This is some quick, unsolicited advice from one filmmaker to the all the others. As I start looking for financing for my next film (www.904am.com), I have learned many things. But as a college student with a minor in business (major in film), I want to pass along some advice.

DON'T ask for donations, don't even ask for "gifts," because I'm almost 100% positive none of you are making your movies as a "non-profit" ventures. I've gone to website after website of filmmakers, just like me, hoping to raise money for their next big flick. But what I see so many times is "Donate to our Film."

DON'T do that, because if you are trying to make money on your film, including profit, the legal ramifications will haunt you. I talked to my lawyer, just in case there was a way around it, and he said forget it! He also advised against gifts of money, because that can hurt you, too.

I don't want to see anyone get "hurt" with your first, second, third, etc. films. Especially if you're dealing with a budget in the thousands. The SEC
(USA) could even come down on you, believe it or not.

Am I being a little over-cautious? Heck yeah, because you're going to be "playing" with other people's money. And you're going to want to pay them back with your film's profits, so they can re-invest in your next film and so on, until you're winning the Oscar! :-)

I hope this helps, guys and gals! Keep makin' movies!

heath

I second that notion...if you really look at it simply...taking money from lots of people for your film means you're a publically traded company operating without permission.

You know what that means? (enter sounds of Dragnet - bum, dum, dum bum) The SEC is coming to knock on your door.

It's not often talked about in the filmmaking circles, but Heath is definately correct - if you take anything from anyone for any purpose that's of monitary value (money!) - the Gov wants to know and wants a piece. I think the max you can take without problems is like $600 - total. After than you're making money - it doesn't matter if the film never recoups a dime. You got paid essentially.

These types of disscussions are WAY more of what I'd like to see on here. The business end is more useful to me at this point than learning about the latest new gadgets (although, I'm hugely interested in that too). They say knowledge is power - so, I would really like to get more knowledge on the legal side of film and video.

Thanks Heath for bringing up a great topic.

Murph

I honestly don't know how taxes work, but that's why, as filmmakers, we go to lawyers and accountants to get the lowdown.

Better safe than sorry!

heath

Heath, if you setup and register as a not for profit enterprise, you can legally accept gifts and money. Just keep records like you would a regular business.

While most are hoping to make a profit, the truth is most will never make their investment back. (You know the joke about no film ever making money in Hollywood?).

If you study up on what constitutes a non profit or not for profit business or organization, you can do a lot of things legally, like hiring beginners as interns for less than minimum wage.

The key here is when you bring on interns, it gets legally classified as educational (pull them in from local film/video schools). Others, like talent and crew can legally donate their time, and get some sort of tax writeoff (not much). You can also pay people if you want to (all non profits have at least some paid staff).

You need distribution clauses so if you get a deal for your picture, you collect the money, and may have to pay taxes on anything over break even (if your entertainment accountant is any good, that shouldn't happen).

The key here is just like a regular business, consult a good lawyer and accountant experienced in such things.

Just as an example, think about how much money is brought in from Girl Scout cookies, and the Girl Scouts are a private,legal, not for profit organization.

Hey, right now I've got a bunch of local crew helping me with my HD short film. I don't expect to make $ from this short. However, after this I plan to shoot a feature length with the idea of possible distribution.

My knowledge is that I need to "incorporate" a business entity - "NAME OF FILM" to legally do the entire process. Once it's complete, I sell it off and shelf the company. I literally only keep that incorporated business for that film only. The next time I do a film, I create a new business entity.

This is what I was told by various people in the business, so that's my plan of action. Anyone else do any research on this topic? I am very interested in learning more, so I start the process correctly and don't run into problems after I'm knee deep in production or post-production.

Anyway, that's the advice I got and have relayed that to others as well.

Murph

Many companies form an LLC to make a movie, like Big Bug Pictures for the first Starship Troopers. I don't know if I'll need to do that or not, since I already have an incorporated company.

Someone I know is already accepting donations AND investments, and said his attorney will figure it out. I also dont' think he's set up with the SEC. Uh oh...

heath

Heath, yeah you might want him to check that out....cause they will come knocking. The producer for Sling Blade said that was the biggest thing - watch out for money exchanges. He even said that a simple FAX that says, "I want to invest in your project" could nail you. I used to have "Invest in our Films" on my website a long time ago, but took it down after talking with that guy. (his name is Larry Meistrich and he now runs "Film Movement" - a indie DVD mail order thing) The SEC will investigate and get court orders to go through everything you have in your office. It's pretty serious stuff from what I was told.

Also, can you tell me about your incorporated business? How much did it cost to incorporate? Do you have those monthly (or is quarterly) meetings with everyone involved where you make minutes of the meetings?

I'm wondering because that's my next step - incorporating. I've waited until the last moment, but it's time. I already registered my name with the State I live in, but I'm a sole proprietor right now.

Since you've done the incorportating already I figure you could give me the low down....filmmaker to filmmaker. :)

Oh, way back when you asked for some New England footage. I've got a bunch if you wanna download some....I've got like 100 gigs of non-demuxed "m2t" files you can look checkout. Obviously, you need broadband!

Murph

Chris,

You better check with your state's business office. Here in Florida, it's really easy to incorporate your company (I have two S-Corps and one non-profit) and the taxes aren't too bad. I have NO CLUE what to do up there.

If you're going to only have an incorporated company for a movie, maybe an LLC is for you. I like an S Corp., because I have the benefits of a C, but not the double taxation.

But I'm NOT a business expert. I'm good at filmmaking, but a lot of this business stuff is new to me.

heath

ps-Talk to your state's incorporation division!

That's a good idea, I'll just call them and they can tell me what I need to do....duh, why didn't I think of that!

Thanks!

Murph

I found out that www.sunbiz.org is the one for Florida. Maybe other states have a website like this.

hwm

Warnings are correct, though details seem to be fuzzy.

Yes, the typical approach for indie films these days is to form an LLC for that project or for a specified set of projects.

If your family and friends are willing to "invest" in an informal manner with some sort of simple agreement, that's fine.

You can do a simple loan agreement with anybody, promising to repay the loan with any sort of interest you agree upon (subject to usury laws). If you do not repay the loan, the money must be reported to the IRS as income.

However, if the investment is a formal one, and esp if it goes beyond your family, then technically ANY sales of stock/percentage in a company or production needs to either abide by SEC filings for a public offering (FUHGEDABOUDIT) or meet a filing exemption, known as a Reg D offering. There are strict rules for a Reg D offering (which is how most indie films are financed) and they INCLUDE FILING A REPORT OF THE EXEMPT SALES WITH THE SEC. There are limits on the number of investors, etc. See http://www.sec.gov/answers/regd.htm and read the details of 504, 505, and 506 offerings.

I'll soon be offering a new workshop on how to raise money through a Reg D offering.

If people just GIVE you money ("donation") and it is not through the mechanism of a 501(c)(3) or similar nonprofit, you must report it as income to the IRS. Of course, since you'll probably lose all the money on your film, you then need to keep records and file the loss to offset the income.

John "It Ain't That Simple" Jackman

So all this applies to multiple investors, what if you have only one? For example, say someone was willing to give $50,000 to make a film. Would it still be the same?

I think anything over around $400 can be counted as income or investments.

John, great advice. I wish I could convince a friend to heed it. He claims his accountant friend will fix it. If his accountant doesn't already know it, he should get a new accountant.

heath

John presented some generally good shards of guidelines. But, as his tagline suggested, "It ain't that simple" and there's quite a bit of financial misinformation in other parts of this thread. From a tax law and investment regulatory perspective there is nothing particularly unique about raising funds for making a movie as compared with other endeavors.

Unless you plan to fund your project from your own pocket I strongly advise you to retain the guidance of an attorney with some experience in tax and investment law. Such advice will likely cost in the $500-$1,000/hour range but it can keep you from inadvertently blundering into civil suits and/or criminal law problems.

<<<-- Originally posted by Jonathan Stanley : So all this applies to multiple investors, what if you have only one? For example, say someone was willing to give $50,000 to make a film. Would it still be the same? -->>>

One or thirty-five makes not difference. You also need legal documentation specifying how much of the film he owns and you own, how future profits will be paid out, etc.

This whole aspect of filmmaking is NO FUN and you need to involve a lawyer who knows how to write LLC bylaws and who is familiar with the details of Private Placements. Since laws vary state by state, you need advice on the specific issues for your state -- Which, I see, happens to be my state!

How's it up in Boone? We were up there this summer, went to Horn in the West and spent a couple of ours at Mast General Store.

PS. Send me the name and contact info for your $50K investor. :D

John J,

I have an S-Corp, MPS Digital Entertainment, Inc., can I use this to produce my film, or should I form an LLC to produce it seperate from MPS Digital? I would want MPS Digital to hold the copyright.

Thanks,

heath

Check out "The Producers Business Handbook" by John J. Lee.
It's about big time filmmaking in LA, but he operates on the basis of some very interesting principles, that apply to the entire business, big or small.
Well written too.

Heath,

Think through how you would sell off chunks of ownership in the movie. If you sell off chunks of your s-corp, it's forever and generally constitutes participation (without additional investment) in any future projects' profit.

This is why in most cases, projects are kept discrete (an LLC for each project) unless your biz plan and funding is for a multiple-picture company. That's also a feasible concept, but usually raises much more cash (2-3 films worth) with the design that the company will become self-perpetuating and investors will take ongoing profits from all subsequent projects.

In most states, you can set up a manager-managed LLC where you are the manager and your S-corp owns the majority of the stock. You then sell off pieces of the single-project LLC but you retain full ownership of the S-corp.

Lotsa paperwork, have cash on hand for the lawyer! But this is the approach that is being used most commonly now. The names for the LLCs get pretty amusing. David Gordon Green ("George Washington") named his company "You and What Army, LLC"

I really DON'T want investors in my company. Guess I'll start an LLC for my next film (www.904am.com).

Thanks for the tip!

heath

Did the Coen brothers set up any sort of business entity to raise funds from private investors for their first film "Blood Simple"? From the "shoot from the hip" way they got into the filmmaking business, I'm guessing they didn't.

According to Barry Sonnenfeld, they shot a trailer and raised the funds that way. I don't think I'd do that (maybe a short film with the characters), but hey, if it works, it works.

heath

<<<-- Originally posted by Heath McKnight : DON'T ask for donations, don't even ask for "gifts," because I'm almost 100% positive none of you are making your movies as a "non-profit" ventures. -->>>

Actually, I am. I'm releasing my productions under a Creative Commons licence. How does this affect my begging?

I'm not clear on what that is, but if you have to ask, direct it to a business lawyer.

heath

<<<-- Originally posted by Heath McKnight : I'm not clear on what that is, but if you have to ask, direct it to a business lawyer.

heath -->>>

http://www.creativecommons.org

Probably don't need to worry, since it's non-profit. Ask a lawyer for advice, regardless.

hwm

How much of this thread applies to a Canadian film maker?

I have a single investor, willing to invest $40,000.00 CDN for my first project.

All the books and articles I've read so far pertained to US film makers...not much info for the canadian first time producer.

As I've advised to American filmmakers, I will say the same to Canadian, of which I'm unfamiliar with business, investment and tax laws: talk to a Canadian lawyer who knows this stuff.

heath

So just to clarify...I might sound like an idiot here, but what's the difference between a sole propietorship, a corporation, or an LLC? I know I have the info in one of my books, I just can't remember which one.

I mean what's the difference in terms of registering a project specific LLC for a film.

In America, it's more expensive, so I went with an S Corporation vs. LLC.

heath

Brad,
I strongly advise you to consult a Canadian attorney before establishing a business entity. Don't take legal advice from strangers on some darn Internet chat board (even this one). Most of us are as dumb as you about this subject. This is a decision that's larger than your small film project and can have significant implications on your legal liabilities as well as your prospective tax liabilities. Many young people just register LLC businesses because it's cheap and easy to do on the Web...this is a huge mistake.

Professional advice: Just get it.

I was generalizing, of course, but my lawyer friend helped me through everything and that's what led me to the decision to become an S-Corp. I know very little of this stuff, and having a lawyer on my side really helped out a lot!

heath

Just a suggestion, but some new lawyers might work for cheap..maybe free, if you tell them it's about a film. I'm always running into people willing to help filmmakers. It's kind of like musicians - people dig music and film. There are a lot of frustrated people that live vicariously through artists.

The main thing to do (which is what I've done and gotten free legal services) is to give them SCREEN CREDIT. That goes a long way...it's been used since the early days of Hollywood. People really like seeing their names in the credits. Use it sparingly, but of course free legal services are worth it.

Remember, nowadays 90% of the top credits (Executive Producer, Co-Producer etc.) usually belong to investors only. Their involvement is cash (in our cases free services are like cash) and don't usually have creative involvement. The acting "Producer(s)", meaning the ones that actually are involved with the filmmaking aspect of the film are paid.

Just remember, if you take something...anything at all, free services or cash or food, free equipement rentals - get it ALL in writing. You must give something back if you can't (or won't) give money. So, if a lawyer will offer free services and someone in your family will cook for your crew....make sure EVERYONE gets a contract outlining everything. Make sure they sign it and it's completely understood what they get in return.

Otherwise, do you want to be sued by the lawyer who gave you "free" services later when your film outgrosses "Indiana Jones VI"?? Definately, get things in writing....dated and signed. That lawyer will do everything he can to get a piece....and so will that family member who cooked for your crew!

#1 legal advice rule that all lawyers will give you....keep a detailed paper trail of everything (*everything must have dates) and what others do in your name. Something interesting - almost always if you show up in court and you have a HUGE stack of papers backing you up.....it sometimes gets you off JUST for that fact alone. This is true! (has happened to me) If you show up mumbling about what you did and can't back anything up...you're screwed. But, if you are organized and have all the important documents they treat you differently. Case closed! :)

Murph

Thanks for the advice guys. I was hoping I could avoid the route of trying to find free legal councill, but I guess it's inevitable =P Hopefully somone will be interested in helping me out.

Some businesses are willing to help out in my area, but some aren't, even with screen credit and a passion for film and getting involved. There are a lot of indie/no-budget filmmakers doing that, and it's starting to where thin in my area...

heath

<<<-- Originally posted by Heath McKnight : Some businesses are willing to help out in my area, but some aren't, even with screen credit and a passion for film and getting involved. There are a lot of indie/no-budget filmmakers doing that, and it's starting to where thin in my area...

heath -->>>

Exactly how do you approach a business and ask for free goods/services in return for a screen credit? That's something I've never done before. Any advice?

Rob,

I wish I could say there's one way, and like you, I was asking for just that kind of advice. You have to go in and be very nice. They would be doing YOU a favor. If you were paying for it, then I'd say you can negotiate, but play up the indie local filmmaker angle.

Where in Florida do you live?

heath

<<<-- Originally posted by Heath McKnight : Where in Florida do you live? -->>>

St. Petersburg

Rob, it's a numbers game...open the phone book and call 25 lawyers. I'd be willing to bet that a small percentage are frustrated pencil pushers that always wanted to do something creative....pull that out of them. You may have to call pleading your "case" to them. (yes, pun intended) But, over the course of the conversation try and pull that "artist" out of them.

It works.......and has worked for me many times.

Murph is right.

heath

Thank Heath ;)

Also, I forgot...there are tons of online resources for finding "low cost" or "free" legal services. This should probably be it's own thread.

Here is what I have done before, and I've also just found a couple new things too.

*** #1 Use the internet...the greatest free resourse ever created!

So, check this out...a good place to start:

<url>http://www.starvingartistslaw.com/</url>

After that, use this link below to find lawyers in your area. Pull down the choices until you get to the "Entertainment, Sports and Leisure Law":

<url>http://lawyers.findlaw.com/lawyer/lawyer_dir/search/jsp/adv_search.jsp</url>

Ok, now check this out - here are two local (to me) service that provides "free" legal services. Seriously, consider bringing some "seniors" on-board as producers or "advisors" to your project. I've never done this, but maybe they'll be able to land some free services? Usually, most people help seniors out...heck, wouldn't you??? :)

So, here is my local "free" site...you'll have to find yours. But, take a look at this one so you know what you're looking for:
<url>http://www.nhla.org/</url>

This one is really awesome, so definately look for one in your area too. But, maybe one of these Boston lawyers will help you out? Send them a script via email and maybe they'll catch your excitement and commit to some free legal services? It's worth an email! New England people are unique...quite and almost mean, until you get to know them. After that..they'll do anything for you. Don't take it personally..we're all dealing with sub-zero temps, digging ourselves out of blizzards and being shut inside for 4 months a year. It makes you cranky.

FREE legal services for artists:
<url>http://www.bostonbar.org/vla/dl/legalservices.html</url>

Murph,

Use [ and ] not < and > for web links.

And thanks for the web links!

heath