For 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 artist’s 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, it’s quite common for developers to form an LLC”—limited liability corporation—“when 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 dissolved.”
Investor-seeking 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 won’t 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 corporation’s management team—Keith Helfrich, who runs the business side, and Corbett Griffith, an engineer who has performed structural safety tests—have received less than 10 shares apiece as payment for their efforts. David Decker, the accountant and even the corporation’s 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 people—some of whom are collectors of Coffin’s work or fans or friends of the artist or, in one case, the aunt and uncle of Helfrich, all personally contacted by the management team—may 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 team’s 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 corporation’s 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 doesn’t 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 benefits—“No more of this hat in hand, starving artist routine,” Coffin said, “we’re going in as a business”—and 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 Group’s business plan, a process that is more cumbersome, time-consuming and expensive.
The corporation not only owns Coffin’s 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 Group’s operating agreement was written to favor Coffin’s 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”).