EDITOR’S NOTE: The following blog originally ran on filmindependent.org several years ago and remains one of our most-requested articles. We’re republishing it here, with minor edits to the original text. Special thanks to author Lee Jameson.
Producer and distribution expert Stu Pollard has been making films for more than a decade. His producing credits include Bass Ackwards, True Adolescents, Dirty Country and Ira & Abby. He has also directed two feature films, Nice Guys Sleep Alone and Keep Your Distance. He also works as a freelance consultant specializing in private equity financing, investor relations and distributor delivery.
Here’s what Pollard had to say about the logistics and legalities of deciding to hang out one’s own shingle and seize the reigns of production:
I want to start a production company. How do I establish an identity and a brand in a production-saturated city like Los Angeles?
Before you start a company, be sure to ask yourself some basic questions: Why do you want to start one? Who do you want to start it with? What kind of projects do you want to make? Independent producers typically form companies to raise money for a particular film—sometimes referred to as a “single picture entity”—to raise money for multiple pictures—an “umbrella company”—or to establish their brand name via an ongoing concern over the course of what they hope will be a long career. All these company types have plenty in common, including two of the main motivations for creating them: protecting the personal assets and limiting the personal liability of the filmmakers and shareholders/members.
When it comes to establishing an identity and brand, think about the types of projects you want to make and the existing companies that inspire you. These should serve as starting points for brainstorming a company name and look. Your name should be indicative of you and your style, and the content you wish to create. And given that you will be competing in the visual entertainment space, the “look” part of this equation is essential. Collaborate with a graphic designer to create your company’s logo, as well as the typeface and colors you will deploy in your website and related materials.
Once you establish your visual identity, ensure all your outward points of contact—website, mailing address, email addresses, phone, etc.—are accurate and consistent. What appears on your website must match your letterhead/business cards, your search engine results, etc. Make it easy for people to find you.
Lastly, let your work speak for itself. Leave hype and hyperbole to the hucksters. Be professional and real. Don’t start your company until you have something to trumpet. If you want to make features, be sure to have a few projects in development and some demos of solid production work to post on your site. The more reasons you can give people to work with you the better. The best way to build a strong reputation is start with a firm foundation of talent, confidence and integrity. You get one chance to make a first impression, so when you give the industry the first glimpse of your company, make sure it’s a lasting one.
Also, please note I’m not an attorney. None of the information dispensed above should be construed as legal advice or considered a substitute for legal counsel from a qualified and licensed practicing attorney.
What do I need to have in place in order to create an LLC or an LLP? What is the difference, and when do I need one or the other?
The rules for creating a Limited Liability Company (LLC) or Limited Liability Partnership (LLP) can differ from state to state. You should start with your state’s Secretary of State website, which in most cases provides step-by-step instructions for forming either type of entity. From there, please consult with a living, breathing attorney to choose your entity type and state of formation.
Since Film Independent is based in California, it is worth noting that CA-based indie film LLP’s (in my experience) are rare. Perhaps this is because the LLP form of ownership is limited in the State of California to persons licensed to practice in the fields of public accountancy, law or architecture.
Rather than dig myself into a legal hole trying to explain the differences between an LLC and LLP, let me just say that my personal preference is the LLC because it combines the protection of a corporation form with the single tax structure of partnerships. But that’s not say that an LLP might not still suit your situation. If you’re interested in drilling deeper on the nuances between the two, check out this helpful link. If you still have questions on the subject, consult with… well, you know who (a lawyer).
As for what you should have in place to start a company, let’s assume you’re forming an LLC. Here are some of the things you’ll need to think about in advance:
- Company name. Remember to put some effort into selection your name. You’ll also need to check your state’s Secretary of State’s database to see if the legal name (e.g. Company Name, LLC) of your company is available.
- Where will you be conducting most of your business? This will most likely determine the state in which you’ll need to form your company. Keep in mind some states have higher annual filing fees than others.
- Articles of Organization and Registered Agent. This may sound daunting, but what it mostly refers to is paperwork that lists the address of your company’s headquarters, as well as the name of the person in charge of receiving all official notices.
- Operating Agreement. The LLC Operating Agreement is your rules and regulations. So you’ll again need your attorney to help you prepare it. This is all the more important if you are going into business with friends. Two of the most vital things—of many!—the Operating Agreement does is 1) explain the managerial power structure (who is in charge, who casts the deciding vote in the event of disagreements, etc.), and 2) determine how revenues are distributed (who gets paid and when).
- Ongoing Tax and Filing Obligations. Starting a company means entering into a long-term relationship. LLCs must file tax returns every year and that usually also means paying a filing fee even if the company didn’t make any money in the given tax year. All LLCs doing business in California must pay an annual minimum franchise tax of $800.
I need to hire legal representation for my company/film. What does production legal cover and how much should I expect to pay?
‘Production legal services’ encompasses many key roles that attorneys play in the filmmaking process. During the course of creating your company and presumably making a film, you will work with several types of attorneys, or one who specializes in several different areas:
- Corporate/Securities. When starting a company, confer with a start-up or securities specialist. When is the right time to start your company? What corporate structure is right given your goals? In which state should your form your entity? What are the resulting costs of these choices? If you’re forming your company for the purpose of raising money, then working with an attorney who has corporate and/or securities experience is an absolute necessity. This was true before last year, and the Jobs Act of 2012 means there are changes coming that will likely further complicate the fundraising legal landscape. Be sure to consult with an attorney before you start soliciting any type of investment, including crowdfunding.
- Production. While production legal can differ in scope from film to film (and firm to firm), it typically includes the main contracts related to principal photography (union/guild agreements, cast and crew contracts, location releases, art department clearances, etc.) As for what you can expect to pay, that’s hard to say. Variables that can affect the package price are the total number contracts the attorney(s) must execute and, more importantly, how involved the negotiations are for each one.
- Music Licensing. Music almost always ends up costing more than you planned. Why? One reason is that each song in your film usually requires at least two licenses. It’s a good idea to have an attorney look these licenses over. It’s also a good idea to never sign any legal document without having an attorney review it first.
- Distribution. Lastly, you may take on an additional attorney and/or “producer’s rep” (sometimes one-and-the-same) whose role is to negotiate terms on your distribution agreements. This presumes, of course, you have multiple distributors interested in your film, which generally means they’ll be more inclined to negotiate. These attorneys frequently work on a commission basis, but many these days also require a retainer—a reflection of the tough market for the majority of independent films.
How can I set things up so that I have all of the necessary documents at the end of the day? What are the basics?
You shouldn’t try to make a movie by yourself. You shouldn’t try to start a company by yourself. Talk to some people who’ve done it before. Consider starting your company with a partner (or two, or three) so you’re not fighting all the battles alone. Find a great lawyer and accountant who believe in you and will cut you favorable deals early in your career. This isn’t as hard as it sounds.
Make a list of all things you’ll need to start your company and run it for the first two years. Use that list to create a working budget so you get a sense of the commitment required. Items on your list should include, but not be limited to, the following:
- Graphic Design (logo/corporate identity)
- Web Design
- Web Hosting + Streaming
- Mailing Address (Consider a PO Box or “UPS store box” if working from home)
- Business Cards
- Company Bank Account
- Corporate Filing & Annual Tax Fees
- Legal Fees
- Accounting Fees
- Office space
- Telephone & Internet
- Development expenses
- Assistant Salaries
- Your Salary/Fees
Even if you’re a shrewd dealmaker, chances are good you won’t be able to score all of the above for free. And in some cases, you won’t want to. Remember the old adage, “you get what you pay for.” So some of the most important documents you’ll need in place before you start your company are some Federal Reserve notes (i.e. cash). Not that you need a ton of money to get started, but you will want to have some tucked away to help you cover some of your early start-up costs, unforeseen emergencies and inevitable slow periods.
The first few years may be pretty lean as you struggle to make a name for yourself. So keep costs low (lots of people run small production companies out of their homes) and don’t turn your nose up at any opportunities to either make money or work with people who might be in a position to hire you on future gigs. Even if it means doing something a little left or right of what you really want to be doing.
Remember—first things first—talk to an attorney. If you don’t know one or are afraid you can’t afford one, remember you can always start with California Lawyers for the Arts.
Also, one last time: I’m not an attorney. None of the information dispensed above should be construed as legal advice, or be considered a substitute for legal counsel from a qualified and licensed practicing attorney. Good luck!