Imagine this scenario: You’re a comic book Writer who has contracted a Penciler and a Inker/Colorist to help you finish your book. Things are going great, so all three of you go to your local con to promote your book.
Sitting at your little half-a-booth in the back of the convention hall, you overhear an argument brewing between your two artists …
Penciler says to Inker: “The way you color my smoke monster in Photoshop is horrible. You make it look like a smog monster.”
Inker says to Penciler: “Well, I hate the way you draw the evil gang of reverse vampires. Every time you send me the pencils, I just have to redraw it all myself.”
You scream: “Stop fighting right now, or nobody is going to want to come to the booth and buy commissions from us.” BUT your attempt at reasoning is no use …
The argument escalates into a straight-up brawl. Punches get thrown. Then suddenly, Inker throws the Con-provided metal chair he was sitting on at Penciler. Penciler dodges, cat-like, and the chair hits an Unsuspecting Teen cosplaying as Booster Gold.
When everything gets cleared up, you learn that Unsuspecting Teen now has $15,000 worth of medical bills and he wants to sue one of you to get reimbursed for his bills. Penciler and Inker are broke (as a joke!). They’re comic book artists after all, so Teen knows he isn’t going to be able to get his money back from them.
You, however, have a day-job at an advertising firm. You’ve got some cash squirreled away for when you start writing full-time: exactly $15,000.
And guess what, if Teen sues you for all of your cash, in most states, he’ll probably win. Even though you had nothing to do with the fight, even though you had nothing to do with the thrown chair and even though you tried your hardest to stop the fight from happening – that all doesn’t matter – you’re screwed.
“General Partnership” laws are the source of your screwed-ness.
This is because every general partner (you, Penciler and Inker) is personally responsible for all of the torts (harming others and intrusions on property) that another general partner does. All general partners are also usually responsible for all of the contracts (leases, purchases, reasonable debts) that the other partners enter-into while working with the partnership. For example, if your partner decides to rent an expensive office for a year for you both to work in without telling you, and he can’t pay for it anymore, then you have to pay for it.
I’m sure that any creator who does her research will know that you have to be worried about copyrights ownership (who owns what) when working with creative partners. BUT few people ever think about tort liability (the fight scenario above) or contract liability (the office scenario).
So that’s crazy, right? I’m sure, you’d like to know: how do I know I’m in a partnership, and how do I avoid all of the potential problems that come from this.
How does a General Partnership start? OR you mean I’m already in a general partnership and I didn’t know it.
Partnership laws differ from state to state but generally, if you (1) agree to work with someone else (2) on a commercial project where you share the profits and losses (3) when one of you isn’t just an investor, then yes, you’re in a general partnership. It’s that easy.
For example: Little Suzy starts a lemonade stand with Cindy. Suzy squeezes the lemons, and Cindy collects the money and hands out the cups. Yes, even Suzy and Cindy, despite the fact that they are 5-years-old, illiterate and working the sidewalk outside of their home for quarters, would be considered general partners in most of the United States.
As you can see, creative people enter joint partnerships all the time without even realizing it. You’re probably in one right now yourself. Welcome to Partnership-ville.
Warning signs that a general partnership will cause you problems; OR don’t freak out, not all partnerships are bad.
I don’t have any statistics, but I’d say that the vast majority of general partnerships never cause anyone problems. People work with each other all the time on creative projects and have nothing but good things to say about each other.
But, keep in mind that partnerships aren't always smooth and easygoing. For instance, The Walking Dead creator, Robert Kirkman, has been part of a lawsuit filed by a childhood friend and former collaborator, Tony Moore. Kirkman’s former partner claims he was fraudulently induced to assign his copyright interest over to Kirkman's company, and that he is now entitled to "as much as half the proceeds from the franchise."
Joint partnerships can go bad for a variety of reasons, most of which tend to occur when large amounts of money are involved. Partnerships can also go bad if the time commitment to the project doesn't feel equal, if the direction of the business changes or if partners’ objectives change over time.
Finally, partnerships can go bad if you’re working with unpredictable, unreliable, untrustworthy or generally chaos-creating characters. Think Charlie Sheen, Kanye West, Bugs Bunny, etc.
How can I avoid being in a General Partnership? OR OK, I’ve heard enough about this partnership thing, I want out!
The two big problems with being in a general partnership are (1) your personal liability for the problems that your other partners may cause, and (2) tax problems (which we’re not going to talk about here).
If you decide you want out of your general partnership, there’s not much you can do. For example, if you and your partner enter into a written agreement that you don’t consider yourself general partners, in most of the United States, that has no effect. You’re still in a general partnership.
The law doesn’t care what you two call yourself or want to be considered, they just care about how you two actually act. If you fit the easy-to-fit partnership definition, you’re still a general partnership.
Think of it this way, you can call yourself Batman, but until you start patrolling the streets nightly beating up suspected criminals like a fascist, you’re not actually Batman.
The only true way to get out of a general partnership and remove/change your personal liability is to transform how you work into a different business entity. You may be familiar with the terms LLC and Corporation. Those are two alternatives that the law has created for large organizations of people working together to avoid the problems of general partnerships.
Both LLCs and partnerships do have their downsides as well which we talk about, at length, in our guide.
A significant downside is cost of formation. Forming an LLC isn’t easy, and forming a corporation usually is even harder. If you want to do either, you have to fill out forms, and pay fees (hundreds or thousands of dollars if legal fees are taken into account). If you’re working on a project that won’t even make $100, then the idea of exiting your partnership by creating an LLC becomes less appealing.
The other big downside is formality. Especially for corporations, there are all sorts of continui
ng requirements even after you pay to form your corporation. Things like formal meetings, required voting, stock allocation, accounting costs, are all potential consequences of becoming a corporation. For someone who barely has free time to work on your comic book as a hobby, you may not have the time or inclination to want to deal with requirements that aren’t just finishing your book on time.
So how can you help yourself if you enter into a partnership automatically, and there’s not much you can do to get out of it?
How do I avoid problems if I don’t have the money to get out of being a general partnership? (OR how do I make the best of a bad thing?)
That's where all-important written agreements come into play. It may feel awkward to ask your friends with whom you work informally to sign the business equivalent of a prenup. But, you're really just using these agreements to put everyone on the same page so that the project and relationship don’t suffer down the line.
You already need to agree about things like who owns a copyright in writing in order for it to be valid. Therefore, it may be useful to talk about the things that cause most of the problems with partnerships and settle those in writing as well.
BUT here are three major things that you should talk about if you want to make an oral or agreement about your partnership.
1. Control: someone has to be the person who makes decisions. With two people who don’t agree about a direction for the business, there’s always a tie. With three people, there’s always someone who gets their feelings hurt. Either way, figure out who can make what decisions and stick to it.
Keep in mind, it doesn’t always have to be the same person in control for all decisions. One person can have the last word on creative choices. Another person can have the last word on money choices. Be flexible. Be realistic.
2. Ownership: who owns what? Do you both own your individual contributions or are your contributions intermingled and owned by the both of you? Can the ownership change if another person starts working on the project and also wants an ownership cut.
3. Money: If your project makes money, who does it go to and in what percentage. What happens if you strike it really rich? Do things start changing after a certain amount of money is made? What happens if extra people are added to the mix? Does that change how you two are splitting the money?
So what have we learned?
Most indie comic books are made through a joint partnership between at least two people: usually an artist and a writer. The same thing goes for indie video games, with programmers, artists and sound designers etc. It’s really difficult (and lonely) to work on any big project alone.
Even if you don’t realize it, you’re probably a partnership with the people you work with. So either decide if you’re going to get out of this by being an LLC, a Corporation, or another business for, OR make the most of your general partnership relationship.
You can do that by talking about all the problems you may run into upfront, early on in the project, and ideally, getting the conclusions of that conversation in writing.
I hope you learned something, see you next time.
Shaun Spalding is the Assistant Director of New Media Rights: an awesome non-profit that provides free legal help to independent creators who can't afford it like indie comic book creators and game developers. This organization also may not exist next year if you don't donate to our fundraiser before December 21st. Shaun enjoys filmmaking and writing fiction when not working on contracts or encouraging people to donate to fundraisers.