Dissolution and winding up - artistic work reversionary rights - distribution of assets

(1) Dissolution of an artist company is governed by part 8 of this article 80, except as otherwise provided in this section. (2) (a) (I) Except as is necessary to comply with applicable federal income tax law, including section 704 and other applicable provisions of subchapter K of the internal revenue code of 1986, as amended, upon dissolution of an artist company, all rights to artistic work assigned or exclusively licensed by artist-members to the artist company or created by artist-members of the artist company during the artist-member's membership revert to the artist-members that assigned, exclusively licensed, or created such artistic work and any applicable assignment or exclusive license automatically terminates. The operating agreement of any artist company treated as a partnership for federal income tax purposes must include allocation, distribution, valuation, capital account, and other economic provisions reasonably designed, to the extent permitted by applicable federal income tax law, to facilitate the reversion of artistic work to the artist-members under this subsection (2)(a)(I), including provisions governing the distribution of cash and other property other than artistic work; the allocation of items of income, gain, loss, deduction, and credit; and the preservation or satisfaction of continuing economic rights with respect to reverted artistic work. For jointly created works, assigned or exclusively licensed rights revert to the applicable artists: (A) As specified in the articles of organization or operating agreement of the artist company; (B) If not specified in the articles of organization or operating agreement of the artist company, as mutually agreed upon by the applicable artists; or (C) If mutual agreement cannot be reached by the applicable artists, as jointly owned artistic work in accordance with federal intellectual property law. (II) Intellectual property that does not constitute artistic work is not subject to the reversionary rights described in this section and shall be distributed pursuant to subsection (3) of this section. (III) Except as is necessary to comply with applicable federal income tax law, including section 704 and other applicable provisions of subchapter K of the internal revenue code of 1986, as amended, the reversionary rights described in subsection (2)(a)(I) of this section constitute retained interests that were never fully transferred to the artist company and therefore are not assets of the artist company available to creditors or nonartist investors. (b) The reversionary rights described in subsection (2)(a)(I) of this section are subject to: (I) Perfected security interests or liens granted by the artist company with the express written consent of the artist or artists holding the reversionary right; (II) Existing licenses to third parties entered into in the ordinary course of business; and (III) Continuing royalty sharing, revenue participation obligations, recoupment provisions, return of capital, or other economic obligations specified in the articles of organization or operating agreement of the artist company. (c) The articles of organization or operating agreement of an artist company may specify the terms of a reversion, including: (I) Priority among artists in claiming reversionary rights; (II) Allocation of reversionary rights in joint works; (III) Continuing obligations to share royalties or revenues from reverted artistic work; and (IV) Rights to use collective names, trademarks, or other identifiers. (3) Upon dissolution, after giving effect to any artistic work reversionary rights described in subsection (2)(a)(I) of this section, and after payment or provision for liabilities: (a) Assets shall be distributed in accordance with priority and distribution provisions in the articles of organization or operating agreement of the artist company, including preferences for holders of revenue participation rights, royalty sharing rights, or other economic interests; or (b) If not specified, assets shall be distributed pro rata to members based on ownership percentages. (4) The articles of organization or operating agreement of an artist company may specify: (a) Priority of distributions among different classes of economic interests; (b) Treatment of unvested or contingent economic rights; (c) Allocation of remaining intellectual property value; or (d) Other dissolution and distribution terms.