![]() ![]() S-CORPĪn S-corp is a particular kind of corporation (as opposed to a C-corp) that may work for certain film production enterprises. Limited Partnerships are a variation of partnerships in which limited partners (who cannot participate in day-to-day management) have limited liability, but a general partner still holds personal financial responsibility for the company. It is important, in this circumstance, to agree and legally document what contributions each partner will bring, how profits and financial burdens will be distributed, how conflicts will be resolved, and how ownership might be altered. PARTNERSHIPĪ partnership is largely similar to a sole proprietorship in that it offers no liability protection to the owners, but two or more individuals share ownership of the business. Although they are simple, they are highly risky and offer virtually no legal protection. ![]() They do not require formal action to begin in fact, many people are sole proprietors without being aware of their status, such as freelance writers or designers. In a sole proprietorship, the business is unincorporated, and the owner is responsible for all costs, debts, losses, and liability. SOLE PROPRIETORSHIPĪ sole proprietorship is the simplest and most common structure for small businesses but is almost never recommended for a film production due to the high costs associated with producing movies. Each formation carries its own risks and advantages, which should be discussed with an entertainment lawyer before moving forward with any of the following. OTHER STRUCTURES FOR PRODUCTION COMPANIESĪlthough an LLC has many benefits and is the best fit for the majority of small, new film production companies, other structures may work, depending on the producer(s)’ goals, plans, and financial situation. State and local permits and licenses may be required to complete the process and begin full operation as an LLC. In addition, it is advisable to draft and sign an Operating Agreement, a document delineating finances, rules, regulations, and management structure under which the LLC agrees to operate. In order to form an LLC, the members must file an Articles of Organization with the state, listing the business’s name, address, and information on the members of the business. Disadvantages to consider are the imposition of self-employment taxes to Medicare/Medicaid and Social Security and the short lifetime of an LLC if one of the members decides to leave the company, the LLC must usually be dissolved. Other advantages of LLCs include the ability to share profits as the members see fit, significantly less record keeping and documentation than other corporate structures, and the ability to request S-corp status for tax purposes (an attorney can advise). Each owner is only liable for the amount which they have personally invested into the company and their personal assets may not be considered in the event of a lawsuit. The most important and desirable aspect of an LLC is the liability protection that it provides to its owners. The members can also directly manage the business’s affairs. The business itself is not taxed separately. In an LLC, each owner is referred to as a “member,” and all profits and losses are passed through the business to the members who report them on their federal income taxes. It is a hybrid business structure which combines the liability protection of a corporation with the tax benefits and flexibility associated with a partnership. THE BENEFITS OF ORGANIZING AN LLCĪ Limited Liability Company (LLC) is by far the most common and most flexible structure for production enterprises, especially in the state of California. Without a production company, the producer(s) can be held personally responsible for financial losses and sued for recovery. It also vitally protects the filmmakers from being held personally liable for possible financial losses which the film may accrue and creates a protective legal shell around the producers. Forming an independent production company has many benefits, such as giving the producers the freedom to make their own creative and financial choices outside the purview of a major studio. Often, what separates successful film productions from ones that never quite make it off the ground is the organizational structure of the company which produces it. Understanding the goals and motivations of all parties at the beginning of a business venture of any kind, but particularly filmmaking is essential in order to protect the financial, creative, and personal interests of everyone involved. Film production companies can be formed for the sole purpose of creating one movie, or with the intention of creating multiple films over a long period of time. The first step in producing an independent movie is almost always the formation of a production company around the particular movie being made. ![]()
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