Article
June 2, 2026
Many authors have inquired about the benefits and risks of creating a “loan-out” company or other corporate entity when entering a publishing contract.
When an author receives a large advance amount in a given calendar year, their accountant may recommend that the author create a wholly-owned (or family-owned) company that pays a salary and employee benefits to the author to avoid high self-employment taxes. Often, the loan-out company enters the publishing contract in place of the author, owns the copyright, and treats the author as an employee, paying only some of the funds to the author as income. The rest is held and distributed by an S-Corp, which the author controls.
Here, we explain what authors should know before choosing this option.
When an author uses a loan-out company, they formally become an employee of their own company, which then “loans out” the author’s services to the publisher. If the company is created before the publishing contract is signed, the loan-out entity will be the signatory (with the author actually signing as an officer of the loan-out). The advance and any subsequent royalties are paid to the company.
Structuring deals in this way may indeed offer meaningful tax benefits, particularly for high-earning authors.
Authors should be aware that using a loan-out company also carries a risk of losing a statutory right to terminate their publishing agreement a few decades down the road. Authors and their heirs have the legal right under the copyright law to terminate all grants they made during their lives approximately 35–40 years after publication or the date of the grant, regardless of contract terms.
Publishing as an employee of a loan out company jeopardizes that right, which is referred to as the termination right. It was enacted by Congress to cure the problem of authors signing away their copyrights for pennies early in their careers when they had little bargaining power. The termination right ensures that, if the work turns out to be popular, the author and their family—and not just the publisher—have the opportunity to benefit down the road and negotiate a new advance and possibly higher royalties.
In practice, the termination right has been used by authors and their heirs to renegotiate a new advance or better terms with their original publishers or to find better deal with other publishers.
But the termination right has a critical limitation: It doesn’t apply to works made for hire—that is, works created by an employee within the scope of their employment. In that situation, the employer, not the individual creator, is treated as the author under copyright law. This means that if your publishing contract is between the publisher and your loan-out company, you could lose your termination right on the grounds that the company is the author and you were merely an employee. While courts will sometimes look beyond the corporate veil and recognize that the author should be the copyright owner in these circumstances, there is no easy answer for determining whether someone is an employee for these purposes.
In the copyright context, a court could find that, despite the loan-out structure, the author functioned more like an independent contractor in practice, which would preserve the termination right. The Supreme Court laid out several factors to consider when determining whether someone is an employee, including the method of payment, whether the author receives employee benefits, and their tax treatment.
In one case involving Tom Clancy’s estate, a federal court considered whether Clancy wrote his most famous works as an employee of his own rights administration companies. Some factors weighed against it: He paid himself no salary, taking distributions only when the company account exceeded a certain balance, and took no benefits beyond health insurance. Others weighed in favor: He worked for the entities over extended periods, made his writing central to their businesses, used entity property to write the books, and designated the entities as “author” in publishing agreements. The court found the question required more factual information and sent it to a jury.
There may be risks in arguing that your loan-out company isn’t really your employer. Many of the same factors that weigh against an employment relationship—e.g., lack of a salary and benefits—might also lead the IRS to be skeptical of your efforts to treat the company as a bona fide business for tax purposes.
As one federal court put it, “people cannot use a corporate structure for some purposes—e.g., to take advantage of tax benefits—and then disavow it for others.”
The terms of a publishing agreement may also work against an author when they try to terminate the original grant. For instance, publishing contracts typically define the author as the signer of the agreement and include “representations and warranties” that the work is the original creation of the “author” (as defined in the agreement) and that the rights are free of other ownership claims. If the loan-out company signs, it is making those legally binding representations, and because only individual creators have termination rights, the original publisher may throw those representations back at the author as evidence that the company was the work made for hire author, not the individual author.
In one recent case, a screenwriter contracted through his loan-out company to sell screenplay rights to a movie studio. When he later served a termination notice, the studio countered with a breach of contract claim, alleging that the representations made by the writer when he sold the rights were false. The loan-out company had represented itself as the owner of all rights “free and clear of any . . . encumbrances,” and the screenwriter had personally guaranteed the work was written as a work made for hire. The court refused to dismiss the claim, finding that a reasonable jury could side with the studio—because if the termination notice was deemed valid, his prior representations would necessarily have been false.
Ultimately, an author should consult with both a copyright attorney and a tax professional to assess the benefits and risks that may apply in their situation. In some cases, the immediate tax advantages may outweigh the long-term risks, or vice versa.
As always, the Authors Guild’s legal services department is available to review and advise on publishing contracts for members. Regular and associate members of the Authors Guild can submit a legal request here.
Not a member? You can gain access to our legal services for just $149/year. Learn more about the benefits of membership here.
