A guest post by Sandra Fitzpatrick.

Greetings!

Thanks to the Fictorians for letting me have some space on their blog. I hope this can help people understand partnerships. There are tax and legal implications that differ slightly between Canada and the US, but I hope to give everyone a starting point.

Partnerships are when two or more people get together for a purpose. For this blog, the basis of the partnership is that you want to share a writing project with other people. It can be the best thing that ever happened to all of you or the worst.

Partnerships need to be thought out carefully. It may seem to wreck the mood of creativity and joy to think about what might happen if things go wrong. Partnerships can range in size from two people to any number. They may grow. They don’t have to be registered with the government but everyone has to pay taxes on the profits and can deduct many expenses if there isn’t. If there is significant income, you should think about registering it or forming a corporation to hold the rights to the work. Either gives everyone involved protection and more structure that makes the bookkeeping and who’s responsible for what easier.

Think of this as a prenuptial agreement. The excitement of starting a new life with someone you love. You’ll never have any troubles. And then the lawyers get involved. Yuck. Bummer. But… The most import question a writer can ask: What if?

Some discussion topics are:

Who owns the project?

Who are the writers, editors, illustrators or publishers of the project? For writers, are you a plotter or a pantser? Can you work with someone who is the opposite?

What percentage of the work and what type will be done by each person? If you are doing a children’s picture book, pairing with an artist may be the obvious division of labor. But is the artist the writer’s partner or an employee? It makes a legal difference.

Communication is key to a partnership in the arts or any other endeavor. Living in different cities makes sitting down and brainstorming difficult. How will you arrange those meetings? Skype is cheaper than long distance phone calls. Emoticons only go so far in showing your passion on a topic in email. Recording your sessions eliminates the ‘Didn’t I write down that fantastic idea?’ blues. Or the ‘I said, you said’ memory lapses.

How will you fund the project to get the book to a publisher or self-publishing? Do a Kickstarter campaign or each contribute an equal amount? An arts grant to help cover printing costs of your new magazine? What happens if that isn’t enough to cover the expenses?

How are royalties split? Evenly? In the case of an anthology, the stories may be purchased and only the editors get royalties. How much can you afford to pay for the stories?

If one person drops out of a larger partnership, what compensation will they get in the future? How do new people join? Or can they?

Who is the final authority on what happens to the overall plot line of the series? Who decides on the little details of adding characters or major plot threads?

If one partner dies, who inherits their share? This supposes that you have a finished book. Or an unfinished one but lots of notes. (Everyone should have a will. Really.)

For an anthology or a magazine, who makes the final decision on what stories to include? Who gets to deal with the slush pile? Who is the faster reader? The better line editor?

How will you shut down the partnership if everyone gets tired of it and wants out? What if not everyone does?

The lawyers’ fees. Who pays them? Can you sit down and go ‘what if’ with each other? And still remain friends and complete the project? A lawyer is a neutral party. If you know a publisher, ask them for a referral to their lawyer. You can look up information on the net, but most articles have limited information for a writing partnership.

Examples:

Two people write a book together. They thrash out the general plot line and take turns writing chapters. Each edits the other’s chapters. What is the time limit on writing your chapter? Or they could alternate books, or have subplots within the novel, each following their own main character. Each has expertise that makes the book(s) better.

A big name and a newcomer collaborate on a book. This can boost sales because the big name will sell the book. The newcomer will be noticed. Be careful. Is the newcomer putting in 90% of the work and getting 10% of the profit? How much does the big name make just because his name was on a book someone else wrote?

Anthologies can be fun. Choose a theme, a publisher and send out word for submissions. Are the editors guaranteed a story spot? Is there a set fee for each story and/or a percentage of royalties? Who’s the better copy editor?

Shared universe series. The overall coordinator supervises the universe with veto power over plot lines. New authors can be invited in or just ask. These series can get very large and complex. More plot and character oversight is needed once you get past three or four partners.

Enjoy your writing partnership!

Guest Writer Bio:

I’m a tax preparer and financial advisor in Canada with eight years experience in the trenches of business tax returns. I’ve done tax seminars for writers, artists and other creative folk over the years. I write sf and fantasy in my non-tax months. My husband Gary is working on a detective series when not confusing medical students.

Spreading your Intellectual Property without Infringing on Someone Else’s

March 19, 2014

Matt Jones

Business Matt Jones No Comments

Image in the Public Domain from the Library of Congress.

Many people view the internet as a lawless scary place where virtual goods, the lifeblood of starving authors and artists worldwide, is freely traded and stolen. And worst, this is all done without the original creators knowledge or consent. This is the image often portrayed by lawyers and copyright holders around the world when working to protect their personal income. The sad thing is, to an extent, they’re completely right. It’s not difficult to find copyrighted works, especially popular and bestselling works, available for download the day they’re released. While there are many competing views, as content creators ourselves, we should make the best effort to stay on the straight and narrow as we promote ourselves and our works.

It’s not easy to provide good content and still ensure everything is legal. If you’re reading this blog, it’s likely that you’re an author working on your own works. Your words are interesting, your descriptions are captivating, and your audience is enthralled. However, if you’re like me, your drawing abilities leave much to be desired. But fear not, the internet is there for you. A simple google image search quickly gives you many great images that will give your prose that nudge to perfection. It happens all the time, and many times nothing bad comes from it. Perhaps even most of the time, nobody will even notice that the work didn’t belong to you. Some may even think you created it yourself. But, for the sake of argument, what if it was your work that someone “borrowed” and put on their page. No attribution or notice to you. It might make you feel guilty and quickly try to set matters right. Luckily, as technology advances, so does the ability to find content that is freely available to use on your site!

As always, if you’re concerned or have any questions, consulting a copyright lawyer can save you time and money in the long run. Information is freely given, but you ultimately own the responsibility for your own actions.

Images: As with all content, you want to ensure you have the rights and permissions to duplicate and host someone else’s work. While it’s perfectly acceptable to find an image you like on the web and ask the creator for permission, sometimes it’s difficult to know exactly who the creator is. If the owner of a piece of work is ambiguous, you probably just want to avoid the work altogether. When searching for work, look to buy from well known vendors or via trusted sources. A couple well known sites include: Shutterstock and iStockphoto.

If searching for free images, you probably want to look for images that are hosted under the Creative Commons license or listed as Free Use. These images are available by the content creator for your use following certain restrictions. Before using them, ensure you understand what is required and how far the rights extend. Many images, for example, are available to anyone as long as they contain proper attribution and are used for non-profit purposes. A few good sites to find Creative Commons images are to look at the Creative Commons section of flickr or look at wikimedia. You can also do a Google Images search and select “Labeled for reuse” under the usage rights of the search tools. Finally, you can just do a search on the Creative Commons website itself.

Writing: Like using images created by another, written content should be used carefully as well. Everything is given an initial copyright as soon as it is created, and that work should be respected. It is usually pretty easy to get access to bloggers and authors if you wish, so it’s never a bad idea to send a quick email asking for permission. This usually costs you a little time and can be very rewarding in the long run. The original author may even send traffic your way as a token of appreciation of your own work. You should always link back to the original work if possible as well. If not, make sure you give proper attribution and details on how the users can find the work referenced.

In the end, if you are using someone else’s work to help promote yourself. Someone, in the future, may consider doing something similar with your work. Play it forward and do what you can to help improve the current state of copyright on the internet. It may not get any better, but at least you’ll know that you’re one of the good guys. And, better yet, it might keep you free of all legal issues and ensure you can keep writing the good stuff!

Reversion Clauses – or when do I get my story back?

March 18, 2014

Nancy

Business Nancy Greene Publishing The Writing Life 4 Comments

There are four critical provisions in your contact: the granting clause, the payment clause, the indemnification clause and the reversion clause. All four provisions work together to set out what you’ve given up (granting and indemnification clauses), what you get in return (the payment clause) and when you get your stuff back (the reversion clause). I’m only going to talk about the last one today but keep in mind that whether a reversion clause is unreasonable depends in large part on what you’ve given away and what you received for it.

What’s the issue?

Your work has value. After all, that’s why a publisher wants it. The value of the work is why you get paid. In return for letting the publisher print your work (and, hopefully from the publisher’s prospective, earn more money off it than they pay you) you give the publisher an exclusive right to use your words anyway that falls into the grant of rights. Start to see the problem?

No?

Okay, let’s look at it this way. I was recently shopping a story to some E-publishers. Before submitting, I checked out the contract terms as stated on the webpage. Buried in the mumbo-jumbo about submission guidelines and other facts was this gem: “Length of grant of publishing rights: Life of copyright.” What the heck?

A copyright lasts your life and another 70 years (in the US and UK. There some other countries which the copyright only lasts 50 years after your death, but it’s still a darned long time.). If you signed a contract with this “reversion” clause your publisher OWNS YOUR STORY for your life, the life of your kids, and a good chunk of your grandchildren’s life. The publisher can do whatever it wants with your story until it has no commercial value (i.e. is in the public domain) and, most likely, not pay you a penny more.

Now do you see the problem?

You might shake your head and say that “well, that was an e-publisher, the traditional houses aren’t like that.” Oh yes, they can be. If you let them. Publishers of all kinds are trying to grab as many of your right as possible, keep them for as long as possible and return as few of them to you as possible. This doesn’t make the publishers “evil.” It just means they are better at looking out for their businesses interests than most writers are. After all, they make money off the stories other people write. Of course, the publisher wants to keep those words for as long as possible.

“But wait!” you say. “Isn’t there something about my getting the rights back if the work goes out of print?”

Most contracts will have a provision that says something along those lines but the words really matter. Ambiguity is not your friend. Reversion clauses often have no definitions or meaningless ones. I’ll just highlight a few terms that MUST be clearly defined. If “out of print” isn’t explicitly defined the publisher can, and likely will, win on the argument that because your book is available on a “print on demand” basis, whether or not any copies are actually sold, the work isn’t “out of print” and the publisher still owns it.

What does “sales” mean? Can the publisher “sell” 1,000 free copies and meet the “Sales” threshold, if your contract even has one? Courts will read an undefined word consistent with its dictionary definition or its “plain meaning” as it is ordinarily used. If “sales” isn’t defined a court will likely rule that giving away free copies is a “sale” as the “plain meaning” of “sale” includes the “transfer of something to the ownership or use of somebody else.” In other words, no money or anything else of value has to change hands for a “sale” to occur. So, many of the new “reversion” clauses won’t let you get your book back until either the copyright expires, or you pay an attorney a lot of money to argue about your contract and rights. Either way, this is a lose-lose situation for the writer.

The “New Normal” of contracts is that if you aren’t careful you may never get your book back, or worse, you might pay the publisher far more than it every paid you to get your story back.

Hand in glove with the “new” non-reversion clauses are “buy back” provisions. Under these provisions you can “early terminate” the contract for a fee. One of the more egregious of these clauses I’ve seen recently was part of a horrible contract where the writer gave up all rights to her story (which was supposed to be put in an anthology) for 7 years for no advance – just a small royalty percentage. The publisher was going to reprint the story as a stand alone arguably under the same payment terms – 7.5% of the price sold. In order to get the story back before the 7 years expired the writer had to pay the publisher a predetermined amount. Given the sales-to-date this meant the writer had to pay the publisher more than 18 times what she received from the sale to get her rights back. Does this sound wrong to you? It should.

Also keep in mind that many established writers are making LOTS of money self-publishing or reselling their back list – books once in print with a publisher that have reverted to the writer. Publishers know this. For obvious reasons, publishers would prefer to keep the bulk of that money too. With a “life of copyright” grant the income from reissuing those older books would go to your publisher if the publisher even felt like reissuing your work.

What should you ask for in a reversion clause?

1. A reasonable term for the publisher to recoup its expenses and make a profit off you. This is going to vary from an e-book only, to paperback, to hardcover publishers. Hardcover publishers have more legitimate expenses in publishing your book than an e-book publisher does. Generally, the more rights you give a publisher the shorter you want the contract’s term to be. Three years is probably reasonable for an e-book only publisher. Seven to ten years may be reasonable for a print publisher.

2. Clear language as to when and how you get your rights back. Again, ambiguity is not your friend.

3. A definition of “out of print” that sets a sales threshold for e-book publishers, and excludes e-books (for traditional publishers), and print on demand copies and audio books for all publishers.

4. A definition of “sales” that excludes the transfer of your work for no monetary consideration and has a specific number threshold.

5. A renewal clause so the publisher can keep using your Work if it is selling and has to pay you a set amount (an additional royalty) for renewing the contract.

6. If there is a “buy-out” provision, a purchase price that takes into account the publisher’s actual costs, potential lost profits and what it paid you. The reality is if your book is selling well with Publisher X you are unlikely to want your rights back. These provisions come into play when you disagree with what your publisher is doing with your work or the work simply isn’t selling.

7. You don’t want a lengthy notice provision. If you opt to take your rights back, you should get them almost immediately upon notice. This keeps the process from being drawn out and keeps a vengeful publisher from trashing your work – bad cover, bad press – while you wait to get it back.

8. The term “Notice” needs to be defined. The Notice of your intent to take your rights back and the actual return of those rights should not be dependent on the publisher’s actions. Let’s say your reversion clause says you get your rights back 30 days after you notify the publisher: what happens if the publisher doesn’t pick up that certified letter or respond to your email? You might be stuck. “Notice” may mean “actual notice” and you may have to show that the publisher actually received your letter or email. All ambiguity does here is open the door to litigation or an extortion attempt by your publisher who now wants you to buy back not just your rights but also all the copies of your book in the warehouse. If you think I’m exaggerating check out Doranna Durgin‘s post on Writer Beware at http://accrispin.blogspot.com/2011/10/guest-blog-post-fitzhenry-and-whiteside.html

9. A provision that automatically reverts your rights if your publisher files bankruptcy, has an involuntary bankruptcy filed against it, has a receiver appointed or makes an assignment for the benefit of creditors. If any of these things happen your publisher has or is likely going out of business. You don’t want to be caught up in lengthy and expensive litigation to reclaim your rights from a Bankruptcy Trustee or receiver. The likely result if you are pulled into the bankruptcy or receivership is that you will have to buy your story back to help pay off your publisher’s creditors. Again, getting enmeshed in a legal fight is something you want to avoid happening.

What’s the solution?

While a new writer won’t often have the clout to get everything he should in a reversion clause educated writers will push the publishers to stop overreaching. You MUST know what your contract says and how it affects you. Consult with an Intellectual Property (IP) lawyer. This is a very technical and niche area of the law. Your agent likely doesn’t have the knowledge he needs to advise you. The average family law or traffic lawyer does not have the knowledge to advise you. I’ve been practicing business law for nearly 20 years and I still check with an IP lawyer. Consult with a lawyer. Yes, we charge a lot. An IP lawyer may cost you $500 an hour or more. But, the alternative is potentially giving away thousands, if not millions of dollars, over your writing career. The expense of a lawyer is worth the investment.

But the most important solution –

Don’t accept bad contracts.

Don’t accept ambiguous contracts.

Don’t accept “reversion” clauses that don’t actually give you the rights back to your work.

Here’s the secret – Shh – You don’t need traditional publishers as much as they need you. You can self-publish. Publishers need writers to give them content. See, the power has shifted. We can still get our stories to an audience without a publisher. The publisher can’t operate without writers. Don’t get me wrong. I want to be traditionally published. I understand the finances that drive Publishers (e- and traditional) to ask for the provisions they do. But that doesn’t mean I have to accept all proposed terms.

Sometimes walking away is the best thing you can do for yourself, your story and your career.

The bottom line?

Know when and how you get your rights back. If this isn’t clear, hire an attorney to help you understand. If the contact still isn’t clear or acceptable renegotiate it. If you can’t get reasonable terms you may want to walk away.

Disclaimer:

The materials available at this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. No attorney-client relationship has been created. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional advice.

My friend said to get an LLC

March 17, 2014

Jace Killan

Business Jace Killan Taxes The Writing Life 1 Comment

In my work, I’ve helped many people set up new business ventures. Proper entity structure is extremely important as it will have liability and tax implications. When discussing a new entity structure, I often hear, “My friend said to get an LLC.”

Regardless of the reasons we write, money will come if we’re good. As in any venture, those that make money need concern themselves with two things: Liability and Taxes.

Someone whose interviews were used in the novel Memoirs of a Geisha sued the author for $10M. Another author sued Dan Brown for stealing his ideas and using them in the Da Vinci Code. Penguin Publishing sued a group of authors who failed to produce anticipated manuscripts even though they had cashed their advances. Liability can exist anywhere a contract exists. And unfortunately, lawsuits seem to follow fame and fortune.

In the US, income taxes can claim more than 50% of an author’s earnings and in certain circumstances estate taxes can claim upwards to 50% of an author’s legacy when he/she dies. Taxes were discussed earlier this month here and here so I will only touch on them briefly.

Proper entity structuring can help with both liability protection and minimizing income taxes, and can be used extensively in good estate planning (though I won’t be discussing estate planning here).

There are a few different entity structures to consider. Each has pluses and minuses, its just a matter of finding what works best for your situation.

A sole proprietorship is the simplest of entities, it basically means that the company is you and you are the company. The work could be done under your name, or maybe a DBA (doing business as).

According to the Small Business Association, a sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.

From a liability standpoint there is no protective veil between your business and your personal assets in a sole prop, meaning, if you are found liable in your business, anything you own personally can be used to satisfy that liability.

From a tax standpoint, any earnings of a sole prop are typically recognized as earned income so they are taxed at the standard income tax rates and typically require some self-employment tax as well.

A partnership is a business owned by two or more people. Often these have agreements dictating the cooperation of the partners and the shared liabilities. I have seen businesses where a partner was held liable for the actions of another partner, however if the documents are structured appropriately, a veil can exist between the business and the individual partner. Taxes in a partnership are most often treated as they are in a sole prop.

There are a couple different types of corporations we will discuss here. A C Corporation is probably the most common. A clear veil exists between the company and the individual, though a lot of paperwork and documentation go into maintaining this veil. A downside for the C-Corp is the tax structure. A C-Corp’s earnings are taxed first at corporate income tax rates, then as the earnings are passed on to the company owners, they are taxed again at the individual level as dividends.

An S Corporation is a type of corporation designed to avoid the double taxation feature of a C-Corp. Earnings of the S-Corp are not taxed at the corporate level, instead passed on to the individual and recognized as either earned income or a combination of earned and ordinary income. An S-Corp structure may help minimize taxes when compared to a sole proprietorship or C corporation. A corporate veil exists between an S-Corp and the individual as long as proper accounting, governance, and documentation exist.

So what is an LLC? LLC stands for “limited liability company.” Each state (in the US) has its own laws regarding LLCs and how they ought to operate.

An LLC is designed to fortify the corporate veil between individual and business liabilities. The owners of an LLC are called Members, and those individuals that run the LLC business are called Managers. An LLC’s operating agreement usually limits the liabilities of the Members and the Managers, creating a shield to protect any of the individuals from being held personally liable for the company’s liabilities.

Of course in order to maintain this shield of protection, certain practices must be maintained like those discussed earlier this month here and here.

The beauty of the LLC and probably why your friend suggested to get one is that along with the liability protection, you can elect to be taxed as Sole Proprietorship, a Partnership, a C Corporation, or an S Corporation based on how the entity is established.

In an interest of self preservation let me just add a final note. The information contained herein is for informational purposes and is not legal advice or a substitute for legal counsel. IRS CIRCULAR DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Editorial Comment:

The Fictorians are aware that many of our readers are not United States citizens, and consequently conduct their lives and businesses under statutes and regulations that are markedly different from those in the U.S.A. Most of our posters for this month are American, and the few who aren’t are Canadian, so the perspective in this month’s posts will of necessity be somewhat limited. Nonetheless, if you are one of those readers from somewhere other than North America, as you read of issues in our laws and practices, perhaps they will make you mindful of things you should be aware of in your situations as well.