What Is a Loan-out Company?
Simply put, a loan-out company is a business entity “through which an individual offers his [or her] services or rights to others.” The arrangement is very common among creatives, including actors, directors, producers, writers, and musicians, who often render their services to, for example, production companies, publishers, or record companies through the use of loan-out companies. Loan-out companies are organized as LLCs, S corporations, or C corporations that are wholly owned by the artist and the sole function of which is to “loan out” the artist’s services to production companies and other third-party employers. Because a loan-out company generally engages in no business activities other than renting out the services of its artist-owner, those services are usually the sole asset of the company, which often has no offices, no equipment, and no other employees.
Loan-out companies have been around a long time in the motion picture and other artistic industries. In fact, one of the earliest cases involving a loan-out company dates back to 1939 and concerned a company formed by the Academy Award-winning actor Charles Laughton for the purpose of “loaning out” his services to film producers. Since then, there have been many other cases and much scholarly commentary dealing with the benefits of loan-out companies, including limited personal liability and various financial benefits (such as beneficial tax treatment) for the artist, and some of the pitfalls, all of which we’ll cover in future articles, along with the nuts and bolts of how loan-out companies work and other issues.
Columbus Rose Ltd. v. New Millennium Press, No. 02 CIV. 2634 (JGK), 2002 WL 1033560, at *1 n.1 (S.D.N.Y. May 20, 2002); accord 1 Thomas D. Selz, et al., Entertainment Law 3d: Legal Concepts and Business Practices § 8:30 (Westlaw updated through Dec. 2019).
1 Selz, supra note 1, § 8:30; see, e.g., Columbus Rose Ltd., 2002 WL 1033560, at *1 (novelist); Great Entm’t Merch., Inc. v. VN Merch., Inc., No. 95 CIV. 9333 (LBS), 1996 WL 355377, at *1 (S.D.N.Y. June 27, 1996) (singer); Main Line Pictures, Inc. v. Basinger, No. B077509, 1994 WL 814244, at *1 (Cal. Ct. App. Sept. 22, 1994) (actor); Home Box Office, Inc. v. Directors Guild of Am., Inc., 531 F. Supp. 578, 597 (S.D.N.Y. 1982) (noting that about 400 members of the Directors Guild had formed loan-out companies to contract out their services as of that time), aff’d, 708 F.2d 95 (2d Cir. 1983).
See Home Box Office, 531 F. Supp. at 597; 1 Selz, supra note 1, § 8:30; Aaron J. Moss & Kenneth Basin, Copyright Termination and Loan-Out Corporations: Reconciling Practice and Policy, 3 Harv. J. Sports & Ent. L. 55, 72 (2012); Michael Lovitz, Loan-Out Companies: Unintended Consequences for Creators?, 35 Del. Law. 16, 16 (Fall 2017).
See Home Box Office, 531 F. Supp. at 597.
See, e.g., Great Entm’t Merch., 1996 WL 355377, at *1 n.1 (loan-out companies “are common in the entertainment industry where performing artists offer their services or rights through separate corporations in order to reap tax and retirement benefits, and shield themselves from personal liability”); Moss & Basin, supra note 3, 3 Harv. J. Sports & Ent. L. at 72.