Brian D. Spector
Partner
201-896-7206 bspector@sh-law.comSelecting the Right Entity for Your NYC Theatrical Production
Author: Brian D. Spector|October 4, 2023
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make...
Selecting the Right Entity for Your NYC Theatrical Production
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make...
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make...
They say “there’s no real theater without taking risks.” However, that doesn’t mean you shouldn’t try to minimize yours, especially as to the legal structure of your company.
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make. This is true whether you are planning a large Broadway musical or developmental theater production.
Picking the right structure is just as important as selecting the right team, cast and crew for your production.
No matter what your vision is, it is imperative to understand your options, as each one has its own risks and benefits. Keep reading for a brief overview.
- Sole Proprietorship (One-Person Show)
The sole proprietorship is the simplest legal structure, as there are very few legal requirements. There is, however, one huge disadvantage — the business and the owner are one and the same. As a result, the owner is responsible for all of the obligations, including debts and liabilities, of the business. In addition, any business income or losses are reflected on the owner’s personal tax return. Given the potential liability, a sole proprietorship is not recommended for businesses involved in risky ventures, including theatrical productions.
- Partnership (Two- or Three-Hander)
A partnership is very similar to a sole proprietorship, with one key distinction; it has more than one owner (partners). In a partnership, each co-owner pays taxes on their shares of the business income using their personal tax returns. However, each partner is personally liable for all of the business debts and claims, not just their share. Limited partnerships offer some additional protection in that only the general partner is liable for partnership obligations. Limited partners, who invest in the business but take no part in its operation, are shielded from such liability.
- Limited Liability Corporation (A Moat Around Your Castle)
The limited liability company (LLC) falls between a partnership and a corporation in terms of complexity. It is preferable to a partnership because it provides limited liability for business owners. This means that LLCs limit personal liability for business debts and court judgments against the business and shield an owner’s personal assets.
In addition, LLCs offer flexibility. Owners of an LLC can also choose how the entity will be taxed. For instance, they can elect to be taxed like a partnership, in which the owners pay taxes on their shares of the business income using their personal tax returns, or like a corporation, in which the tax obligations of the business are generally separate from the owners.
Overall, because LLCs are easy to form, require less formality than corporations, offer simplified tax reporting and provide protection from creditors, they are the most common entity for new businesses, including theater production companies.
- Corporation (Ensemble Piece)
Corporations come in several varieties. S-corporations (s-corps) are more like LLCs, in that taxes “pass through” to individual business owners. In C-corporations (c-corps), the tax obligations of the corporation’s business are completely separate, and owners of corporations pay taxes only on profits that they actually receive in the form of salaries, bonuses, and dividends.
No matter what the form, corporations are more complex than LLCs with respect to both taxation and operation. In addition to being subject to double taxation, corporations are also required to adopt bylaws, formally define the roles of officers and directors, and keep detailed corporate records. These additional legal obligations often make corporations costlier and more burdensome to operate. That being said corporations still carry a sort of “clout” that other entity types do not, which can make it easier to raise capital. For larger ventures, this may be a consideration.
Key Takeaway
Before starting to develop your theatrical production, there are several important business decisions that must take center stage. Selecting the right entity not only provides benefits, but also minimizes your risks. Before making an official decision, it is always advisable to consult with experienced counsel who can review your options and help determine what legal structure best suits your needs.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Brian Spector, at 201-896-4100.
Selecting the Right Entity for Your NYC Theatrical Production
Author: Brian D. Spector
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make...
They say “there’s no real theater without taking risks.” However, that doesn’t mean you shouldn’t try to minimize yours, especially as to the legal structure of your company.
When launching a New York City theatrical production, selecting the right legal structure for your project is one of the first key business decisions you will need to make. This is true whether you are planning a large Broadway musical or developmental theater production.
Picking the right structure is just as important as selecting the right team, cast and crew for your production.
No matter what your vision is, it is imperative to understand your options, as each one has its own risks and benefits. Keep reading for a brief overview.
- Sole Proprietorship (One-Person Show)
The sole proprietorship is the simplest legal structure, as there are very few legal requirements. There is, however, one huge disadvantage — the business and the owner are one and the same. As a result, the owner is responsible for all of the obligations, including debts and liabilities, of the business. In addition, any business income or losses are reflected on the owner’s personal tax return. Given the potential liability, a sole proprietorship is not recommended for businesses involved in risky ventures, including theatrical productions.
- Partnership (Two- or Three-Hander)
A partnership is very similar to a sole proprietorship, with one key distinction; it has more than one owner (partners). In a partnership, each co-owner pays taxes on their shares of the business income using their personal tax returns. However, each partner is personally liable for all of the business debts and claims, not just their share. Limited partnerships offer some additional protection in that only the general partner is liable for partnership obligations. Limited partners, who invest in the business but take no part in its operation, are shielded from such liability.
- Limited Liability Corporation (A Moat Around Your Castle)
The limited liability company (LLC) falls between a partnership and a corporation in terms of complexity. It is preferable to a partnership because it provides limited liability for business owners. This means that LLCs limit personal liability for business debts and court judgments against the business and shield an owner’s personal assets.
In addition, LLCs offer flexibility. Owners of an LLC can also choose how the entity will be taxed. For instance, they can elect to be taxed like a partnership, in which the owners pay taxes on their shares of the business income using their personal tax returns, or like a corporation, in which the tax obligations of the business are generally separate from the owners.
Overall, because LLCs are easy to form, require less formality than corporations, offer simplified tax reporting and provide protection from creditors, they are the most common entity for new businesses, including theater production companies.
- Corporation (Ensemble Piece)
Corporations come in several varieties. S-corporations (s-corps) are more like LLCs, in that taxes “pass through” to individual business owners. In C-corporations (c-corps), the tax obligations of the corporation’s business are completely separate, and owners of corporations pay taxes only on profits that they actually receive in the form of salaries, bonuses, and dividends.
No matter what the form, corporations are more complex than LLCs with respect to both taxation and operation. In addition to being subject to double taxation, corporations are also required to adopt bylaws, formally define the roles of officers and directors, and keep detailed corporate records. These additional legal obligations often make corporations costlier and more burdensome to operate. That being said corporations still carry a sort of “clout” that other entity types do not, which can make it easier to raise capital. For larger ventures, this may be a consideration.
Key Takeaway
Before starting to develop your theatrical production, there are several important business decisions that must take center stage. Selecting the right entity not only provides benefits, but also minimizes your risks. Before making an official decision, it is always advisable to consult with experienced counsel who can review your options and help determine what legal structure best suits your needs.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Brian Spector, at 201-896-4100.
