Setting Up Your Production Company—Protect Yourself!
The first step in establishing your production company is selecting the type of business entity you will establish. Producers typically do business as one of the following kinds of companies:
- Sole proprietorship
- General partnership
- Limited partnership
- S corporation (S corp.)
Some business entities, such as the sole proprietorship or the general partnership, do not require any legal formalities to start up. Other kinds of businesses, such as the LLC, the LP, or the corporation (S or C corp.), can only be created by filing and registering with the state government.
But regardless of which business entity the producers ultimately form, the filmmakers must conduct all business related to the making of the film in the name of the company. Everything should be paid for out of a company bank account, not a personal bank account. The copyright and other film assets should be transferred to and owned by the production company.
When making the movie, it is the company that should enter into contracts required for making the film. It is critical that you first form your LLC and execute your operating agreement before entering into contracts on behalf of the company! Make sure to sign all contracts in your capacity as company owner, partner, member, manager, shareholder, and so forth. Do not sign them without indicating your company status. Example: “Don Simmons, Managing Member, Sprocket Films, LLC.”
The company, and not the individuals who own the company, should rent, own, or purchase all the equipment.
The company should hire all performers and crew members.
Records of membership, partnership, or shareholder interests must be meticulously kept. Each owner’s percentage of ownership must be tracked and records adjusted as new owners join the company. Ownership interest increases and decreases each time owners invest more capital in the company.
Failure to adhere to these and other critical rules could erase the limited liability protections that the company enjoys.
The Bottom Line: Before you open your doors as a production company, you should form a limited liability business to protect your personal assets.