Essential Guide to Film Financing Securities Law & Film Investments

Producing a movie is an expensive, trying process that tests your limits and your patience. Especially in regards to financing the production. Fortunately, there are many different ways to finance a film project, and there’s a lot of information available about each of the types of funding that filmmaker’s may consider. You can find most of this information online or by speaking with a production attorney about your needs. No matter where you get your information, before you start with any steps towards securing the funding necessary to move forward with production? You should first familiarize yourself with film financing securities law and the potential legal implications of film investment financing.

Each type of film financing has benefits, but there are also some potential legal implications that could arise out of the securing of certain forms of financing for a film project.

Particularly, film financing securities law must be followed as failure to remain in compliance could result in significant legal repercussions including potential criminal charges. 

Film Financing Securities Laws for Film Producers

As a film producer that is seeking investment financing for a film, this means you are technically seeking to sell securities. Just as any business would sell stock or otherwise initiate an IPO.

The film producer that is seeking investment funding in exchange for some security interest in a film project or business must abide by the film financing securities laws. Which are set forth and regulated by the Securities and Exchange Commission (SEC). 

While most independent films will not actually engage in an IPO. And will qualify for Sections 504-506 of Regulation D of the Securities Act. Which provides for special exemptions. They will still need to follow specific laws related to securing film investment financing.

Regulation D

Regulation D will reduce the time and fees associated with registering with the SEC. But it does not prevent the filmmaker or LLC from having to follow other guidelines and regulations as set forth by the Commission.

Producers must comply with all federal film financing securities laws. As well as individual rules and regulations. As set forth by the individual state in which the investor resides.

Producers might be required to seek investments only from “accredited” investors. Or they might be able to obtain investments from “unaccredited” investors under certain circumstances depending on the exemptions that they qualify for and other terms.

What is a “Security”?

The first area of consideration for a filmmaker that’s new to the idea of securing investment financing for a film is to understand what is meant by the term “security?” A security is any type of investment that the film producer seeks in exchange for some financing interest in the business.

For example, if you sell stocks to an investor to raise capital for your film production, you’re engaging in the sale of securities. Likewise, if you raise funds in exchange for some portion of ownership interest in the business.

And the investor expects to receive some form of profit in exchange. This too is considered a “security.”

Federal Film Financing Securities Law

Federal securities law requires that filmmakers either register with the SEC or qualify for exemption. Most films are considered private placements.

As such, the federal securities laws that apply are slightly different than those that would apply for a business that is not exempt from SEC registration.

Disclosures

Whenever you’re raising money through securities offerings, you must disclose all of the material facts that pertain to the investment. The SEC typically requires business owners to register before filing an IPO or other sale of securities.

But for a filmmaker that is exempt under Regulation D this disclosure might be in the form of a PPM. A private placement memorandum. Similar to full disclosure, the PPM includes disclosure of the potential risks of investing in to the film.

As well as key details about the film’s producer, director, production company. And other pertinent information that an investor could use.

To perform due diligence in researching the historical details of those involved. To decide whether they feel confident in making a financial investment – or not.

PPM

Preparing a private placement memorandum (PPM) ahead of offering securities is one of the many laws that are set forth by the SEC to protect investors. Additionally, there are many other SEC rules and complex laws that must be followed.

As such, it’s important for you to seek the advice of a qualified legal professional. Before you even consider securities sales as a means of financing your film production.

You certainly don’t want to risk liability should you be unaware of the proper regulatory actions that should be taken. So make sure you communicate with an attorney ahead of time!

Local State Film Financing Securities Law

Film producers must also comply with the local regulations. That apply to the state in which they are seeking film financing in. Sometimes referred to as “blue sky laws”. Individual state securities laws can vary greatly and will largely depend on the location.

In which the investment financing is secure. Many states require the business register in the state in order to secure investment funding. Virtually all states require that the film producer follow regulations in the state in which the film investor resides. 

Filmmakers will generally be necessary to file a copy of their Regulation D exemption with the state. As well as to file a state-specific form that allows them to secure investment financing from individuals within the territory.

The purpose of the state-specific laws and regulations are to ensure that each state takes responsibility for protecting investors on a local level. In addition to the protections which are provided at a more advanced level.

Is Securities Sale Right for My Film Project?

If you’re thinking that all of these film financing securities laws and regulations are a lot to consider, you’re certainly not alone. Many aspiring filmmakers struggle to grasp federal and local securities laws.

As they apply to filmmaking and the acquisition of film financing through securities sales.

Only you can decide what mix of funding is right for your production. But generally the sale of securities is one of several ways that a producer would raise funds for a project.

While there are a lot of complex film financing securities laws to follow. Working closely with a production attorney that understands the complexities of SEC regulation and film securities is important. And can help you establish the mix of financing that’s right for your project.