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The script is complete. Locations scouted and secured. Hollywood’s next “It” girl has signed on for the lead. You’ve poured every fiber of your creative being into getting your
film production off the ground and you’re desperate to get on with it already. But even as a self described “creative type” you’ve got the business acumen to know that you need to
protect your work. But, how do you do it? Especially on a shoestring budget?
The answer is simple. You form an LLC. Better yet? The
process of doing so is also simple. But first, a recap on what an LLC is:
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In short, an LLC is a Limited Liability Company. And I certainly don’t mean to insult your intelligence by explaining exactly what that means, but it can be confusing.
An LLC is a type of business entity. In a manner of speaking, an LLC is almost like its own “person.” Much as a person has a unique Social Security Number, your LLC will have
its own Tax Identification Number (TIN). The LLC and its TIN are distinct from you, from any partners you have, etc. Think “The Cheese Stands Alone,” or any number of other
clichés. As a figurative hybrid between a corporation and a partnership, you can then use the TIN to open various bank accounts and obtain credit, again as an entity other
than yourself. That’s important. But there are other equally important reasons why it’s imperative that you create an LLC for each and every film you make (unless you’re
Sumner Redstone, Rupert Murdoch or plan to publicly distribute boatloads of films). Here are a few of those reasons:
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Imagine walking into a meeting with a distributor. You’re a one or two person gig. The distributor on the other hand, has a legal team that earns more in a month than you’ve
earned in the last two years. You explain to them that you’re just a team of mom and pop filmmakers. You can almost see them licking their chops at your naiveté. You look
unprofessional. And unfortunately, you’re more than likely to be treated as such. As an LLC, however, you’ve established that you’re not willing to be taken advantage of.
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Plain and simple, forming an LLC can protect your personal assets in the event of a lawsuit. That is, unlike a partnership where all partners’ personal assets could be at risk
in a lawsuit, with an LLC, you and all parties in the LLC can protect your personal assets (think homes, cars, other businesses, etc). I’d love to say that this is unlikely to
happen, but come on, this is Hollywood. Who isn’t being sued?
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Consider that you have a film company. An actor gets hurt on the set. If you haven’t set up each film as its own LLC, that actor can go after your entire company. This doesn’t
just put the assets of the current project at risk, but the assets of the company of a whole, and you and your partners’ personal assets at risk. Big thumbs down on all accounts.
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Sure, you made a film because it was something you felt compelled to do. There was a story that needed to be told. But how nice would it be if you could tell your story and make
some cash? Through forming an LLC you give yourself the opportunity to sell shares in your venture, which you clearly can’t do as a sole proprietor. Frankly, you just can’t sell
shares of yourself. It’s impossible. But what you can do with an LLC is arrange, for example, to sell 20% of the shares for $X,000 in capital from investors.
Clearly, the reasons for forming an LLC are practical. But even if practicality isn’t necessarily your strength, you undoubtedly like rewards. Take a look at a few benefits or
rewards you’ll realize by forming an LLC for each film you make.
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From the management of your LLC to the ownership of your LLC, operating as this type of entity allows for changes to be made as necessary. More importantly, this flexibility
allows you to structure your LLC to cater to your investors from the get-go. For example, some investors are going to be focused on their ROI -- money drives them. Others,
however, are going to want more creative control. These terms can be structured to suit the unique needs of your investors when you draft your operating agreement (which we’ll
cover in a subsequent article.)
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Forming an LLC for your film will provide numerous tax benefits, but the best benefit of all is that your tax status can be changed. Unlike a corporation, where tax status is
utterly static and cannot be changed, with an LLC you have plenty of options. You can choose to operate under corporate taxation or you can choose to operate under S-Corp taxation,
etc. Or to put it in basic terms, you can opt for fewer taxes taken out, more cash in hand or conversely, more taxes taken out, less cash in hand, assuming there is more than one
member in your LLC. Single Member LLCs operate a little differently. Click here to learn why.
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Does this really need explaining? As an LLC you have control over who gets how much when the checks roll in.
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As an LLC, should you sell shares, you’ll be in a position to dictate who your investors may sell their shares to. That means that should you find yourself in a pickle, wherein an
investor wants to sell their shares to a jerk (for lack of a better word) you’ll be in a position to prevent it.
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At the risk of being utterly cheeky, that’s a wrap. As a filmmaker, whether seasoned or novice, you are absolutely setting yourself up for trouble if you don’t have the foresight
to prevent it. Forming an LLC for each and every film you create is not only practical in matters of protection, but also savvy in protecting your future earnings and livelihood
in the industry.
Finally, I mentioned earlier that the answer to protecting your work was easy, as is the process. To read just how easy the process of setting up your own LLC is
(seriously, 4 steps) click here.
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