When a level of success has been achieved by eSports celebrities and talent, attention must turn to protecting personal and family assets. One possibility is creating and maintaining what is called a “Loan-Out Company.” In various forms, these have long been used by celebrities in the movie, music, and sports industries. In this article, the eSports Law Firm of Revision Legal discusses what loan-out companies are and their pros and cons.
What is an eSports loan-out company?
In brief, a loan-out company is a corporate entity — like a regular corporation, an S-corp, a limited liability company, etc. — created to handle the business aspects of an eSports talent/personality. The eSports talent is employed by the loan-out company, and the loan-out company “loans” out the eSports talent for game participation and other activities requiring physical presence. The loan-out company also licenses and contracts on behalf of the gaming talent for other matters such as endorsements, use of name and image, etc. In all respects, third-party contracts are signed with the loan-out company, not the individual gamer. The gamer receives payment — via salary, bonuses, or from taking corporate dividends — from the loan-out company.
What is the purpose of an eSports loan-out company?
The ultimate purpose of a loan-out company is to legally protect the personal and family assets of the gamer. Under the law, corporate entities — like loan-out companies — are legally distinct from a natural person. This means that when a loan-out company signs a contract with a third party (like a sponsor, league, or event organizer), that contract involves ONLY those two parties, and any litigation about the contract ONLY involves those two parties. That is, the litigation involves the third party and the loan-out company, not the gamer. Importantly, a court judgment can only be collected against the assets of the entities involved. That is, any money judgment can be collected only against assets of the loan-out company, not the personal and family assets of the gamer. The loan-out company must maintain some assets, but if done correctly, those assets can be kept at a minimum level.
Personal asset protection is the main advantage of creating and using an eSports loan-out company.
Disadvantages of creating an eSports loan-out company
There are some disadvantages to creating and using an eSports loan-out company. The main disadvantage is cost. Loan-out companies are expensive to operate. Thus, loan-out companies are recommended for eSports celebrities with substantial annual income (above $75,000 as a rule of thumb) and those with substantial personal assets in need of legal protection.
The costs arise from the fact that an eSports loan-out company must be properly organized and operated. These are generally called the “corporate formalities,” and these must be maintained, or a court will decide that the company is operated for the purpose of defrauding creditors. If a court makes that determination, then there will be no personal asset protection. Examples of corporate formalities include proper creation and annual maintenance of the corporate entities, payment of corporate taxes, preparation of corporate tax returns, proper keeping of corporate books and records, the holding of corporate meetings, designation of proper corporate officers and/or managers, creation and approval of corporate policies, execution of contracts between the loan-out company and the eSports talent, etc. To be effective for personal asset protection purposes, legal advice and services will be needed along with the services of expert tax and accounting professionals. Another cost is the potential for double taxation. Income to the loan-out company will be taxed as corporate income, and the salary/wages/bonuses paid to the gamer will be taxed as personal income.
Should I create and use an eSports loan-out company?
It depends on the individual gamer’s circumstances. Despite the costs, eSports gamers may find great benefits in creating and using an eSports loan-out company. This is particularly true if the gamer has — or expects to have — significant personal assets like homes, vacation properties, automobiles, financial accounts, sports equipment, luxury items, and more.
Contact the Business and ESports Attorneys at Revision Legal
For more information, contact the experienced Business and ESports Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
