I am self funding a very very low budget film on my own and want to protect myself and my project. It was suggested to me that I create an LLC for the project in order to cover myself from any liabilities. Is that correct information? And if so, how would I go about obtaining an LLC for my project?
Answer by Brandon Blake, Entertainment Lawyer:
Thanks for a great question. Film and television producers are faced with a lot of costs right from the start when trying to set up a new production, and there are a couple of new ways to avoid those upfront costs and pay for it out of production funds, rather than during the development stage. Please also see my Entertainment Lawyer Question and Answer Forum at www.filmtvlaw.com, for more in depth and money saving advice that I publish twice a month.
So let’s talk about why a company is required to be set up and then how you can potentially get what you need for free, or defer those costs until you are actually in production.
First, a production company is a business filing that you set up before you start production, which serves as the “entity” that makes the movie. “Entity” is kind of a legalese word for any type of company filing with the Secretary of State such as corporations, LLCs and limited partnerships.
There are a lot of reasons to form a company to make your movie or television series, rather than making it personally. I will list the most common below:
1) Liability: If somebody gets hurt while making your movie, or if somebody gets mad and wants to sue you, having a company is a good idea because then anyone with a grudge against the project must sue the company, and not you personally. Because your production company will only own the project and that’s it, anyone who sues will only be able to get money out of the project, but not from you personally. So, he or she could not get your house, your car, your retirement fund, etc.
2) Chain-of-Title: More Legalese, but “chain-of-title” means proving who owns your film or television project. Most producers assume they own the project “personally”, but because you will usually have a lot of crew members and actors helping, everyone must give their rights to someone or some “entity” (there is that word again), which will be the owner of the movie or TV show for legal purposes. That way, when the distributor wants to buy your project, they can just sign one contract with your company, and not with all the people who helped you make it. In fact, all major movie distributors and television networks REQUIRE you to have a production company.
3) Taxes: Taxes are always on a producer’s mind, and a producer can save a ton of money on taxes by having a production company. If you have a production company then all the costs of production can be “expensed”, meaning that 100% of the costs are taken off the top, before you have any profits that can be taxed. Compare that to making your movie as a sole-proprietorship (meaning making it without a company). If you make a movie personally without a company, you will only be able to take off limited “business deductions” which come out to about 30% of the actual money spent on the project. That 30% is a lot less than the 100% expense with a production company.
Okay, so there is no reason in the world to make a movie or TV show personally, without a company set up. But what is the best way to set up a production company?
Here I will give you two options, both of which are excellent choices, depending on your budget and on whether you intend on raising any more money for the project from friends, investors, or supporters.
The Easy Way
If you are intending on 100% self-financing, meaning that you will produce the film with your own savings, then the best way to set up a company would be to hire our law firm. We have very low rates for setting up production companies, and in fact I have been told we are cheaper than LegalZoom and any of the other online providers.
A firm like ours makes it easy and quick. We handle all the paperwork and tax filings, so you just come up with a name and that is it. We do the rest, so there is a lot of convenience, plus we are cheaper than the online services.
The Free Way
If you are intending on getting some other backers for your project, then consider crowdinvesting. For example, suppose you are self-financing $125K of the budget, but you are also going to have friends, neighbors, family, etc. come up with the other $125K.
You could hire a firm like ours to prepare a securities offering, which is the most inexpensive way all around, but you need to pay upfront.
Suppose that you are 50% certain that your investors will chip in the other $125K, but would rather not put up $5,000 or $6,000 to find out for sure. A crowdinvesting company like ideaPledge.com lets you do just that. Set up everything you need to sell your investment, and only pay a small percentage of the money raised. No LLC costs, no securities costs, unless you are successful raising 100% of your budget.
Now imagine you have 5 or 10 projects to finance, rather than just one. All of a sudden you are deferring $50K in legal and compliance fees until the projects are 100% financed!
How can that be possible? If you have an ideaPledge.com membership then ideaPledge will handle 100% of the investment paperwork for your film or television project, and won’t take a dime until you raise the whole budget. That includes setting up your production company for free.
Through ideaPledge.com you can access both ideaPledge investors and also hit up your own contacts, social media friends, and fans to invest as little as $100 in your project, or as much as $100,000. It is a no-lose situation, because ideaPledge covers all the upfront costs, letting you focus on producing your project.
As with any entertainment matter, please do not make a decision about complex issues without consulting an experienced entertainment lawyer first. Feel free to contact my office at www.filmtvlaw.com about a quote.
- By Brandon Blake, Entertainment Lawyer