Global Art Business

This first column of 2008 responds to many readers’ requests to explore  key business issues faced by both artists and art business professionals conducting their practices/businesses internationally.

The Peoples Republic of China joined the World Trade Organisation in 2001, following the Beijing Government’s new policies embracing capitalism and engaging in world trade. These included engaging with what had hitherto been called the international art world, and can now rightly be called the global art world: the commercial and non-commercial market place for trading in, and exhibition of, art is now undertaken all over the world. Add to this change the increasing use by most people throughout the world of the world-wide web and  economically accessible digital technologies, and we can see an art world operating very differently today, compared with 20 or more years ago.

Such seismic shifts have created and increased opportunities for artists and art business professionals to make and exhibit and trade in artworks; they have also generated many more and complex challenges, the key one being how to conduct art business transactions around the world. This key challenge flows from the globally accepted principle, respected in practice by all member states of the United Nations: the sovereignty of states, which is the exclusive right of a nation state, and often a state or province or territory within a nation state, to govern itself and determine its own laws – including how legal businesses shall be created, and trading conducted; art practice and businesses are no exception. There are around 192 sovereign nation states and possibly up to 400 sovereign non-nation states, resulting in there now being hundreds of different legal and business frameworks or jurisdictions within which art practices and businesses operate, and whose regulations must be complied with.

No one person could possibly possess expert knowledge of how business should be lawfully conducted in and between every one of the hundreds of sovereign states, yet such knowledge is essential before embarking on global outreach. This is one of the main reasons why organisations like the United Nations, its World Trade Organisation, and the International Chamber Of Commerce were established during the second half of the 20th century. These and related supranational bodies offer vehicles for governments and/or businesses around the world to develop and agree  common business structures, trading frameworks, trading tariffs, and import/export regulations. Their websites offer a wealth of information to the general public about conducting business outside one’s own state, and are useful first ports of call for any body contemplating doing so. Another source of invaluable help can be found by contacting, in one’s own state, the Embassy of the state in which business is envisaged being conducted; one of the principal reasons why states establish their foreign-based embassies is to encourage and facilitate foreigners to trade and have cultural relations with businesses and cultural institutions within their home state. When embarking on research into the conduct of foreign business projects, it is also important to understand that global business frameworks can be divided into two broad categories.

First, are those states that have created a comprehensive code of regulations for establishing businesses (such as solo practitioners, partnerships, limited liability companies, and not for profit trading bodies) and for conducting business transactions (such as contracts, agreements, and licences). The degree of regulations vary. States that are or were until recently politically communist generally tend to have a high degree of regulation, requiring business to be conducted in very specific ways dictated by the state’s laws – often embodied in a civil or mercantile legal code. Western European states that are not and have never been politically communist, and states that have had some historical/colonial links with such Western European states, generally have lesser degrees of business regulation than politically communist or former communist states. For example, the Peoples Republic of China, Russia, and Romania, are likely to have much stronger business regulations than France, Germany, or The Netherlands; but all such states are commonly known, in global business terminology, as ‘civil code’ states, comprising about 60% of the trading world that is also often also described as the ‘business francosphere’ (derived from the creation in France and its imposition on states in continental Western Europe of the civil code system by the Napoleonic Empire during the early 19th century).

Second, are states not occupied by the armies of Napoleon Bonaparte in the early 19th century, which chose not to create a comprehensive civil code of business regulations. They preferred to continue their policies of giving free rein to business enterprises, to encourage trading entrepreneurship, and to allow the civil courts to find ways of resolving business disputes as they arose, case by case. Although there are varying degrees of regulation of businesses in such states, most of them have nothing like the degree of business regulation enacted in the civil code states of the business francosphere. States that are comparatively free of business regulation represent around 40% of the trading world, are known as ‘common law’ states, and comprise what is often described as the ‘business anglosphere’. These states are effectively the members of the British Commonwealth of Nations, plus the individual states of the United Sates of America (except Louisiana, which – like the state of Quebec in what is otherwise ‘common law’ Canada – is effectively a civil code state for obvious historical reasons).

One form of business trading, which is now global in its legal form and rules of operation, is the limited liability company. Although there are some state variations, the basic idea is the same worldwide: that two or more people or businesses can jointly apply to register with a state a new legal entity – a company – that has a value specified by the registrants, who will own the company, take shares of profits (or be not for profit), and have their personal liability for the company’s debts limited to an amount specified by them – the company’s owners/directors or shareholders (if constituted to share profits). In most states at least two people or businesses are required to form a new company (in a minority of states one person or business can do so). The minimum value (or share capital) of the company can be as low as, for example, £1 sterling in the UK, or a few dollars in the US; and tends to be a substantially higher amount in politically communist or former communist countries. The laws of most states allow new companies to be registered/created irrespective of the registrants’ citizenship of that state, and only require the company to establish a registered office postal address in the state.  In that latter respect, rates of taxation of company’s profits vary from state to state, and this factor can be decisive in choosing a state for registration; for example, most companies in the US are registered in the state of Delaware, which has traditionally low levels of company tax on profits and a user friendly system of initial registration and subsequent filing of annual company accounts; as does the Isle of Man which, under the constitutional legal framework of the UK, is an independent state for tax and business purposes.

A good working knowledge and understanding of the principles and practicalities involved in operating globally is essential for all businesses, including artists and art business professionals engaging in the global art market place. Such business awareness strengthens two necessary aspects of practising or trading: first, it offers meaningful choices of where to operate and how to do so; second, it offers meaningful insights into how foreign clients of artists and art business professionals should be operating in compliance with the business regulations of the state in which they are legally based.

© Henry Lydiate 2008

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This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.