets. Instead, you protect them by keeping them a secret. This means, that you should keep them secure, don’t tell anyone, and if you do need to tell someone like a staff member, make sure they sign a confidentiality agreement.
Patents – These protect inventions like utility inventions, design inventions, and plant inventions. They must be new, useful, novel, non-obvious, and otherwise patentable. Patents require registration for protection.
Step Three: Setup your contracts
Finally, you should make sure you are setup with the right contracts to run your day-to-day business. Often, these include:
Client Service Agreements – If you provide a service for your clients, like branding, design, photography, videography, planning, coaching, or consulting, then you should have a client service agreement. This will outline your services, rates, and business terms along with other protections that outline and secure your relationship with clients.
Contractor / Employee Agreement – If you work with subcontractors or employees to help you with your business, then you should have templates ready for these workers. Again, these contracts will outline their services and fees along with other important terms and protections for your business.
Terms of Use & Privacy Policy – If you run an online business, like e-commerce, e-courses, or software, then you should have terms of use and a privacy policy for your site. These establish the business relationship between you and your online customers, including your general business terms and liability protections.
Business Partner Agreements – If you run your business with a partner or other founders, then you should have a contract outlining ownership and control over the business. This is often called an Operating Agreement (for an LLC), a Shareholder Agreement (for a corporation), or a Partnership Agreement (for a partnership).
More Resources
While the legal world can feel complicated, you can build a strong legal framework for your business by following those three steps. For more resources and help, you can check-out my Legal Kit, with video guides, tools, and templates to help you get it done. Or, you can contact me directly at Framework Law Group.
-Grant Atkinson
Creative attorney and founder of Framework Law Group
This article is for informational purposes only. It is not legal advice and it does not establish an attorney client relationship between you and the author. Every creative’s needs are different, and you should contact legal counsel for specific support.
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About the author:
Hey, I am Grant. In high-school I was a photographer with a punk band on my way to film school. But once I got there, my interests expanded, and I decided I wanted to support my creative friends as their lawyer. When I became a lawyer, I only found curmudgeon law firms to work for, so I made my own firm, Framework Law Group, for entrepreneurs and creatives.
Seven years later, I have helped hundreds of my creative peers with good practical advice and legal support, and my small business has expanded my world like magic. These days I live just outside of LA in the mountains with my wife and daughters — and I am still making movies and punk songs.