How to start a gallery

Jonathan Howell ([email protected])4/27/2007

Art and the LawLoyola Law School

A Practical Guide to Starting an Art Gallery(Thanks to Elizabeta Betinski of Overtones Gallery, Jensen of Gallery 1988, and Billy

Shire of Billy Shire Fine Arts for answering interview questions)

I. Introduction

Leo Castelli entered the New York art world after serving in the United States Army

during Word War II. 1 Prior to moving to New York, Mr. Castelli was an attorney

working in the insurance business in Europe.2 In 1935, Leo Castelli moved to Paris and

opened his first gallery.3 After the beginning of World War II, the Castellis left Paris for

New York.4 Although he had many artist friends, Leo Castelli never wanted to work with

artists who the public already knew.5 He did not want to open a gallery in New York until

he could embrace new work, work that made Mr. Castelli feel what he called “pure

enthusiasm.”6 Soon Leo Castelli discovered a new art world hungry for “recognizable

imagery and anxious for a new aesthetic to embrace after a decade of Abstract

Expressionism.”7 Castelli’s New York gallery paved the way for contemporary art by

exhibiting new artists.8

As an art patron, Leo Castelli made many important gifts to museums and public

collections.9 As a dealer, he “broke ground by putting the artist he championed on a

stipend, paying them on a regular basis.”10 He rarely proposed selling a painting to a

collector.11 “I am in the category, myself, of having always dealt with art because of its

groundbreaking importance. As far as the selling of that art is concerned, the devil can

take the hindmost.”12

What is an art gallery? The Merriam-Webster Dictionary defines an art gallery as “a

room or building devoted to the exhibition of works of art” or “an institution or business

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exhibiting or dealing in works of art.”13 An art gallery is a place for an art dealer to show

her wares.14

The art gallery owner is essentially an art dealer. In a recent interview, Renato

Danese, a New York dealer and gallery owner, explained, “the best dealers are not

salesmen in the classic sense of the word . . . . Their passion and their connoisseurship

and their knowledge have to combine to convince someone to acquire something that has

no ostensible function in life, and that’s always an easy thing to do.”15 According to

Danese, art galleries and dealers provide a service to clients, a service to artists and a

service to the field of art.16

According to Robert Ayers, of ArtInfo, an art gallery is a business like any other.

“Without a proper, viable business plan, you’re wasting your time.” Furthermore, “[g]ood

gallerists have an in-depth background in art history, and almost all successful dealers

received extensive training working in others’ galleries.”17

What type of art is in art galleries? Because of architectural limitations to showing in

a room or building, art galleries tend to show visual art, and primarily paintings. 18

What is the difference between a gallery and a museum? The International Council of

Museums defines a museum as “a non-profit making, permanent institution in the service

of society and of its development, and open to the public, which acquires, conserves,

researches, communicates and exhibits, for purposes of study, education and enjoyment,

material evidence of people and their environment.”19 From this definition, it is clear that

although art galleries and museums both display art, they have separate and distinct goals.

The largest distinction is that an art gallery is typically for profit while a museum is

nonprofit. In other words, an art gallery is primarily interested in selling the works of art

while a museum displays and collects works for the public to view. This is because art

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galleries tend to be privately owned while museums are owned in trust and run by a board

of directors.

Art galleries usually display works from a small group of artists with which the

gallery works closely. In contrast, museums collect works and keep them in the

“permanent collection.” The museum seeks works from professionally validated artists

and may feature temporary exhibits on loan from other institutions.20

Not all art galleries are alike and, although many are for profit, there are also non-

profit galleries, co-op galleries run by artists, and rental galleries.21 Regardless of the

business model, all art galleries give the artist a space to show art, access customers, and

promotional/marketing assistance.22

With the forgoing in mind, the goal of the following discussion is to provide insight

into the legal quagmires of establishing an art gallery. Each section includes commentary

from successful gallery owners to application of the law or business strategies. Section II

of this paper will discuss the various business entities and how they effect different

aspects of art gallery ownership. Section III discusses financing and budget concerns.

Section IV discusses how to choose a location. Section V discusses basic California

employment law and provides insight into how successful galleries use employees.

Section VI discusses the art galleries’ relationship with artists and their methods of

selling art. Section VII discusses techniques for having a successful art opening. Finally,

section VIII discusses the pros and cons of art fairs. This paper also includes an appendix

containing California and New York legislations relating to the consignment relationship.

As seen from the sections listed, this paper starts from the very beginning – how the

owner should choose the form of the art gallery.

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II. Choosing a Business Entity

Choosing a business entity is an important step that can affect an art gallery’s taxation

and liability. This discussion is limited to California business entities and not

comprehensive, but it should help familiarize a potential gallery owner with the

differences of the various business entities.

There are six general business entities: (1) Sole Proprietorship (2) Corporation

(including S Corporation) (3) General Partnership (4) Limited Partnership (5) Limited

Liability Partnership (6) Limited Liability Company.

Several factors affect the choosing of a business entity:

(1) Ease of formation, which includes filings, fees and minimum annual taxes;

(2) Taxation, which includes income taxation, state taxation and employment

taxation;

(3) Liability, or what you as the owner may be obligated to pay on behalf of your

business;

(4) Raising, capital such as loans or selling shares;

(5) Management, including how the business is managed and who the managers

are;

(6) Transferability of ownership, interest or how easy will it be for you to transfer

for share of the business;

(7) Continuity of business, or what happens to the business after you die?

A. Sole Proprietorship

Sole Proprietorships are generally used to keep costs low and when there is only one

business owner. The sole proprietorship is the simplest form of business organization

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because is has no filings, fees, or minimum annual taxes required.23 The main downside

of a sole proprietorship is that the owner is liable for all the debts of the business – hence

no limited liability like in the limited liability company or corporation. The full exposure

of liability means traditional business choices like hiring employees require more caution

because the owner is personally liable for lawsuits against the business.24 Another

downside of sole proprietorship is raising capital, since shares of ownership cannot be

sold and a smaller sense of legitimacy due to the lack of regulations. The sole

proprietorship may be a cost effective business entity as a startup, but as the art gallery

grows, it is advisable to choose another entity that limits liability.

B. Corporations

Although subject to more formalities than the sole proprietorship, corporations are

simple and inexpensive to form because of the extensive statutes already in place.25

Unlike the sole proprietorship, however, articles of incorporation must be filed with the

California Secretary of State.26 No minimum franchise tax must be paid when the articles

are filed but a tax based on income must be paid by the fifteenth day of the fourth month.

27 Upon formation, directors must be appointed and shares of stock issued. These and

other formational matters should be reflected in the corporate minutes.28After filing the

articles of incorporation, the corporation must file with the Secretary of State a Statement

of Information that names the directors, describes the business,s and provides an address

for the principal office.29 These additional filings demonstrate the additional formalities

compared to starting a sole proprietorship.

Raising capital is simpler than in the sole proprietorship or partnership because the

corporation can sell ownership through shares.30 Furthermore, the extensive regulations

add a layer of legitimacy that can make a bank feel more comfortable when making a

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loan. A corporation offers its shareholders simplicity and limited liability in that

shareholders are usually not liable for corporate debts unless they specifically guarantee

them. The use of shares to denote ownership also simplify transferring ownership and

ensure that the business will continue after the death of a shareholder.

Corporate taxation can be a potential downside because of an added layer of tax and

complexity. Before the owner can pocket any profits, the corporation itself and the owner

are taxed on profits. This is different under an S corporation, which is a special corporate

form that has limitations on shareholders. An S corporation is taxed like a partnership or

sole proprietorship. In other words, profits are passed directly to the shareholders of the S

Corporation.31

C. Partnerships

Partnerships can be either general or limited. In a general partnership the partners are

liable for the debts of the partnership. In a limited partnership, one partner is considered

the general partner and is liable for all partnership debts. The other partners are the

limited partners and are shielded from liability unless they take on the day to day affairs

of the partnership. A general partnership can be formed orally but a limited partnership

must be in writing. 32

Partnerships are often favored over corporations because there is no extra level of tax.

Profits are passed straight to the partners. “[E]ach individual

partner includes [the partnership] income, or loss, on her own personal income tax

return.”33

D. Limited Liability Companies

An LLC is formed pursuant to a state limited liability company statute. The owners of

an LLC are generally referred to as “members.” An LLC has an operating agreement and

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issues membership interests to its owners. Like a corporation, it offers all of its members

that same degree of limited liability. In addition, members have a choice of participating

in management (“member managed”) or leaving management of the business to certain

members or outside managers (“manager managed”). Members do not lose their limited

liability protection. 34

LLC’s have complex tax issues and an art gallery owner should consult a tax

specialist.

E. What type of business entity do existing art galleries use?

According to Jonathan Kodner of the Kodner Gallery in St. Louis, “Structure depends

on how you want to position yourself and the gallery in the event of transition disputes,

general business dealings, and other unexpected problems. We’re are set up as a C

corporation. Another factor is taxes – percentages, credits, burdens, etc. A reputable

attorney and accountant are two of the best and most important assets when starting a

business.”35 In contrast, Richard Roberts of the R. Roberts Gallery explained: “We set up

an S corporation. Today, either an LLC or S corporation is probably preferable. We chose

ours after consolation with our CPA and attorney.”36

According to Billy Shire, his art gallery, Billy Shire Fine Arts in Culver City is

organized as a corporation.37 Elizabeta Betinski originally opened the Overtones Gallery

in Culver City as a corporation but changed to a sole proprietorship to keep costs and

taxes down.38 Mike Woolsey also formed Marina Fine Arts as a sole proprietorship.39

Jensen of Gallery 1988 in Los Angeles formed his gallery as a limited liability company.40

Similarly, Betty Cunningham of the Betty Cunningham Gallery in New York formed her

gallery as a limited liability company.41

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Based on this survey of galleries across the country, an art gallery can be formed

under any business entity. No art gallery is alike and for that reason all the business entity

factors discussed above must be considered before choosing the most appropriate entity.

III. Financing / Budgeting

After selecting your business entity, taking into consideration your financing options,

it is important to know how to pay start up costs. According to the U.S. Small Business

Administration, not securing adequate financing is the second most reason why business

fail.42 Theses costs can include leasing a space, advertising, and wining and dining artists.

According to ArtInfo, the start-up costs of an art gallery are significant. In a recent

interview, Renato Danese, a respected New York dealer and owner of Danese Gallery in

New York, listed business considerations for an art gallery’s budget including “garbage

collection, city taxes, sales taxes, bookkeeping, shipping costs, [and] insurance.” In

addition to these traditional business costs, an art gallery owner should have enough

resources to withstand some quiet times.43 According to Michael Foley of the Foley

Gallery startup costs for a New York gallery include rent ($3,000-$30,000), build-out

costs ($15,000-?), and Set-up Costs ($20,000-?). Set-up costs can include desks, chairs,

cabinets, flat files, bookcases, tables, telephones, credit cards machines, printers.44

Once the startup costs are estimated, there are two broad categories of financing from

which to select: equity and debt. Equity means ownership.45 When a company obtains

financing by selling equity it means the company is selling ownership interests.46 All

businesses begin with an equity investment from somebody.47 For example in a sole

proprietorship, the owner is the sole investor and owns all the equity in the business.48 In

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a partnership, two partners may invest 50% of the startup costs and thus have a 50%

ownership interest or equity interest in the business.49 In contrast to partnerships,

corporations use shares to represent ownership interest.50 An important aspect of equity

investment is that the money is never paid back because it is exchanged for the ownership

interest.51

In contrast to selling an ownership interest, a business that finances with debt

\receives money from a lender but must pay the lender back.52 The most typical form of

debt financing is the commercial bank loan.53 Before making a loan, the bank will analyze

the businesses ability to repay the loan. For example the bank may look at the business’s

“cash flow, profitability, management expertise and (for small businesses) the

entrepreneur’s personal record.”54 The bank will also be interested in the collateral that

can be used to secure the loan.55 “Besides commercial banks and government agencies,

several other sources may provide financing to small businesses.”56 Specifically, “The

largest public source of small business financing is the U.S. Small Business

Administration (SBA).”57

With regard to securing a bank loan, having a good relationship with your banker is

important. According to Jonathan Kodner of the Kodner Gallery in St. Louis, bank credit

is essential and “personal relationships established with the bank can build your

business.”58 Melanie Smith of Seaside Art Gallery in North Carolina also found a strong

relationship with a banker can be the best way to secure capital.59 She notes that credit

cards can help with cash flow on a short-term basis.60

In contrast to using a bank loan, Mindy E. Moak of MME Fine Art, and her partner

Elizabeth M. Stallman, “happily acknowledge the role of their third partner, Hugh L.

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McColl Jr., the ex-chairman of the Bank of America Corp., who provided the ‘needed

capital to make MME possible.’”61

Art gallery owner can also self-finance the gallery with their own funds or income

from other businesses. Billy Shire of Billy Shire Fine Arts in Culver City finances his

gallery with funds from his retail store.62 Elizabeta Betinski of the Overtones gallery in

Culver City worked for another artist to help finance her gallery.63 Jensen of Gallery 1988

in Los Angeles funded his gallery with money he had made previously in the record

business.64 On the other hand, Jensen’s partner obtained a loan from her parents.65

Similar to choosing a business entity, the choices for financing are varied. A new

gallery managed by someone with limited or no track record may have to rely on personal

or family loans. An art gallery owner with a more established gallery management history

may seek a private investor by selling equity or try to obtain a loan from either a

government or commercial source.

Careful attention to financing and budgeting is essential for an art gallery. As

Elizabeta from Overtones explains, the hardest part of running an art gallery is the

amount of time before the gallery gains recognition.66 An art gallery owner needs to have

adequate funding to withstand these growing pains.

IV. The Location

When choosing a location for an art gallery, a potential gallery owner should consider

factors such as customer traffic, proximity to other galleries, ease of access, and rent.

Occasionally, as noted below, the primary factor in a busy area may be the availability of

a retail location.

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Customer traffic seems to be a universal concern of art gallery owners. According to

Mike Woolsey of Marina Fine Arts in Marin Del Rey, “[a] good location is important.

Ours provides good customer traffic and demographics – affluent and young (20 to 40-

years-old) We’re located away from other galleries. I would not want to be open in a

neighborhood with five other galleries, unless they weren’t meeting a specific need in

terms of pricing or types of works.”67 Jonathan Kodner of the Kodner Gallery in St. Louis

chose the location of this gallery based on “proximity and accessibility to our main client

base.”68 Similarly, in choosing a location, Jensen of Gallery 1988 in Los Angeles was

primary concerned with customer traffic and visibility. Jensen explained, “[b]eing on the

corner of Melrose and La Brea gives us more visibility than any other gallery in L.A. That

was the main reason we loved this location.”69

In addition to customer traffic, art gallery owners should consider proximity to other

galleries and rent. According to ArtInfo magazine, Chelsea in New York is the epicenter

of the contemporary art market, but the area’s rents reflect its status. New York Gallery

Owners Cheryl McGinnis and Lesley Heller both “deliberately chose to be off the beaten

track at Madison and 92nd Street.” Heller explained, “[y]ou have to decide which area of

town you want to be in, and for me it had a lot to do with rent, as well as where I thought

I could stand out. I didn’t want to be just another gallery in Chelsea.”70

Sometimes just having an available retail space can trump other factors like rent and

customer traffic. Elizabeta Betinski of the Overtones Gallery in Culver City chose her

location space by chance. Her studio was located behind a store front and began renting it

when the space became available.71 Melanie Smith of the Seaside Art Gallery in North

Carolina chose her location for a similar reason: it was the only retail location available.72

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Once a location is chosen, an art gallery director may need to build out the space.

Elizabeta Betinksi spent nearly a year building out her space and supported herself by

working for another artist.73 To ensure a smooth construction process, Jensen from

Gallery 1988 recommends including gallery specific provisions such as lighting because

of its importance in displaying art.74 Moreover, if the art openings go on late in the night,

he recommends including provisions in the lease for the hours of operation.75

In sum, an art gallery owner should consider foot traffic when considering a space but

sometimes just the availability of a space may trump all other factors. Finally including

art gallery specific terms in your lease may ameliorate future problems with construction

and occupancy.

V. Employees

Although an employee may seem like a luxury when starting an art gallery, the extra

set of hands can help the burgeoning art gallery owner focus on more pressing tasks. This

section will first survey basic California employment law and then provide employment

examples from current art galleries.

California law presumes employment is at-will.76 This presumption means that an

employee may be fired at any time and the same employee may quit at any time.77 An

employer can change an at-will employment by using an employment contract, verbal

assurances, or other conditions that may lead the employee to believe that employment is

not at will.78 To ensure that an employee remains at-will, it is important for the employer

to remind the employee during evaluations and in all employment documents.79

Hiring an independent contractor is an alternative to traditional employment.80 The

benefit to using an independent contractor is the reduction in costs associated with

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providing benefits and withholding payroll taxes.81 The pitfall in using an independent

contractor is misclassifying the contractor’s status.82 In other words, you may be liable for

withheld payroll taxes if you misclassify an employee as an independent contractor.83 To

ensure that an art gallery owner avoids this pitfall, a number of factors should be

considered including who controls how the job is done, whether the independent

contactor is receiving benefits, and whether the contractor is being paid on a per project

basis.84

Finally, hiring a student intern is an option for a budget conscious start-up. California

law requires student employees must be paid or receive credit and the work must be in the

“course of their studies, as part of the curriculum.”85 On the other hand, non-student

unpaid volunteers are defined as those “who intend to donate their services to religious,

charitable, or similar nonprofit corporations without contemplation of pay and for public

service, religious, or humanitarian objectives.”86 Therefore, unless the gallery is a non-

profit institution to culturally benefit the community, gallery interns will not qualify as

exempt volunteers. In sum, unpaid interns should receive scholastic credit.

Many galleries seem to hire a part-time employee and several student interns. For

example, Michael Foley of the Foley gallery has one employee come in once a week to do

various jobs and Foley uses several student interns to assist with day to day tasks.87

Similar to the Foley gallery, Elizabeta of Overtones in Culver City hired one part-time

employee and several student interns.88 In contrast, Billy Shire of Billy Shire Fine Arts in

Culver City employs a gallery director and assistant.89

Until recently, Jensen of Gallery 1988 in Los Angeles and his partner ran the gallery

without the aid of any employees.90 In hindsight, however, Jensen recommends hiring at

least one employee to help open the gallery.91 In fact, he explained that one of the hardest

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parts of running a gallery are the hours.92 “Even your time off involved taking artists to

dinners or going to other gallery’s art shows. It was brutal.”93 Specifically, Jensen

advised: “I would seriously suggest always hiring one person with you to open a gallery

with. It will keep you saner and lessen the grey hairs.”94

VI. The Art and the Artist

Finally, after all the business startup issues, an art gallery owner can focus on art.

First, an art gallery owner should understand the two main sectors of the art market: “the

primary (first sale) market and the secondary (resale) market.”95 “Primary-market dealers

identify new talent, in the process advancing the careers of living artists and serving as

catalysts for new art movements.” 96 “Secondary-market dealers handle work that is

appearing on the market for resale on behalf of collectors and institutions.”97 An artist’s

primary source of income is from the primary market by “selling her works directly –

through friends and acquaintances, at street fairs, through artists’ cooperatives, and to

people who come to the studio – or indirectly, through a dealer.”98 After art has been

purchased on the secondary market and the purchaser decides to sell it, it enters the

secondary market.

A gallery owner may find it difficult to be profitable in the primary market because

“few artists’ works command prices high enough to provide commissions that will cover

the [gallery owner’s] expenses.”99 John Merryman, art law scholar and author of Law,

Ethics and the Visual Arts, believes many dealers, to be successful, must sell works of

established artists in the secondary market.100 In contrast, many of the gallery owners

interviewed sold most of the art on consignment directly from artists. In other words,

these galleries operated successfully in the primary art market.101

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A. Methods of Selling Art

A variety of methods exist to sell art including consignment, the inventory model, and

renting out gallery space. Consignment is the most common. Essentially, with a

consignment agreement, the artist retains ownership of the artwork but gives it to an art

gallery to sell for a fee. In contrast, the inventory model requires that the art gallery owner

purchase works of art outright. Because of the money needed to purchase art, the

inventory model is risky and costly. An alternative to consignment and inventory is

simply renting the art gallery space to artists. The method of renting space is sometimes

beneficial for artists who need a gallery to present work to visiting collectors.102 Because

consignment is most common, it will be explored in more detail below.

B. Consignment

As noted above, artworks are commonly sold on consignment.103 Consignment is an

arrangement where “the artists entrusts the artworks to a gallery[], and is paid a portion of

the price the gallery receives upon the sale of the artwork.”104 This relationship is

beneficial to both the art gallery and the artist.105 For an art gallery, the consignment

agreement can reduce the cost of purchasing art outright.106 For the artist, the consignment

agreement avoids the “expenses and expenditure of time required in maintaining a retail

shop.”107

California and New York have enacted legislation that govern “consignment of art

works by artists to art dealers for the purposes of exhibition and/or sale.”108 Business

dealings in general are also governed by case law and the Uniform Commercial Code (the

U.C.C.), “a comprehensive statute that has been enacted by every state except

Louisana.”109 When a dispute arises, and no contract exists or it is unclear, courts will

look to these laws to fill in the details and obligations of the parties.110 For this reason, it

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is beneficial for the art gallery owner to be familiar with the basic framework and

obligations created by these laws. The following consignment discussion focuses on

California’s legislation – California Civil Code, sections 1738.5-1738.8.

California’s consignment legislation creates four distinct areas of liability of which

every art gallery owner should be aware:

Consignment by default: When an art gallery receives art from an artist, the art is

presumed on consignment unless the delivery was pursuant to a sale or the artist received

full compensation.111 The consignment agreement makes the art gallery owner a fiduciary.

“As a fiduciary, the dealer owes the artist the duty to deal fairly and honestly, to prudently

care for and manage the consigned property, to account periodically and to disclose all

information relevant to the subject matter of the agency.”112 In sum, “artwork left with the

gallery is considered on consignment” and thus creates special duties for the art gallery

owner.113

Creditors of Gallery: A creditor to the gallery may not seize works of art on

consignment.114 In other words, if the art gallery fails to pay bills, the art may not be

subject to a claim of the creditor. Although this may seem like the natural solution, the

U.C.C. permitted consignment items to be subject to claims unless the gallery met certain

requirements. Fortunately, the California legislation recognized the inequity in this old

rule.

Loss or Damage: An art gallery is responsible for “the loss of, or damage to, the work

of fine art.”115 “Where the sale is on approval, the risk of loss is on the seller until

acceptance.”116 For example, an art gallery may be liable for stolen art if an adequate

security system was not installed.117 In contrast, New York has no comparable provision.

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Waiver: An art gallery cannot contract around California’s consignment law.118 In

other words, an artist cannot waive the art gallery’s responsibility for the loss or damage

of the art. Even if the art gallery tried, a court would hold the contractual provision void.

Courts have found some consignment contracts unenforceable because of

unconscionable terms. For example, a New York Court held that a consignment

agreement with no end date was unenforceable because it closely resembled a purchase

for no money.119 Furthermore, pursuant to Uniform Commercial Code, section 2-306, an

art gallery with an exclusive consignment arrangement must use her best efforts to

promote sales of the artist’s work.120

Although it is not part of the consignment legislation, an art gallery owner may also

be jointly liable for exhibiting works that are obscene, constitute a public nuisance,

defame the flag, infringe on copyright, or displays protected symbols. 121

Past arrangements between dealers and artists have typically been informal and rarely

memorialized, however, there is a growing trend in defining the relationship of the parties

through a written contract.122 For example, once the art gallery and artist agree upon a

consignment relationship, “a written receipt for those works accepted on consignment,

with a full description of the works, their retail price, the gallery’s commission, its terms

of payment, a statement that the work is ‘on consignment’, and a statement that the

gallery assumes full responsibility for the artworks in its custody, is the absolute

minimum written record” that an art gallery should provide to an artist.123

Michael Foley of the Foley Gallery almost exclusively uses the consignment method

of selling art. “Work comes in here, and if it sells, the artist and I split it 50-50.”124 Jensen

from Gallery 1988 also sells almost exclusively on consignment.125

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Elizabeta of Overtones also uses a consignment agreement but has a more artist

friendly terms like a 40% commission instead of the usual 50%.126 She also relies on a

written contract for the basic framework but acknowledged that many of the details are

orally agreed upon.127

According to New York dealer and gallery owner, Renato Danese, “you never pay

yourself before you pay an artist. When you receive payment for a work of art, the artist

has to be paid immediately.” Danese also believes that the art dealer should know who is

acquiring the artists work and try to place work in good private or public collections or a

good collection in formation. 128

Whether displaying works on consignment or purchasing works outright from an

artist, a contract may include provisions pertaining to “royalty rights, minimum resale

prices, rights of first refusal with respect to the artist’s production, and warranties from

the artist with respect to the creation and ownership of the word sold.”129 Furthermore, the

dealer/art gallery owner should seek warranties of originality and absence of infringement

of privacy and copyright of third parties.130

C. Gallery Focus

Choosing a focus for the art gallery and specifically finding an artist to work with

requires research and understanding – not only of the art market but also the owner’s

personal taste. Cheryl McGinnis of McGinnis Fine Art spent years figuring out what her

“eye” was about, what her point of view was, what artists interested her, and how it all

came together. 131

An art gallery may find artists through word of mouth, art publications or through

research on the internet. For example, Jensen of Gallery 1988 uses fecalface.com and

Juxtapoz.com to learn more about artists.132 When researching an artist, “[t]he gallery

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might ask about the artist’s training and professional background, finding out how long

and how extensively the artist has been in business.”133 For example, the art gallery

should know where and when the artists’ work has been shown, whether the artist is

currently being represented, and the general scope of the artist’s production and level of

output that can be expected in the future.134

The Art Dealers Association of America provides six points to remember when

considering to purchase art: authenticity, quality, rarity, condition, provenance and

value.135 Although the points are for collectors purchasing art on the secondary market,

they also apply for art gallery owners looking to work with an artist.136 For example, an

art gallery owner should inquire whether the art being delivered is authentic and

original.137

Once you have made an arrangement with an artist, an art gallery owner must do more

than sell the art to collectors but work personally with the artist. For example, Matthew

Marks, a well respected gallerist who recently teamed up with artist Jasper Johns, devotes

himself to his artists.138 Jasper Johns notes that Marks is popular with artists because he is

“conspicuously slavish in his devotion to his artists.”139 For example Marks explains, “I

will always take and artist’s call if I am on the phone with a collector. And I will never

take a collector’s call if I’m on the phone with an artist.”140 Marks’ devotion to his artists

means he no longer has to discover artists, rather they come to him.141

Slavish devotion to artists, however, does not always end happily. Billy Shire of Billy

Shire Fine Arts explains that the most difficult part of starting an art gallery is losing an

artist after developing them for years.142 Artist poaching is a very real problem for art

gallery owners.

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VII. Art Openings

The art opening is the art gallery owner’s primary tool for marketing art. “A

successful art opening creates a buzz in the art community, not only about the art and the

artist, but also about the gallery.” 143 Alan Bramberger, an art consultant and author,

recommends creating anticipation for art opening by combining an announcement to the

art community and a press release for the general public.144 The art gallery owner should

send the press release to “local arts organizations, community bulletin boards,

newspapers, that list local events, and any radio or TV stations or shows that focus on

local happenings.”145

Billy Shire of Billy Shire Fine Arts uses the both the Internet and traditional

advertising methods to promote an art opening.146 Specifically, he uses websites, blogs,

mass emails, and newsletters, direct mail invites, art magazines and art fairs to

advertise.147 Similarly, Elizabeta of Overtones in Culver City makes use of free

advertising to keep her costs low including submission to local newspapers.148 The artists

that she exhibits generate enough press that she does not have to spend too much to

advertise.149 Jensen of Gallery 1988 also rarely pays for advertising but rather “fishes” for

free press.150

During the art opening, Mr. Bramberger recommends that the gallery not charge for

admission or refreshments. According to Mr. Bramberger, galleries sometimes try to

justify charging for admission by offering more than the art on display, e.g. live music.151

However, art collectors are not attending the art gallery to party and will likely be turned

away by the admission fee.152

20



Based on a survey of galleries in Culver City, exhibitions tend to be approximately

thirty days.153 With approximately 12 exhibitions a year, an art gallery owner may ask:

“how often are new artists shown?” Billy Shire of Bill Shire Fine Arts will exhibit a new

artist every 18 to 24 months.154 Jensen of Gallery 1988 exhibits new artists all the time in

group shows.155 As the new artists sell more they are given solo shows.156 This gives new

artists the chance to exhibit and develop.

Finally, an art gallery owner must budget for each art opening. According to Michael

Foley of the Foley Gallery each exhibition of an artists work can cost from $10,000-

$12,000+. “For every show, there’s framing; there’s an exhibition announcement that

needs to be designed, that needs to be printed, that needs to be mailed out; there are press

releases; there’s Web site maintenance on a daily basis, and there’s advertising-I advertise

in at least one publication for each show.”157

VIII. Art Fairs

Art fairs provide a way for an art gallery to gain recognition within the art community.

An art gallery owner can also survey the field of art galleries to help tailor their own

gallery to under-represented areas of art.

According to Michael Foley of the Foley Gallery, art fairs can cost from $10,000-

$20,000 per fair. “Art fairs are definitely something that needs to be budgeted; they’re a

major consideration for galleries nowadays. Even when I opened up two years ago, it

wasn’t as much of a cost concern as it is now. For a new gallery, how else are you going

to have people know who you are and what you do? You can’t just sit up here on the fifth

21



floor and hope that people wander through.” Art fair costs can include, the renal booth,

travel, accommodations, food, shipping, insurance. “Doing an art fair is like doing an

expensive exhibition in terms of costs. And the thing about most art fairs is you have to

pay a deposit way in advance of the fair.”158

Elizabeta of Overtones in Culver City uses art fairs to connect with collectors and

gain visibility for her gallery.159 She does, however, acknowledge that art fairs are long

term propositions and in the short term may dig into a new gallery’s budget.160 Similarly,

Billy Shire of Billy Shire Fine Arts in Culver City attends art fairs but is hard pressed to

show significant import from them.161 In contrast, Jensen of Gallery 1988 in Los Angeles

does not attend art fairs because he feels they are not targeted for the genre of art his

gallery specializes in.162

IX. Conclusion

In sum, every art gallery is different and, as seen from the art gallery owner comments

a variety of methods may be used to operate a gallery. Although many startup issues were

discussed additional issues including insurance and copyright can arise. For example,

Jensen from Gallery 1988 in Los Angeles visited a lawyer to preempt any potential

copyright violations.163 Notably, Jensen found most of the art he displayed fell under fair

use.164 An art gallery owner may also be confronted by another gallery regarding the

exclusive representation of an artist. Elizabeta from Overtones in Culver City consulted

an attorney for this very issue. For these reasons, no guide can adequately prepare an art

gallery owner for every legal issue. Through all this discussion, one thing about art

gallery owners became very apparent – they all deeply loved art.

22



Appendix 1 – Art Dealer Legislation

The law is the primary source for learning about the liabilities and obligations on your

business. The following appendix reproduces California and New York law specifically

dealing with the consignment relationship. Although they can be difficult to understand,

an art gallery owner should know these laws exist and where to find them.

California Civil Code, sections 1738.5-1738.8

1738.5. Notwithstanding any custom, practice or usage of the trade to the contrary,

whenever an artist delivers or causes to be delivered a work of fine art of the artist's own

creation to an art dealer in this state for the purpose of exhibition or sale, or both, on a

commission, fee or other basis of compensation, the delivery to and acceptance of such

work of fine art by the art dealer shall constitute a consignment, unless the delivery to the

art dealer is pursuant to an outright sale for which the artist receives or has received full

compensation for the work of fine art upon delivery.

1738.6. A consignment of a work of fine art shall result in all of the following:

(a) The art dealer, after delivery of the work of fine art, shall constitute an agent of the

artist for the purpose of sale or exhibition of the consigned work of fine art within the

State of California.

(b) The work of fine art shall constitute property held in trust by the consignee for the

benefit of the consignor, and shall not be subject to claim by a creditor of the consignee.

23



(c) The consignee shall be responsible for the loss of, or damage to, the work of fine art.

(d) The proceeds from the sale of the work of fine art shall constitute funds held in trust

by the consignee for the benefit of the consignor. Such proceeds shall first be applied to

pay any balance due to the consignor, unless the consignor expressly agrees otherwise in

writing.

1738.7. A work of fine art received as a consignment shall remain trust property,

notwithstanding the subsequent purchase thereof by the consignee directly or indirectly

for the consignee's own account until the price is paid in full to the consignor. If such

work is thereafter resold to a bona fide purchaser before the consignor has been paid in

full, the proceeds of the resale received by the consignee shall constitute funds held in

trust for the benefit of the consignor to the extent necessary to pay any balance still due to

the consignor and such trusteeship shall continue until the fiduciary obligation of the

consignee with respect to such transaction is discharged in full.

1738.8. Any provision of a contract or agreement whereby the consignor waives any

provision of this title is void.

1738.9. This title shall not apply to a written contract executed prior to the effective date

of this title, unless either the parties agree by mutual written consent that this title shall

apply or such contract is extended or renewed after the effective date of this title. The

24



provisions of this title shall prevail over any conflicting or inconsistent provisions of the

Commercial Code affecting the subject matter of this title.

New York Arts and Cultural Affairs Law, section 12.01

Artist-art merchant relationships.

1. Notwithstanding any custom, practice or usage of the trade, any provision of the

uniform commercial code or any other law, statute, requirement or rule, or any

agreement, note, memorandum or writing to the contrary:

(a) Whenever an artist or craftsperson, his heirs or personal representatives,

delivers or causes to be delivered a work of fine art, craft or a print of his own creation

to an art merchant for the purpose of exhibition and/or sale on a commission, fee or

other basis of compensation, the delivery to and acceptance thereof by the art merchant

establishes a consignor/consignee relationship as between such artist or craftsperson and

such art merchant with respect to the said work, and:

(i) such consignee shall thereafter be deemed to be the agent of such consignor

with respect to the said work;

(ii) such work is trust property in the hands of the consignee for the benefit of the

consignor;

25



(iii) any proceeds from the sale of such work are trust funds in the hands of the

consignee for the benefit of the consignor;

(iv) such work shall remain trust property notwithstanding its purchase by the

consignee for his own account until the price is paid in full to the consignor;

provided that, if such work is resold to a bona fide third party before the consignor

has been paid in full, the resale proceeds are trust funds in the hands of the

consignee for the benefit of the consignor to the extent necessary to pay any balance

still due to the consignor and such trusteeship shall continue until the fiduciary

obligation of the consignee with respect to such transaction is discharged in full;

and

(v) no such trust property or trust funds shall be subject or subordinate to any

claims, liens or security interest of any kind or nature whatsoever.

(b) Waiver of any provision of this section is absolutely void except that a consignor may

lawfully waive the provisions of clause (iii) of paragraph (a) of this subdivision, if such

waiver is clear, conspicuous, in writing and subscribed by the consignor, provided:

(i) no such waiver shall be valid with respect to the first two thousand five

hundred dollars of gross proceeds of sales received in any twelve-month period

commencing with the date of the execution of such waiver;

(ii) no such waiver shall be valid with respect to the proceeds of a work initially

received on consignment but subsequently purchased by the consignee directly or

indirectly for his own account; and

26



(iii) no such waiver shall inure to the benefit of the consignee's creditors in any

manner which might be inconsistent with the consignor's rights under this

subdivision.

(c) proceeds from the sale of consigned works covered by this section shall be deemed to

be revenue from the sale of tangible goods and not revenue from the provision of

services to the consignor or others, except that the provisions of this paragraph shall not

apply to proceeds from the sale of consigned works sold at public auction.

2. Nothing in this section shall be construed to have any effect upon any written or oral

contract or arrangement in existence prior to September first, nineteen hundred

sixty-nine or to any extensions or renewals thereof except by the mutual written consent

of the parties thereto.

27

1 Id.

2 Id.

3 Eight ADAA Members Who Made History, Art Dealers Association of America,

http://www.artdealers.org/who.dealers.html.

4 Id.

5 Id.

6 Id.

7 Eight ADAA Members Who Made History, Art Dealers Association of America,

http://www.artdealers.org/who.dealers.html.

8 Id.

9 Id.

10 Id.

11 Id.

12 Id.

13 Definition: Gallery, Merriam Webster Dictionary, www.m-w.com/dictionary /gallery .

14 John Merryman & Albert E. Elsen, Law, Ethics and the Visual Arts p.743 (4th ed. 2002).

15 Robert Ayers, Ask ArtInfo: Opening Your Own Gallery (Part I), ArtInfo,

http://www.artinfo/News/Article.aspx?a=18669 (last visited March 6, 2007).

16 Id.

17 Robert Ayers, Ask ArtInfo: Opening Your Own Gallery (Part II), ArtInfo,


18 Art Gallery, Wikipedia, http://en.wikipedia.org/wiki/Gallery.

19 ICOM definition of museum, International Council of Museums, http://icom.museum/definition.html

20 Cecilia H. Lee, The Different Types of Galleries, suite 101.

http://www.suite101.com/article.cfm/resources_for_artists/73639/2.

21 Id.

22 Id.

23 Selecting and Forming Business Entities § 2.2 (Cal CEB 2006).

24 Sole Proprietorships, Wikipedia, http://en.wikipedia.org/wiki/Sole_proprietorships.

25 Id.

26 Legal Issues for Small Businesses and Nonprofit Agencies, Economic and Business Development,

Public Counsel & Southern California Edison, p. 13, available at

http://www.sce.com/DoingBusiness/ecobizdevelopment/DocumentLibrary (2007).

27 Id.

28 Id.

29 Selecting and Forming Business Entities § 2.10 (Cal CEB 2006).




31 Id at 13.

32 Russell Pinilis & Stewart McMichael, Choice of Entity: Tax FAQs, O’Melveny & Meyers LLP (2006).

33 Legal Issues for Small Businesses and Nonprofit Agencies, Economic and Business Development, Public

Counsel & Southern California Edison, p. 9, available at


34 Russell Pinilis & Stewart McMichael, Choice of Entity: Tax FAQs, O’Melveny & Meyers LLP (2006).

35 Joe Jancsurak, The business of art: the art business, in many ways, is unlike any other. Yet, in many other

ways, it is like any other business. This month, five gallery owners discuss what it takes to operate a

successful gallery business, Art Business News (Feb. 2005).

36 Joe Jancsurak, Roundtable: the ins and outs of selling art: experienced gallery owners discuss what

they've learned over the years about the art business, Art Business News (Jan., 2006).

37 Email interview with Billy Shire, Billy Shire Fine Arts, Culver City (March, 2007) .

38 Telephone Interview with Elizabeta Betinski, Director of Overtones Gallery, Culver City (March, 2007).



40 Email Interview with Jensen of Gallery 1988, Los Angeles (March, 2007).



42 Finance Startup, Small Business Administration,

http://www.sba.gov/smallbusinessplanner/start/financestartup/SERV_FINANBASICS.html.



44 Robert Ayers, Ask ArtInfo: Opening Your Own Gallery (Part III), ArtInfo,





46 Id.

47 Id.

48 Id at 33.

49 Id.

50 Id at 33.

51 Id at 32.

52Id at 24.

53 Id.

54 Id.

55 Id.

56 Id at 29.

57 Id at 29.




59 Id.

60 Id.



62 Email interview with Billy Shire, Billy Shire Fine Arts, Culver City (March, 2007).



65 Id.





68 Id.










75 Id.




77 Id.

78 Id.

79 Id at 47.

80 Id at 64.

81 Id.

82 Id.

83 Id at 65.

84 JKH Enterprises v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046 (affirming labor

board recommendation of fines for misclassified employees).

85 2002 DLSE Enforcement Policies and Interpretations Manual §43.6.8, available at

www.dir.ca.gov/dlse/dlse.html.

86 2002 DLSE Enforcement Policies and Interpretations Manual §43.6.7, available at

www.dir.ca.gov/dlse/dlse.html.



88 Telephone Interview with Elizabeta Betinski, Director of Overtones Gallery, Culver City (March, 2007)

89 Email interview with Billy Shire, Billy Shire Fine Arts, Culver City (March, 2007)

90 Email Interview with Jensen of Gallery 1988, Los Angeles (March, 2007)

91 Id.

92 Id.

93 Id.

94 Id.


96 Understanding the Art World, Art Dealers Association of America,

http://www.artdealers.org/collectors/guide1.html.

97 Id.


99 Id at 744.

100 Id.

101 Telephone Interview with Elizabeta Betinski, Director of Overtones Gallery, Culver City (March, 2007);

Email Interview with Jensen of Gallery 1988, Los Angeles (March, 2007); Email interview with Billy Shire,

Billy Shire Fine Arts, Culver City (March, 2007).

102 Daniel Grant, Investing in Your Career; A Worthwhile Risk?, New York Foundation for the Arts,

http://www.nyfa.org/level4.asp?id=159&fid=1sid=51&tid=202 (2002).

103 Susan Mellon & Tad Crawford, The Artist-Gallery Partnership p.1 (1981).

104 Id.

105 Id.

106 Id.

107 Id.

108 John Merryman & Albert E. Elsen, Law, Ethics and the Visual Arts p.758 (4th ed. 2002); California

Civil Code § 1738.5-1738.8; New York Arts and Cultural Affairs Law § 12.01.


110 Id at 5.

111 California Civil Code § 1738.5; John Merryman & Albert E. Elsen, Law, Ethics and the Visual Arts

p.761 (4th ed. 2002).

112 Carl D. Lobell, Representing Artists, Collectors, and Dealers: Business Relationships, The Law and

Business of Art, p.430 (1990); citing Estate of Rothko, 43 N.Y.2d 305 (1977).


114 California Civil Code § 1738.6(b); John Merryman & Albert E. Elsen, Law, Ethics and the Visual

Arts p.761 (4th ed. 2002).

115 California Civil Code § 1738.6(d).

116 UCC § 2-327; Carl D. Lobell, Representing Artists, Collectors, and Dealers: Business Relationships,

The Law and Business of Art, p.431 (1990).

117 See generally, Tytla v. Shortell No. CV 910397731S, Superior Court of Connecticut (1993).

118 California Civil Code § 1738.8.

119 Matter of Friedman, 64 App. Div. 2d 70 (1978).

120 U.C.C. § 2-306(2) (“A lawful agreement by either the seller or the buyer for exclusive dealing in the kind

of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply

the goods and by the buyer to use best efforts to promote their sale.”).


Business of Art, p.432 (1990).

122 Id at 438.

123 Susan Mellon & Tad Crawford, The Artist-Gallery Partnership p.3 (1981)





127 Id.




Business of Art, p.428 (1990).

130 Id at 429.





134 Id.

135 What to Look for In a Work of Art, Art Dealers Association of America,


136 Id.

137 What to Look for In a Work of Art, Art Dealers Association of America,


138 Eric Konigsberg, Mark Nabs Johns; How gallerist Mathew Marks bagged the flag man and became the

new Leo Castelli, New York Magazine, http://nymag.com/nymetro/arts/art/11892/.

139 Id.

140 Eric Konigsberg, Mark Nabs Johns; How gallerist Mathew Marks bagged the flag man and became the

new Leo Castelli, New York Magazine, http://nymag.com/nymetro/arts/art/11892/.

141 Id.


143 Alan Bramberger, Tips for Successful Art Openings, ArtBusiness.com (2002) available at

http://www.artbusiness.com/openingtips.html (“Alan Bamberger is an art consultant, advisor, author, and

independent appraiser specializing in research, appraisal, and all business and market aspects of original

works of art, artist manuscript materials, art-related documents, and art reference books.”).

144 Id.

145 Id.


147 Id.


149 Id.


151 Alan Bramberger, Tips for Successful Art Openings, ArtBusiness.com (2002) available at

http://www.artbusiness.com/openingtips.html.

152 Id.

153 Blk/Mrkt Gallery, April 14, May 12; Blum & Poe Gallery, May 12-June 25; Overtones March 24-May5;

sixspace April 14 - May 12.



156 Id.





159 Telephone Interview with Elizabeta Betinski, Director of Overtones Gallery, Culver City (March, 2007)

160 Id.

161 Email interview with Billy Shire, Billy Shire Fine Arts, Culver City (March, 2007)

162 Email Interview with Jensen of Gallery 1988, Los Angeles (March, 2007)

163 Id.

164 Id.

Documents

How to start a gallery