This is part 2 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

“The ‘loanout’ company is a ‘Hollywood’ term for a device that has received wide acceptance among doctors and lawyers-the personal service corporation.”(Klinger, 1986) “In the typical loan-out, an individual service provider forms a corporation in which she is the sole or majority shareholder as well as the sole or principal employee. The corporation then negotiates with a third party-the ‘borrower’–to ‘lend’ the services of the controlling shareholder-employee for a price.” (LaFrance, 1995) The third party will then pay the amount of the contract to the loan-out corporation, which will then pay a salary to the shareholder/employee. A studio or production company will usually not contract with the loan-out company unless it specifically expresses that the contract is for the services of the entertainer and the entertainer has signed the contract on his or her own behalf. A lawsuit involving Kim Basinger and the producers of the feature film “Boxing Helena” addressed this issue.

The contract for Ms. Basinger’s services was between the production company, Main Line Pictures, Inc. and Ms. Basinger’s loan-out company, Mighty Wind Productions, Inc. Ms. Basinger signed the contract as an agent for her loan-out company, but nowhere did she sign on her own behalf.’ The contract was between Main Line and Mighty Wind; Ms. Basinger, as an individual, was not a party.’ Therefore, it appeared that it was not Ms. Basinger who was obligated to perform on the contract, but it was Mighty Wind who was so obligated.

In an unpublished opinion by the California Court of Appeal, it was stated, “If the contract is only with Mighty Wind, then only Mighty Wind can be liable for breach of the contract.”

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