Organizing an LLC Operating Agreement for Film Production
As an independent filmmaker or production company, the idea of producing a motion picture is something that instantly brings up a number of potential concerns and needs. In regards to both the creative aspects of the project as well as the potential legal aspects involved. In order to keep profits, and potential losses. Resulting from the production of a motion picture. Separate from those related to the filmmaker themselves or the production company. Filmmakers often choose to separate each motion picture production into its own LLC. However, organizing an LLC operating agreement for film production to move forward is a process that requires substantial negotiations and strict adherence to legal process.
This is why most filmmakers hire a qualified entertainment industry attorney in order to organize the actual business of the film company.
Why Organize an LLC for Film Production Purposes?
Filmmakers each have their own reasons for choosing to start an LLC for the purposes of film production.
One of the greatest benefits involved is the fact that in forming a limited liability corporation for the business of the film allows the entity to be taxed differently.
Than it would be if the film project were to be taken on as part of the film production company’s business. While getting into tax law is certainly beyond the depth of this post.
Suffice to say that forming an LLC offers flexible options for the “business” of the film to be taxed either as a corporation or as a partnership.
Additionally, as many business owners will tell you. The organization of an LLC operating agreement for film production purposes allows more flexible standards and corporate bylaws.
In structuring unique corporate operations for the film. This includes limited personal liability. Should the production fail to recuperate investment expenses. Or otherwise claim a tax related loss at the end of the taxable year.
Finally, the LLC operating agreement for film production allows partners involved in the business to allocate individual gains, losses, tax dedications, and potential tax credits to designated participants. So as to maximize the total value that is provided to the films’ investors.
Is an LLC the Only Business Formation for Motion Picture Projects?
Absolutely not! In fact, many filmmakers that seek investment financing from a wide range of film investors. They could find themselves in a situation in which investors actually prefer that the films’ business be formed in a more “traditional” corporation.
While this could be for a variety of reasons, including limited understanding of how an LLC works. In the event that investors are reluctant to participate in an operating agreement.
Backed by a limited liability corporation, filmmakers still have the option of forming either C-corporation or an S-corporation. However, before forming any business for a film!
We recommend you work closely with both an entertainment industry attorney. As well as with an accountant with a background in filmmaking. In order to ensure that you’re making the most beneficial decision for your project.
Is Organizing an LLC Operating Agreement for Film Production a Must?
If you’re an individual or independent filmmaker, you might be wondering if forming an LLC, C-Corp, S-Corp or some other partnership is even necessary. While this is a decision best made between you and your legal counsel.
Or at the bare minimum, you and your accountant. The primary benefits to forming a formal business structure for a film production lie specifically within the potential risks involved with investment financing.
Consider the Risk
When seeking investment financing, the filmmaker must think about more than just their own investments into the film project. They must consider the risk involved in losing not only personal funds that are invested.
But also in losing funds others invest. For this reason, as well as for various other potential liability circumstances. It is safest to transfer some of the films’ potential liability or risk into a formal business operating agreement.
Rather than to manifest all such risk on one’s own. In doing so, should the film (which is thus a business) fail, the business might dissolve.
And any assets that are part of the production might be liquidated to cover costs. But no further liability would be assumed by the production company or individual filmmaker involved.
If the filmmaker intends to organize the production with their own personal finances there would certainly be less need to organize an LLC. Or any other form of operating agreement.
In terms of dispensing liability from the individual to the business. But this is really a conversation for the filmmaker and their legal counsel. Should the size of the film project increase substantially beyond.
Which could be a personal investment. Or should private investors be brought in on the project. A consideration in switching over to form a structured business entity and organizing an LLC operating agreement for film production or another corporation should certainly be considered.
Additional LLC Operating Agreement for Film Production Tips
As with any operating agreement, it’s important to establish the basic rules and requirements for how the film production will be owned and operated. This includes establishing key details on management.
Particularly in regards to WHO manages WHAT areas of the business. Although some provisions that are found in the agreement will be standard LLC protocol. Some areas of concern are vital to the organization of an LLC operating agreement for film production specifically.
One such consideration is in who has management authority of the “business” which in this case is the film? Some states specify that the “manager,” which is the filmmaker in this case, has sole authority over the management of the business.
However, the operating agreement may have alterations in the beginning stages. So as to provide discretion as to who maintains control over the “management.”
Of particular interest is the opportunity for film investors to have some control over the financial decisions. Or other capital decisions relative to the film. These details, and others should be in the operating agreement.
As you can see, organizing an LLC operating agreement for film production represents a complex process. But it’s one that provides several benefits for the filmmaker. As well as unique benefits and safety precautions to film investors.
Who may be risking their own capital for the production. As with any serious legal decision making like this, Beverly Boy Productions recommends you consult with an experienced entertainment attorney. As well as with the appropriate accounting and small business professionals.
In advance of making the decision to form an LLC for your film. It’s a big step! But it’s certainly a consideration that should be made for any film that will be produced with the support of investment financing that comes from outside investors.