Artworks as Business Entities: Sculpting Property Rights by Private Agreement

66 Pages Posted: 20 Feb 2019 Last revised: 14 Oct 2020

Date Written: 2020

Abstract

Modern business entities, such as LLCs, are increasingly created and deployed to
accomplish customized transactions and evade legal restrictions. Rather than acting as
traditional business enterprises, entities serve as tools to facilitate complex commercial
transactions and surmount limitations presented by existing bodies of law. One limitation
constrains the ways that private parties can agree to divide property rights—a doctrinal
limitation sometimes referred to as numerus clausus. This Article shows that such limitations
on the customizing of property rights by private agreement now can be surmounted by virtue
of modern business entity law. After describing the key features of modern business entities,
this Article provides a preliminary assessment of their logic and limits.

Modern business law permits an asset or set of assets to be placed into separate business
entities with carefully tailored structural and governance features. It allows parties to
customize their property rights in the asset(s) however they wish, with surprisingly few limits.
Entities can be formed and maintained cheaply with virtually no meaningful public disclosure
required. Participants in the operation of the entity need undertake very few duties toward
each other or the entity itself. The advent of flexible, powerful, and cheap entities under this
body of business law renders limitations on the division of property rights increasingly
obsolete. Large, complicated businesses already use webs of entities to divide rights in their
assets and subsidiaries for financial, operational, and other reasons (such as regulatory
arbitrage). Costs and convenience are now so low as to open the door to smaller scale
participants in commerce.

As a concrete example of these developments, this Article focuses on the “Artist’s
Contract,” a 1971 project in which artists sought to retain rights in artworks they sold—to
obtain a percentage of future appreciation in value, to exhibit works upon request, and so on.
As noted in prior scholarship, the transaction contemplated by the Artist’s Contract could not
have been accomplished in regular contract form due to numerus clausus and related
limitations. But this no longer remains true. This Article describes an “Art LLC” solution to
the “problem” of the Artist’s Contract. By structuring the sale of art as the sale of a
membership interest in a carefully crafted business entity that actually holds title to the art, the
goals of the Artist’s Contract can be achieved at relatively little expense or inconvenience. In
other words, modern business entity law provides convenient, reliable tools to “solve” the
legal problems of the Artist’s Contract, and to allow for the bespoke, divided property rights
sought by the originators of the Contract.

This Article then assesses the proposed Art LLC solution and the broader trend it
exemplifies in business law. This Article surveys the various bodies of law that limit the
effectiveness of this type of legal maneuver and that protect against its abuse, and it identifies
some advantages of novel, business entity-based solutions over more traditional approaches
to the division of property rights. This Article concludes by discussing the need for further
research into the logic and limits of evolving uses of business entities for transactional
purposes.

Keywords: Business Law, Commercial Law, Contract Law, Property Law, Art Law, Intellectual Property, Copyright, Secured Transactions, Bankruptcy

JEL Classification: K11, K12, K22

Suggested Citation

Bradley, Christopher G., Artworks as Business Entities: Sculpting Property Rights by Private Agreement (2020). 94 Tulane Law Review 247, Available at SSRN: https://ssrn.com/abstract=3337211 or http://dx.doi.org/10.2139/ssrn.3337211

Christopher G. Bradley (Contact Author)

University of Kentucky College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

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