What Should Filmmakers Know About Film Financing Securities Law?
If you’re seeking any type of financing for your film, you’re really going to need to broaden your understanding of film financing securities law and how it applies to you, the promoter of a film. Complying with film financing securities law is not just important. It’s absolutely required in order to keep yourself from getting into legal trouble. If you’re not familiar with securities laws, which many film producers are not, you could get yourself into a potentially illegal situation and not even realize it.
Unfortunately, if you break the law when seeking financing for your film, you’re going to get into trouble regardless of whether you were aware of the law or not.
The reality is, film financing securities laws are in place to protect investors and financiers. And, if you’re going to promote a film, you’re going to need to learn the laws that are important to this stage of the process.
What are Securities?
Securities represent a transaction that is made. In which there is an exchange of money for stocks or other interest in the film business. Investors that are issued stock in a film corporation. Given a limited partnership interest in the film.
Provided with membership interests in an LLC or profits interests for a film will consider all of these securities. Thus, securities law applies and failure to comply with film financing securities law will certainly have a negative impact.
What are Film Financing Securities Laws?
Complying with film financing securities laws isn’t as hard as you might think. First, you must either register with the SEC or you must meet the exemption requirements under Rule 504, Rule 506. Or some other exemption rule that is set forth by the SEC.
Many filmmakers qualify for exemptions from registration because they are offered in only one state, or because they meet some other pertinent exemption rules.
In addition to federal securities law, individual states have their own securities laws that apply to film financing. Thus, it’s important to know the local guidelines for your state.
Or the state in which you intend to produce the film in so that you can be sure to follow all applicable state filing laws which apply for you.
Full Disclosure
Much of the film financing securities law surrounds the need for full disclosure to investors. Filmmakers that are seeking investment financing are required to disclose the risks that are involved in investing into the film. So that investors can make an informed decision.
Based on all of the potential risks. Bare minimum, a private placement memorandum will likely be required before you can issue securities to investors.
What Happens if I Break Film Financing Securities Laws?
Securities laws are in place to protect those involved in the sale or purchase of securities. If you break the laws, or otherwise do not comply with the regulations of securities sales, film investors could rightfully sell their investment back to you.
In exchange for complete, 100% full repayment of the investment and you would have no recourse. Thus, if you don’t comply with the law, you could find yourself liable for repayment of everything that was paid out for securities in regards to your project.
Additionally, breaking film financing securities law represents a legal (actually criminal) offense. This means that if you break securities law, you could go to jail!
