Those working in entertainment frequently hear about loan-out companies. Because forming one can significantly affect the legal, financial, and practical aspects of an artist’s career, careful consideration is essential.
What is a loan-out company?
A loan-out company is a personal service company, a traditional business entity, and an employer. It is a legal business entity registered in the state where it is established and may take several forms, including an LLC, S corporation, or C corporation. Once formed, the company “loans” the services of its employee—an actor, director, writer, or other artist—by contracting with producers, production companies, and other third parties.
How do loan-out companies work?
A production company hiring an actor might contract with the actor’s loan-out company for the actor’s services. The production company pays the loan-out, which employs and pays the artist and handles applicable payroll obligations. The loan-out may also pay appropriate business expenses, such as professional fees and commissions, before paying the remainder to the artist as compensation.
Why would someone want a loan-out company?
Potential advantages include separating certain business liabilities from personal assets and creating a structure through which legitimate business expenses and benefit programs may be managed. The liability shield is not absolute and generally will not protect against fraud, misrepresentation, insolvency, or a failure to observe the entity’s separate existence.
How can someone create a loan-out company?
Formation generally involves choosing an entity type, filing organizational documents with the appropriate Secretary of State, and paying required fees. The choices made at formation can have significant legal and tax consequences, so guidance from an attorney and tax professional is recommended.
Are there disadvantages?
A loan-out is not right for every situation. Formation, annual state obligations, payroll, bookkeeping, tax preparation, and corporate maintenance all create cost and administrative work. Whether the structure makes financial sense depends on the artist’s circumstances and should be evaluated with current legal and tax advice.
What continuing responsibilities come with a loan-out?
The owner must maintain the entity’s separate existence, observe applicable corporate formalities, make required filings, keep appropriate books and records, and prepare separate tax returns. Simply forming the company is not enough.
Why do setup and maintenance matter?
An entity that is poorly structured or treated as indistinguishable from its owner may fail to provide its intended benefits. Ignoring corporate formalities can support an attempt to pierce the corporate veil and impose liability directly on the owner.
Are there tax risks?
Loan-out arrangements raise important classification, compensation, deduction, and compliance questions. Careful records, a genuine employer-employee relationship, appropriate agreements, and advice from qualified legal and tax professionals are essential.
How important is the employer-employee relationship?
The loan-out should genuinely employ the artist and properly contract with third parties for the artist’s services. A failure to establish and document these relationships can undermine the structure.
Can you create a loan-out company yourself?
Online filing services can submit forms, but they do not replace individualized advice about entity choice, taxes, employment, contracts, or ongoing maintenance. Because those issues overlap, artists should consult qualified legal and tax professionals before forming or operating a loan-out.