publication of the International Sculpture Center
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Coffin: Forming a Limited Liability Corporation
the Support of New Work
Coffin, Hydrogen , public art installation at Camellia Circle, in
Lindbergh City Center complex, Atlanta (photo courtesy of Gallery
all the talk about how the art world is really an industry and how artists
should think of themselves as being in business, actual examples of corporate
behavior in the fine arts often comes as a surprise. One instance of this
is the investor-soliciting limited liability corporation that Atlanta,
Georgia artist Zachary Coffin established in order to finance the creation
of a monumental outdoor sculpture. The sculpture, a 65-ton assemblage
of granite and steel called The Temple of Gravity, cost $80,000 tofabricate,
an amount of money that Coffin did not have on hand. The Burning Man Arts
Festival in Nevada, where the sculpture was first exhibited in August,
2003, provided the artist an initial grant of $20,000, but that still
left Coffin $60,000 short. What to do?
At times, an artists
dealer will put up the money to pay for print or sculpture editions, even
unique works, but Coffin had no established relationship with any dealers,
although his smaller, table-top works have been displayed at numerous
art galleries around the United
Applying for fellowships or project grants would take considerable time,
probably involve one or more nonprofit organizations to oversee his work,
and offer no guarantees that money would be forthcoming. Coffin needed
another avenue and decided to offer those who were interested in his career
the opportunity to invest in it. To that end, he set up a corporation.
In real estate,
its quite common for developers to form an LLClimited
liability corporationwhen they look to put up a building,
said Atlanta lawyer David Decker, who added that he has set up a
lot of LLCs for developers and formed one for Coffin. The
beauty of an LLC is that it can take out insurance to insulate the investors
from claims, and it is only intended to have a limited life span. The
investors come in, pool their money, the project is completed and sold,
and then the money is distributed back to the investors, and the LLC is
LLCs are not unknown in the arts. Most theater productions that reach
Broadway are either LLCs or a related entity, limited partnerships. They
are also found in the film and music recording industries, where the search
for financial backing is essential for projects to proceed. Many fine
artists will incorporate themselves as businesses, in order to purchase
various forms of insurance and protect their personal assets from lawsuits,
and those who create public artworks (murals and sculptures) often incorporate
these projects for the same reasons. However, it is quite rare indeed
for fine artists to solicit investors through their corporation. Most
artists wont commercialize their work, said Scott Hodes, a
Chicago lawyer who has set up LLCs for various projects by the environmental
artist Christo (protecting him from liability claims). Most artists
want to own their own work.
Coffin is, in fact,
a minority shareholder in the corporation that owns The Temple of Gravity,
with 21.5 percent of the shares. His contribution was not cash but sweat
equity, based on his actual labor. The corporations management
teamKeith Helfrich, who runs the business side, and Corbett Griffith,
an engineer who has performed structural safety testshave received
less than 10 shares apiece as payment for their efforts. David Decker,
the accountant and even the corporations Web designer (www.templeofgravity.com)
all agreed to be paid in shares of the corporation. The 10 actual investors,
all from Georgia , who own the majority of shares, bought in at $1,000
per share with a minimum purchase of five shares. These 10 peoplesome
of whom are collectors of Coffins work or fans or friends of the
artist or, in one case, the aunt and uncle of Helfrich, all personally
contacted by the management teammay expect a 200 percent return
on their investment, Coffin said, when the work is sold. One of
the investors had lost a lot of money in the stock market, he noted.
He knew my work and thought it a better bet than a mutual fund.
As an incentive goodie, all of the shareholders received the
management teams prospectus affixed to a 50-pound slab of sculpted
granite, suitable for pedestal or coffee table display.
The business plan
of Gravity Group, LLC is to exhibit The Temple of Gravity
at a variety of locations, generating interest in the piece and eventually
resulting in its sale to some museum, sculpture park, corporation or other
collector for an amount exceeding $200,000. So far, the sculpture has
traveled to a spa in Desert Hot Springs, California, and there have
been a number of inquiries, Helfrich said, but no offers to purchase
the work have come about as yet. We expect and have explained to
investors that the work may not be sold for several years, he said.
Investors have to be flexible.
Hanging over the
corporation is the prospect that The Temple of Gravity may never be sold.
An earlier outdoor sculpture for which Coffin created an LLC and found
investors, entitled Rock Spinner, which was first exhibited
in 2001, is still on the market. Helfrich noted that the corporations
business plan takes this possibility into account, as investors may deduct
losses on their tax returns, based on the actual expense of fabricating
the sculpture and transporting it from site to site. If it doesnt
sell, he said, we would have the work appraised and donated
to a nonprofit or public institution, and then the investors would be
able to declare a charitable contribution, declaring deductions
on their tax returns based on their share of the corporation. Expecting
the appraised value of The Temple of Gravity to top $200,000, shareholders
would be able to deduct more than they actually invested.
Setting up a limited
liability corporation offers artists clear benefitsNo more
of this hat in hand, starving artist routine, Coffin said, were
going in as a businessand some risks. Registering a corporation
with the state in which it is located costs a $250 filing fee, plus lawyers
fees and an annual accounting for tax purposes by a certified public accountant.
The Gravity Group, LLC was not required to register its plan with the
federal Securities and Exchange Commission, because Coffin and Helfrich
personally contacted all of the potential shareholders rather than make
an advertised public offering, the number of investors they attracted
was only 10, all of them in-state, and the amount contributed only $60,000.
Had the number of investors reached more than 17, the investors residing
in more than one state, the amount solicited $500,000 or more, or the
plan advertised publicly, such as in a newspaper or magazine (perhaps
even a Web site or notice posted in an art gallery), the SEC, the State
of Georgia and the states where other investors live would have required
a more detailed filing of the Gravity Groups business plan, a process
that is more cumbersome, time-consuming and expensive.
The corporation not
only owns Coffins work but also the copyright to it. However, as
a practical matter, the artist has little to fear from a tyrannical corporate
entity. The Gravity Groups operating agreement was written to favor
Coffins interests above all others, and this was accepted by the
shareholders because of their personal connection to the artist (two of
them are his parents and one is a contractor who worked on his house).
For instance, even if all of the shareholders banded together or were
bought out by one person, they could not take any actions with regard
to The Temple of Gravity of which the management team disapproves. Additionally,
the other managers cannot outvote the artist if there is a disagreement
(Zachary Coffin shall at all times have plenary authority to exercise
his veto power as to any action otherwise authorized by the Co-Managers).
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