IN THIS VIDEO WE DISCUSS, THE FINANCING OF INDEPENDENT FILMS: PRODUCTION COMPANY BUSINESS FORMATION & FINANCING BASICS #LAWFIRM
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DISCLAIMER: NOT LEGAL ADVICE. FOR INFORMATIONAL PURPOSES.
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FINANCING OF INDEPENDENT FILMS: OVERVIEW OF PRODUCTION COMPANY BUSINESS FORMATION AND FINANCING BASICS
Hi everyone, my name is Justin Sterling. I am an Attorney and Founder of The Sterling Firm. We are answering the question: How to form an independent film production company?
WHAT IS AN INDEPENDENT FILM PRODUCTION COMPANY
BUSINESS FORMS
I. SOLE PROPRIETORSHIP
II. PARTNERSHIP
III. CORPORATION
IV. LIMITED LIABILITY COMPANY (LLC)
When choosing the proper business structure, there are four main areas of concern:
(1) Control - The filmmaker’s creative control of the project;
(2) Financing - Financing capabilities and funding of the production company and the individual film projects;
(3) Liability - Exposure for contractual obligations and tort liability (which is the duty to pay compensation for accidents or intentional misconduct); and
(4) Taxes - Federal and State tax obligations owed and whether the tax can be shifted to the company or its owners.
INDEPENDENT FILM PRODUCTION FINANCING
DEBT FINANCING
EQUITY FINANCING
THE DISTINCTION BETWEEN ACTIVE INVESTORS AND PASSIVE INVESTORS
SECURITY LAWS
The United States Securities and Exchange Commission defines a security very broadly as: "Any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement…, any collateral trust certificate, preorganization certificate or subscription, transferable share, investment contract…"
Moreover, pursuant to the Howey Test created by the United States Supreme Court in 1946, an investment contract is subject to security laws if it contains the following elements:
(1) An investment of money in a common enterprise;
(2) An expectation of profits by the investor; and
(3) The profits are derived solely by the efforts of others.
See SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
COMBINATION OF FINANCING
(1) Gifts;
(2) Grants;
(3) Investment in a start-up production company (capital contributions provided by active investors in a C Corporation, S Corporation, or member-managed Limited Liability Company, and the investment of the intellectual property written, acquired, or optioned by the filmmaker-producer);
(3) Financing of development and packaging funds or a portion of production funds raised by a passive investment vehicle compliant with security laws;
(4) Crowdfunding;
(5) Product placement; and/or
(6) Domestic or international negative pickup deal, foreign presales, or tax incentives.
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