The last twenty years have ushered in a wave of entrepreneurship focused on the creative industries. Advances in technology and the Internet have affected almost every aspect of today’s culture. Before the internet, social media, and the ubiquitousness of the smartphone, creative entrepreneurs brought attention to their products through word of mouth and traditional forms of advertising, such as print and television. Creative entrepreneurs are cutting out these traditional “middle men” to access their consumers directly through technology such as Instagram, facebook, and online handmade sites such as etsy.com.

Creative entrepreneurs differ from a more traditional entrepreneur in the sense that they invest in their own intellectual capital or that of others, rather than a business concept or idea. Creative entrepreneurs are visual artists, crafters, and creators of handmade goods, which covers anything from artisanal cheese and hand-dyed yarn to jewelry and leather bags. There is a growing population of creative entrepreneurs who also call themselves “makers.” In essence, makers are artisans who craft things by hand, usually with high-quality materials and a skilled level of workmanship. Two hundred years ago, every town had a baker, a clock-maker, a seamstress, and other workers who made items by hand to sell to their local market. Today, this revival of handmade items is referred to as the Artisanal Movement. This movement, and the handmade products produced and sold within, fall under the umbrella of what is internationally considered the creative industries. This broad term is still being defined, and is often disputed as to what “creative” endeavors should be included in the definition.

In 1998, the British Council released a report aimed at measuring the value of the creative industries, because “there was evidence that the skills and work styles of the creative sector were beginning to impact on other areas of the economy, especially in the use of digital technologies” (Newbigin, 2014). What made this report stand out was when the 2001 follow-up “revealed that this arbitrarily defined creative sector was generating jobs at twice the underlying rate of the UK economy as a whole” (Newbigin, 2014). Today, almost every government in the world is researching the economic impact of the creative industries in their country. The study by the British Council concludes that small businesses “at the cutting edge of creativity, may not only be of growing economic significance, but in some sense, are a harbinger of a whole new economic order “ (Newbigin, 2014).

At first, one might think of movies, theater, or pop music as the main areas for growth in the creative industries. But, in fact, the growth of the creative economy is rooted in a return to the creative entrepreneur as artisan. This is a direct result of consumer demands and relatively low job security in the last couple of decades. Consumers have turned their interest away from corporate giants and are focusing their purchases on the small business. Cultural anthropologist Grant McCracken has defined this growing sector of consumers and their preferences in his blog “The artisanal movement, and ten things that define it.”

In essence, this new breed of consumer desires products that are handmade, local, and made in small batches, all natural or simplified, and stripped of corporate branding. However, the product is personalized by the maker, who is believed to be more transparent and authentic than the corporate counterpoint. In fact, the consumer’s belief in these principles creates a feeling of connoisseurship to the product (McCracken, 2006).

Consumers of the artisanal movement want a personal story from the products they buy. They want to know where it comes from, who made it, how and why it was made, and to feel that their purchase financially supports the person behind the story they are buying.

A visit to your local farmers market will reveal both the creative entrepreneur and the artisanal consumer in their habitat. Here you will find farmers selling local beef, jewelry makers and crafters, artisan cheeses, small batch baked goods, and even a local string band panning their latest self-made album. These artisans and makers are all creative entrepreneurs, and their “micro-businesses” have websites, social media presence, branding, and even marketing tactics. Loyal customers “follow” their favorite vendors on social media and make a point to attend the farmers market to support local, handmade goods. Every Saturday they arrive to buy eggs from a neighbor’s farm, a handmade gift for their friend’s birthday, or fresh cut flowers for their dinner party.

As the artisanal movement becomes more prevalent, it seems everyone is making and selling crafted goods. Handmade market places such as etsy.com have exploded, enabling artists, craftsmen, and even stay at home moms to own and operate a small business.  And yet, some of the well-known challenges of small business can utterly overwhelm a micro-business, which is too small to be equipped with ceos, marketing professionals, or financial consultants. In particular, these micro businesses have trouble with the demands of growth, internet marketing, copycats, and competition. So, how does a small batch, local, handmade creative entrepreneur compete in a global, corporate world? The answer to this question is still unraveling.

The artisanal movement is a return to connection through consumerism, and creative entrepreneurs have captured the attention of a new kind of consumer.  This surprising evolution in demand has placed corporations in a challenging position. In Grant McCracken’s (2017) blog about the cultural expansion of the artisanal movement, he explains, “that [the] object on the shelf of Wal-mart doesn’t have a story. It was made by a stranger in a factory in Chengdu, shipped across an ocean, and banged around in the distribution system until it just happened to roll to a stop here on a shelf. It doesn’t mean very much because capitalism was so busy giving it value, it forgot to give it meaning.”

Creative entrepreneurs are in a powerful position to essentially change the marketplace. Corporations are not blind to this power. Because micro-businesses lack substantial resources, they are creating innovative ways to reach their consumers through social media and new marketing ideas. More and more, corporations are becoming interested in fostering these small businesses to gain insight about the changing market, and to examine the creativity and innovation the micro-businesses are utilizing to attract a growing consumer population. Large businesses are scrutinizing how creative entrepreneurs are using technology (such as social media) and community (such as farmers markets) to access consumers who are looking for meaning in their purchasing habits. Perhaps an alliance between the corporation’s resources, and the creative entrepreneur’s innovation will be the answer to how micro-businesses can compete in a global market. As the artisanal movement expands, the challenge for creative entrepreneurs will be how to create opportunities to grow and compete in this internet-savvy, world market without losing their beloved artisanal qualities.

References

McCracken, Grant (2017). The Artisanal Economies, Entry # 1: The Sofi interview. Retrieved from http://cultureby.com/2017/04/the-artisanal-economies-entry-1-the-sofi-interview.html

McCracken, Grant (2006). The artisanal movement, and 10 things that define it. Retrieved from http://cultureby.com/2006/11/the_artisanal_m.html

Newbigin, John (2014). What is the Creative Economy?  British Council. Retrieved from https://creativeconomy.britishcouncil.org/guide/what-creative-economy/

What is the corporate veil?

There are many benefits to becoming a corporation. From credibility and access to capital, to corporate tax advantages and the protection of limited liability, the advantages of incorporating a business typically outweigh the disadvantages. The lure of limited liability for shareholders and owners is one of the most touted of these advantages. Limited liability through incorporation creates a fictional shield between the assets of the owners and the corporation. This shield is often called the corporate veil.

What does “piercing the corporate veil” mean?

Usually, through limited liability, a corporation is treated as a separate person in legal situations, which means the corporation is held responsible for its actions, but the shareholders are not personally liable for these actions. They are protected by the corporate veil. However, if a court of law is given reason to investigate the liability of a corporation’s owners or shareholders, then it is considered “piercing the corporate veil”. The owners and/or shareholders no longer have the protection of the corporate shield and can be found personally liable in a court of law.

Reasons to Pierce the Corporate Veil

There are many reason to pierce the corporate veil and expose owners, shareholders, or board members to personal liability of the corporation’s activities. In the article, The Five Most Common Ways to Pierce the Corporate Veil and Impose Personal Liability for Corporate Debts Debts, there are particular factors that raise red flags more than others:

1. 1. The existence of fraud, wrongdoing, or injustice to third parties.
   2. Failure to maintain the separate entities of the companies.
   3. Failure to maintain separate identities of the company and its owners or shareholders.
   4. Failure to adequately capitalize the company.
   5. Failure to follow corporate formalities (Jimmerson & Snell, 2016)

These presenting factors, among many others, could induce the court to pierce the corporate veil. However, there are strict rules for doing so, but the ruling is based on common law precedents in the jurisdiction of the corporation’s home state (Lahm & Geho, 2007).

Preventing Issues with the Corporate Veil in Small Business

According to Robert B. Thompson (1991) in Piercing the Corporate Veil: An Empirical Study “corporate veil piercing is the most litigated issue in corporate law” and yet, Wikipedia claims (without reference) that “there is no record of a successful piercing of the corporate veil for a publicly traded corporation” (Piercing the Corporate Veil, n.d.).  Most large corporations will settle before they risk piercing their corporate veil. Given this information is accurate, it would be safe to assume that the majority of litigation involving corporate veil piercing occurs at the small business level.

In Lahm and Geho’s paper (2007), Holes in the Corporate Veil: Confronting the Myth of Reduced Liability for Small Business and Entrepreneurs Under Corporate Forms, the authors address the paucity of academic literature on corporate veil piercing and the failure to convey to students of entrepreneurship and small business owners that there are already holes in the corporate veil.

“Using a corporate form ordinarily will insulate the owners from direct liability for the company’s obligations, because the corporation is considered to be a separate legal identity, independent of its owners” (Peckinpaugh, 2000). However, and this is a significant “however” often omitted in form or substantive discussions within textbooks, the scholarly literature of entrepreneurship, and in popular press outlets: this shield can only be effective if certain conditions are met. These conditions vary somewhat from state to state, and courts have interpreted cases based on what typically entails extensive examination of whether or not veil piercing is a justifiable remedy” (Lahm & Geho, 2007).

It is important for the small business owners to take steps to ensure the strength of their corporate veil. They should not give the courts a reason to pierce the veil. “Taking the proper steps to insulate personal liability could make the difference between the effective creation of a corporate structure versus the daunting effects of personal liability” (Jimmerson & Snell, 2016).

Based on, The Five Most Common Ways to Pierce the Corporate Veil and Impose Personal Liability for Corporate Debts, a small business should pay attention to the rules of the corporate structure that upholds the veil.

1.Practice transparency. Operate your business with integrity, both in finances and in customer relations. If your company’s activity “appears to be fraudulent or even just questionable, the company should consult legal counsel to guide it through its decision-making process (Jimmerson & Snell, 2016).

2. Maintaining the identity of your company from that of its subsidiaries or affiliates is imperative to keeping a strong corporate veil. If your parent company has the same contact information, officers, or tax filing as the subsidiary, the court will consider it an “alter ego” of the parent company rather than a separate entity.

3. The owner and/ or shareholders must also maintain a separate identity from the company. For example, don’t use the company credit card to fund your family vacation, or borrow money for the business with your home as collateral.

4. Make sure your company has adequate capital to account for business operations in its own separate bank account. “Courts will look to the assets of the company to determine if the company’s level of assets to creditors is fair” (Jimmerson & Snell, 2016).

5. Follow the formalities required of the corporate structure. Each type of business structure has formal rules and regulations that must be followed. Stay on top of state and federal filings, keep stockholders updated on their investments, keep accurate records, and generally maintain a tight ship.

And finally, when in doubt seek professional counsel from a corporate attorney. Entrepreneurs and small business owners may not be guilty of breaking laws by deceit, but by lack of information or resources to maintain proper boundaries between themselves and their corporation.

References

Jimmerson, Charles B. & Snell, Brittany N. (2016, March). The Five Most Common Ways to Pierce the Corporate Veil and Impose Personal Liability for Corporate Debts. [Jimmerson & Cobb P.A.] Retrieved from https://www.lexology.com/library/detail.aspx?g=4ff8ebf0-4bca-426e-8273-758140f6d0eb

Lahm, Robert J. & Geho, Patrick R. (2007). Holes in the Corporate Veil: Confronting the Myth of Reduced Liability for Small Businesses and Entrepreneurs Under Corporate Forms. The Entrepreneurial Executive, Volume 12.65-81.

Peckinpaugh, C. (2000). Behind the corporate veil. Federal Computer Week, 14(23), 78.

Piercing the Corporate Veil (n.d.) Retrieved From https://en.wikipedia.org/wiki/Piercing_the_corporate_veil

Thompson, Robert B. (1991). Piercing the Corporate Veil: An Empirical Study. Cornell Law Review, 76: 1036–1074.