Motion Business Bay

[Ardelle Abdullah]

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Joey: Welcome to part two of the Andy Contiguglia episode. Who is Andy Contiguglia? Well, if you missed part one of this interview you may want to go back and start there in the previous episode. Andy is a small business lawyer based out of Denver Colorado. In the last episode we talked about dealing with clients, contracts and a bunch of other legal ideas and in this episode we're going to go deep into the topic of incorporating. If you're freelance, if you're thinking of starting a studio one day you're probably going to need to think about forming a corporate entity as they're called. I know it's confusing.

There's all these different kinds of corporations, S corp, C corp, LLC. There's different tax implications and we try to do our best to demystify all of that in this episode. First, I have to say of a whole lot of words so that we don't get sued.

The legal information contained in this podcast is intended for general informational and entertainment purposes only. It should be used only as a starting point for addressing your specific legal issues. The legal information I talk about does not create an attorney client relationship between you and me or you and Andy. This podcast is not a substitute for an in person or telephone consultation with a lawyer who is licensed to practice in your jurisdiction about your specific legal issue and you should not rely on this legal information for those purposes. You understand the questions and answers or other information contained in this podcast are not confidential and are not subject to attorney client privilege, neither I nor Andy are providing you a legal service. Every legal case is different and past performance is not indicative of future results. Bottom line, please consult your own paternity.

Andy, now I want to talk about another enormous topic that we get questions about all the time and I know just enough to be dangerous but I imagine you're going to know a lot more about this is should I incorporate as a freelancer. So, why don't we just start with like the big question. Why would a solo freelance motion designer who sits in front of a computer and opens After Effects and makes animation, why would they want to think about incorporating?

Andy C.: That's a great question and again, the answer, it depends. It depends what your objectives are, it depends sort of what your big picture is going to be. There are tax benefits to it. There are employment benefits to it if you have employees. But I think the major reason that people tend to incorporate themselves, and when I say incorporate that's a real generalized term because there are corporations, there are LLC's, there are partnerships and there are sole proprietorship. Those are the four different types of business entities.

So when you're saying to incorporate those are your options. A solo practitioner is going to be you know somebody who's not incorporated but the other three entities, partnerships, LLC's, or corporations are your options when it comes to creating a business entity around your business.

The main reason that people tend to create a business entity around them is for liability purposes. The nice thing about incorporating, whether you're going to be a corporation or an LLC is you get what's referred to as limited liability. The corporation becomes the liable party, not you individually. So let's just ...

Andy C.: It means who is going to be responsible if there's a legal issue. So here's the situation. So you have you as the animator and you also have your company. If I wanted to sue you and I'm suing you based on something that you did on your own individual basis, I can come after you, I can come after your own personal assets. That is the real big issue. So if you don't have corporate protection or business entity protection, if you are sued and a judgment is against you then people can come after your individual assets.

Joey K.: Let me make sure I understand this. So, if it's just Joey as the animator and Joey gets sued and let's say they come after me for damages and I don't have that much cash to give they can repossess my car, they can go after my house, things like that. If I have a corporation that is separate from me they can only go after assets that belong to the corporation?

Andy C.: That is correct, absent other issues that might come into play if it comes down to that and we can have a discussion about that. But yeah, for the most part the main issue is liability. If I am going to be sued I want to make sure that my kids' college fund or that my house or that my car or that my own personal assets can't be subject to collection at a later date. That the only thing that could be is the judgment would attach to the business and then it's the business' responsibility to pay it.

Joey K.: So here's a question that I've always had and I've gotten this question a lot and I'm not really sure how to answer it but maybe you can help. I can understand having a risk of being sued if you make tires for example and one of the tires you made is defective and it pops and someone's car gets totaled. We're animators, we sit in front of a computer and we're clicking buttons and typing on the keyboard and then at the end of it we've created a video for someone that they put on T.V. or they put on youtube or other website. There doesn't seem to be any obvious risk of being sued. So I'm wondering if you've got any thoughts on what the dangers are for motion designers.

Andy C.: Well, I think the the big issues that motion designers are going to run into are obviously breach of contract issues. But again, if you're dealing with small sums of money, 2500 bucks or something like, you know, if it's a judgment against you personally most people can probably manage. Now to just sort of get my creative cap on to think about the exposure that you might have, yeah, I mean ... Here's the thing that you need to be careful of. You never know what somebody else is going to do.

So let's use this example. I hire you to create a fancy one minute introduction for my YouTube channel and you put it together and it's all awesome and you give it to me and now I have it, it's up on my YouTube channel. And now all of a sudden, somebody comes to me and I get a cease and desist letter from a lawyer that says, oh hey, by the way you have copyrighted music in your video and it belongs to my client and if you don't take it down now I'm going to sue you.

Copyright exposes you to huge amounts of damages if it is in fact copyrighted. And if let's say somebody comes after me for copyright infringement who do you think I'm going to drag into that lawsuit? I'm going to drag you in. Maybe you did it accidentally, maybe you did it on purpose. Maybe you thought you had the rights to something or better yet maybe what you did was you purchased a license for that music for a different project and not for this project and so it only applies to that last project. In other words, the license doesn't last in perpetuity it's only for the specific purpose that you purchase it. But you thought it would be great for my video and you put it together and now all of a sudden guess what, I'm being sued for copyright infringement and I'm going to drag your ass in too because that's on you.

And now I'm going to be subject to damages because it's a one minute video, the music in there it has 15,000 and there is a huge amount of damages that's associated with that. I mean it could be up to $35,000 if not more per infringement. And if there's 15,000 views do the math. That becomes a huge amount of damages on me and if I'm going to drag you in there on that too, well that becomes big money. And that might not be something you want against you personally but you can say hey, you're going to drag my company in because you and I our relationship is not based on Andy and Joey it's based on the Contiguglia Law Firm and School of Motion. And as a result of that because the nature of the business and the nature of the contract defines your company and my company then I also know that the people suing me for copyright infringement can't come after me individually, they can go after my company because it was my company that is using the materials and it is your company that produced them.

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