Now that you have made a ton of friends “in the business” you should just jump right in and make a movie!
“Calm down, calm down”
Yes, you should definitely start working towards making your first movie. But you might want to form your production company as well. Doing this now instead of later will help make it so that you aren’t scrambling around at the last minute to get everything setup. The more you do now, the less you have to worry about later.
Before we tell you anything here, we fully recommend talking to a lawyer and an accountant. Discussing this with them will help you figure out what is best for you. Also, any documents we put up here is not a way of circumventing the lawyers either. You should have one look at all your paperwork to make sure it is in order.
Now, on with the show. There are a couple of different ways to go about building your company. There is the rarely used, One company for everything. And then there is the more conventional, 1 parent company and each film having it’s own company with the Parent company owning a majority, if not all, of each of them.
Considering the second is more widely used and highly recommended, We’ll be discussing that one.
To begin with you will want to start your Primary/Parent Company company. We’ll call it “GFC, LLC”. You will be setup as the “managing member” and all company business will flow upwards to this entity.
Now for each film you produce, you will create another LLC company and have GFC, LLC be the managing member for each one. Which makes you the managing member. This gives you greater control and easily segments the income from each movie. And if you want to bring investors onto a project, you can easily do so by adding that into your Operating Agreement.
Here is a Generic LLC Agreement so that you can download and check out. Again, feel free to use them, but, again, it is not a substitution for going to see a lawyer.
Let’s touch on a few things in the Operating Agreement:
Total Capitalization and Minimum Capitalization – These are the places where you define the maximum and minimum amounts needed to make the film. The maximum helps a potential investor know the worst their share percentage is going to be. The minimum lets an investor know that you have done your work and won’t just shoot a film for $5,000 even though you clearly need more since your script is 120 pages and requires tons of stunts.
Unit – This is where you designate how much each unit will cost for someone to invest in your film. Usually this indicates a minimum amount needed to buy in, but some companies will sell half and quarter units as well.
Allocation of Profits and Loses (section 7) – This is the section that explains your “waterfall”. A waterfall is the explanation of what happens to all the profits as it falls to the investors and eventually you. There are usually expenses and points that you need to pay out before the investors see their portion. But you need to spell it out in the Agreement so that they know exactly how it is setup and aren’t surprised when the film starts having money come in and they aren’t seeing as much as they were expecting.
Compensation of Manager – This section describes how much you will get paid for managing the company. By setting it up so that you are taking a small percentage based fee you are showing your potential investors that, yes you are in this to make money. It is, after all, “Show Business” and not “Show Art”. And that because your compensation is driven by income, you will be more motivated by how well the film performs financially.
There are definitely other things in that document for you to go over and make sure they work for you, but those are the main things that investors look at when they read your Operating Agreement. “How much is a share going to cost me?”, “How much is my share worth in the company?”, “Are they going to be fiscally responsible?”, “How am I going to get my money back”, “Do they want to make money?”.
Even if you are going to finance the film yourself, you should set this document up properly. You never know if you are going to need extra funds down the road for editing or delivery or to make a print for a festival.
One question is, “Do you need to make a company for each short film or is this just for full length features?” Unless you know for sure that you are going to make money on the short film, then it is really not needed. For most filmmakers, shorts are for two things. Learning the process of making a movie and a way of showcasing their talents.
It’s really up to you and what you feel is best after you have discussed it with your lawyer and accountant.
Once you have decided on the structure of your company(s), you need to decide on the type business you will start. There are many different ways to go about it. You can form a C-Corp, S-Corp, LLC or even a simple partnership. Each one gives you different levels of protection, but they also come with different levels of paperwork and yearly fees associated with them.
Each state has their own setup for how you can go about setting up your company, but since 19W is based in Virginia, I’m going to walk you through how it works here.
Once you have decided which type of company you are going to go with and have picked out your name, it’s as easy as going to a website. You click on the link that says “create a new company” and off you go. It really only take a few minutes to fill out all the fields and pay the fee.
Once you are done with that, you need an Employer ID Number from the IRS. You can find out the information for getting one of these here.
Having these two things will make it so that you can open a bank account and hire people, if need be.
Now, you can always go with a company like “Legal Zoom” or any of the other online “We’ll file your company paperwork for you!” websites. And they do take care of all that “paperwork”. Some of them will even send you a nice pleather bound binder and a company seal. But you have to be aware that some of them will assign themselves as the Registered Agent. Which means that any correspondence will be sent to them and then they will throw it in an envelope and send it to you. And for this awesome service of repackaging an envelope, they will charge you $100+ a year. That’s $100+ above and beyond your annual fees. So. Buyer beware.
And there you have it. How you can become a legal entity.