Creating a Corporation - Nuts & Bolts
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filmman
Veteran
Most of the time it's not a good idea when you're starting out in business; you should first operate as an individual and if you're super profitable then incorporating makes sense (so you can have tax benefits and limit your liability).
However, if you're determined to incorporate, look into the Yellow Pages or research on the web very carefully and you should be able to incorporate for as little as $750. Try Nevada, there's no state tax. If you're ready, email me at vic@felliniesque.com, I'll give you a company that will take care of everything for you.
However, if you're determined to incorporate, look into the Yellow Pages or research on the web very carefully and you should be able to incorporate for as little as $750. Try Nevada, there's no state tax. If you're ready, email me at vic@felliniesque.com, I'll give you a company that will take care of everything for you.
JonathanLB
Carbonite Member
Sorry but I totally disagree. I think it's a good idea to setup your corporation right away if you're intending to work on professional projects. Obviously not if you're just screwing around with amateur stuff to learn, or working other peoples' sets, but if you want to be a producer on your own projects or ones for clients, go ahead and create a corporation.
I see you are in Los Angeles. I'd be happy to tell you more about my experiences if you want, I'm in L.A. too, but for now what I'll tell you is that your best bet is a company like Direct Incorporation, you can visit their site at DirectIncorporation.com, I just happened to find them through a Google search because I'm in the same process. I don't know anyone at this company, just trying to be helpful, and I haven't fully went through the process with them yet myself. But they will look up your desired company name for free, and then you can pay them something like $350 to establish the company, it's really easy, and that's not expensive at all. I paid almost $6,000 to have my first corporation setup, because I had a business partner, and we needed to get an attorney involved and an accounting firm to look into details of which type of corporation we should go with.
A lot of people here seem to have LLCs, not really sure their reasoning on that, but all of the advice I've received from numerous legal and accounting professionals is that an S-Corporation makes the most sense for a production company in California for various tax and liability reasons. I think LLCs make more sense if you own property or intend to buy property with the corporation, at least that is what I was told, but since I haven't looked into that aspect I really don't know. All I know is that an S-corporation setup will work fine. Basically you are setting up a corporation, which means paperwork is going to need to be filed (Direct Incorporation or a similar company will do this for you and it's so cheap I think it's worth it, but take my word for it, don't involve a lawyer, way too expensive! I made this mistake already, ugg), then that takes about 5-6 weeks but you should be able to get your EID, Employer Identification often called your Federal Tax ID number much sooner than that. Shares of your stock are issued to you, usually numbering 10 million, so that if you were later to take your corporation public there would already be shares in existence. When your corporation is established, you then fill out a form, 2553 I believe it is, that you send to the IRS and this is your way of telling them you wish to be taxed as a corporation under subchapter S of Chapter 1 of the Internal Revenue Code, in short, making your company an S-Corporation.
S-Corporations, unlike C-Corporations, do not have income taxes. Any income or losses are passed along to the individual(s) who own the company, then they file individual income tax returns. An S-Corporation gives you legal liability protection so that actions you take as a director of the company are on the company's behalf, meaning it's harder for someone to sue you personally for whatever may happen, say a worker's comp issue. To sue you personally, an attorney must prove that you are not managing your company in good faith or treating your company as a separate entity, basically the attorney has to prove that you are not acting properly as a director of the corporation, which is called "piercing the corporate veil," and although it's easier to do that now than it was before, it's still not easy to pierce the corporate veil if you are taking the proper steps, with a separate bank account for the company, keeping your finances separate, etc. That gives you basically a certain amount of liability protection under the law that's very useful for someone in the position of running shoots.
I should mention that S-Corporations have to pay the standard corporate tax in the state of New York, and that in California there is a 1.5% "franchise fee" (of net income) or minimum of $800. With an LLC, you are going to pay 1.5% of your gross, and with an S-Corp 1.5% of your net, so that means if you're charging clients $100,000 but only making $8,000 in profit, you're not going to want to be paying taxes on your gross, you're going to want to pay taxes on your net. So with high margin enterprises, an S-Corp makes sense. With low-margin enterprises, an LLC makes sense. So perhaps some of that is up to you to decide. I'd rather pay on my net personally, because if I was to do a big project for a client and the budget was $100,000, there's no way I'm going to be taking home $50,000 for myself. I'm going to be spending a fair portion of that budget on the actual project. Perhaps I'm fortunate and take home $20,000 for my company, but that's still not a huge margin, which is why I think it makes sense to pay 1.5% on the net with an S-Corp, not 1.5% on the gross like an LLC.
I see you are in Los Angeles. I'd be happy to tell you more about my experiences if you want, I'm in L.A. too, but for now what I'll tell you is that your best bet is a company like Direct Incorporation, you can visit their site at DirectIncorporation.com, I just happened to find them through a Google search because I'm in the same process. I don't know anyone at this company, just trying to be helpful, and I haven't fully went through the process with them yet myself. But they will look up your desired company name for free, and then you can pay them something like $350 to establish the company, it's really easy, and that's not expensive at all. I paid almost $6,000 to have my first corporation setup, because I had a business partner, and we needed to get an attorney involved and an accounting firm to look into details of which type of corporation we should go with.
A lot of people here seem to have LLCs, not really sure their reasoning on that, but all of the advice I've received from numerous legal and accounting professionals is that an S-Corporation makes the most sense for a production company in California for various tax and liability reasons. I think LLCs make more sense if you own property or intend to buy property with the corporation, at least that is what I was told, but since I haven't looked into that aspect I really don't know. All I know is that an S-corporation setup will work fine. Basically you are setting up a corporation, which means paperwork is going to need to be filed (Direct Incorporation or a similar company will do this for you and it's so cheap I think it's worth it, but take my word for it, don't involve a lawyer, way too expensive! I made this mistake already, ugg), then that takes about 5-6 weeks but you should be able to get your EID, Employer Identification often called your Federal Tax ID number much sooner than that. Shares of your stock are issued to you, usually numbering 10 million, so that if you were later to take your corporation public there would already be shares in existence. When your corporation is established, you then fill out a form, 2553 I believe it is, that you send to the IRS and this is your way of telling them you wish to be taxed as a corporation under subchapter S of Chapter 1 of the Internal Revenue Code, in short, making your company an S-Corporation.
S-Corporations, unlike C-Corporations, do not have income taxes. Any income or losses are passed along to the individual(s) who own the company, then they file individual income tax returns. An S-Corporation gives you legal liability protection so that actions you take as a director of the company are on the company's behalf, meaning it's harder for someone to sue you personally for whatever may happen, say a worker's comp issue. To sue you personally, an attorney must prove that you are not managing your company in good faith or treating your company as a separate entity, basically the attorney has to prove that you are not acting properly as a director of the corporation, which is called "piercing the corporate veil," and although it's easier to do that now than it was before, it's still not easy to pierce the corporate veil if you are taking the proper steps, with a separate bank account for the company, keeping your finances separate, etc. That gives you basically a certain amount of liability protection under the law that's very useful for someone in the position of running shoots.
I should mention that S-Corporations have to pay the standard corporate tax in the state of New York, and that in California there is a 1.5% "franchise fee" (of net income) or minimum of $800. With an LLC, you are going to pay 1.5% of your gross, and with an S-Corp 1.5% of your net, so that means if you're charging clients $100,000 but only making $8,000 in profit, you're not going to want to be paying taxes on your gross, you're going to want to pay taxes on your net. So with high margin enterprises, an S-Corp makes sense. With low-margin enterprises, an LLC makes sense. So perhaps some of that is up to you to decide. I'd rather pay on my net personally, because if I was to do a big project for a client and the budget was $100,000, there's no way I'm going to be taking home $50,000 for myself. I'm going to be spending a fair portion of that budget on the actual project. Perhaps I'm fortunate and take home $20,000 for my company, but that's still not a huge margin, which is why I think it makes sense to pay 1.5% on the net with an S-Corp, not 1.5% on the gross like an LLC.
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Thanks for the replies guys!
Filmman - I'm putting together the production company for one specific production. I do want to take advantage of both liability and tax advantages to incorporating. Whattup with $750? I think I've seen around the web prices around 300-400. One of them was mentioned on that long a55 Corrado post....
JonathanLB - I was planning on an S-Corporation, so it's good to hear you corraborate that. Please let me know how your experience with Direct Incorporation goes! I'm looking at the one I heard from the Corrado postings, and their fees seemed fair (I'll repost the name of it as soon as I get home).
Now, I admit total noob-ness with this question... How is profit determined, or how much of it can I receive and what are the taxes and penalties? And does this differ from any fees I would invoice? For example, if the company is doing production and post, and I do some editing, invoice it, do those fees I should receive for cutting the project differ in any way?
Filmman - I'm putting together the production company for one specific production. I do want to take advantage of both liability and tax advantages to incorporating. Whattup with $750? I think I've seen around the web prices around 300-400. One of them was mentioned on that long a55 Corrado post....
JonathanLB - I was planning on an S-Corporation, so it's good to hear you corraborate that. Please let me know how your experience with Direct Incorporation goes! I'm looking at the one I heard from the Corrado postings, and their fees seemed fair (I'll repost the name of it as soon as I get home).
Now, I admit total noob-ness with this question... How is profit determined, or how much of it can I receive and what are the taxes and penalties? And does this differ from any fees I would invoice? For example, if the company is doing production and post, and I do some editing, invoice it, do those fees I should receive for cutting the project differ in any way?
JonathanLB
Carbonite Member
Hmm
Hmm
That's actually a good question, I think with an S-Corp that should be pretty simple actually, because think about it this way, let's say you have a $100,000 budget and you spend $80,000 of that, with the company profiting $20,000, and in your $80,000 you "spent," you billed the company for your own time or equipment as a specific job, whether director, editor, etc., then that becomes an expense of the company that makes the net income less, so your income is $20,000 from the company, but for personal income tax filing you are going to report the $20,000 that passed on to you plus the $5,000 (let's say) that you billed the shoot for your work as an editor, so you are going to report $25,000 in profits individually.
Since the corporation basically pays no tax, or very little tax in California's case, it's not a big deal whether you are making the money from the corporation or as an individual working for the corporation.
We had a similar issue on a corporate project we did. The company's profit was a 15% (standard) markup on the costs, but the costs were calculated based on my equipment leased to the company for the shoot as well as my business partner and I's time in the production. So we were both the owners of the company, making profits on the company's work, and employees of the company for the shoot in question. That means I made money in three ways -- one from equipment leased to the shoot, one for my labor on the project, and one for half of that 15% of the production company markup. The company, for its part, only reports that 15% profit, the rest is not profit for the company, but some of it is profit for me individually. It's ultimately all going to the same source.
Hmm
That's actually a good question, I think with an S-Corp that should be pretty simple actually, because think about it this way, let's say you have a $100,000 budget and you spend $80,000 of that, with the company profiting $20,000, and in your $80,000 you "spent," you billed the company for your own time or equipment as a specific job, whether director, editor, etc., then that becomes an expense of the company that makes the net income less, so your income is $20,000 from the company, but for personal income tax filing you are going to report the $20,000 that passed on to you plus the $5,000 (let's say) that you billed the shoot for your work as an editor, so you are going to report $25,000 in profits individually.
Since the corporation basically pays no tax, or very little tax in California's case, it's not a big deal whether you are making the money from the corporation or as an individual working for the corporation.
We had a similar issue on a corporate project we did. The company's profit was a 15% (standard) markup on the costs, but the costs were calculated based on my equipment leased to the company for the shoot as well as my business partner and I's time in the production. So we were both the owners of the company, making profits on the company's work, and employees of the company for the shoot in question. That means I made money in three ways -- one from equipment leased to the shoot, one for my labor on the project, and one for half of that 15% of the production company markup. The company, for its part, only reports that 15% profit, the rest is not profit for the company, but some of it is profit for me individually. It's ultimately all going to the same source.
Michael T
Well-known member
Jonathan is right that you have a lot more options of renting or leasing equipment to your corporation and gaining tax shelters by doing so. There are specific benefits of being a LLC or a S Corp or a C corp. There are also many different benefits of incorporating in one state or another. Very large C corps usually use Delaware to setup shop because when there's a problem it is adjudicated there and they have specific Judges that are trained in corporate law that benefits the Corp. Nevada law is where many corporations setup to do business because they have about the best protections in place for the directors of medium size corps from being sued and not held liable. There are a ton of adds for places in Las Vegas that can set you up for around $400 to $1200. The law in Nevada is the best in the west as far as states go for protection according to my attorney friends and no state is impenetrable form the veil being broken. You hear people say I have a corp thats three levels deep and can't be broken. Wrong it will take a good lawyer about 5mins to break any veil unless you are in the turks cacos Ilands or such.
The reason for a corp is if you get sued the directors are all protected personally from the lawsuit even if the corp goes bankrupt. From what I have read and learned Nevada seems to be the only state other than Deleware where the directors are fully protected against being sued. Most of the companies have lawyers on staff that act as the directors of small or medium corps that you set up.
You need to do a lot of research and talk to some attorneys about protection and wheres the best. You can talk to attoneys for free at your local law library if you have the gift of gab. I have received a lot of good direction for free from them there.
Good luck
The reason for a corp is if you get sued the directors are all protected personally from the lawsuit even if the corp goes bankrupt. From what I have read and learned Nevada seems to be the only state other than Deleware where the directors are fully protected against being sued. Most of the companies have lawyers on staff that act as the directors of small or medium corps that you set up.
You need to do a lot of research and talk to some attorneys about protection and wheres the best. You can talk to attoneys for free at your local law library if you have the gift of gab. I have received a lot of good direction for free from them there.
Good luck
filmman
Veteran
Well, I learned a lot by joining in this thread 
Yeah, incorporating can be fine if you're doing only commercial projects and are working on other people's projects a lot. But if you're an artist, forget it. It's not worth the expense and the headache.
I was including the State of Nevada annual fees and the Resident Agent fees. So it's the best deal "in town".
Yeah, incorporating can be fine if you're doing only commercial projects and are working on other people's projects a lot. But if you're an artist, forget it. It's not worth the expense and the headache.I was including the State of Nevada annual fees and the Resident Agent fees. So it's the best deal "in town".
Thanks again for the responses! Hopefully this thread can at least act as a basic primer to demystify the process....
Filmman - I have been coming across more and more people recommending a Nevada incorporation for both the cheaper startup and legal protection.
Reading through the A Lonely Place For Dying production blog and came upon his company setup, which was have a production company as the main corporation, then create an LLC per project. The gist of it was that investors could invest in the LLC, but, with the LLC as a subsidiary of the corporation, the intellectual property would still remain with the corporation. Sounds like an effective firewall.
The setup sounds exactly like the model most of the shows I work on. I will have to do more off-board research on this and will report back, but if anyone else is familiar....
Filmman - I have been coming across more and more people recommending a Nevada incorporation for both the cheaper startup and legal protection.
Reading through the A Lonely Place For Dying production blog and came upon his company setup, which was have a production company as the main corporation, then create an LLC per project. The gist of it was that investors could invest in the LLC, but, with the LLC as a subsidiary of the corporation, the intellectual property would still remain with the corporation. Sounds like an effective firewall.
The setup sounds exactly like the model most of the shows I work on. I will have to do more off-board research on this and will report back, but if anyone else is familiar....
JonathanLB
Carbonite Member
That's the way to go, yeah. I just filed my company formation documents today with Direct Incorporation, so I'll let you know how they do and how the experience is. But I expedited the process, so it should be done in 2-3 weeks with the state.
When I shoot a feature, which I'm hoping to have in the pre-production phase by this time next year, I will establish a separate LLC for the film, even though I'm the only investor, just because it will make things a lot easier for accounting purposes and really a film production runs much like a company. It has a payroll. It has (or needs) a bank account. Then it creates a product, which can be sold, and there are marketing and advertising expenses, etc. So that LLC will buy insurance for the shoot, pay workers, etc.
When I shoot a feature, which I'm hoping to have in the pre-production phase by this time next year, I will establish a separate LLC for the film, even though I'm the only investor, just because it will make things a lot easier for accounting purposes and really a film production runs much like a company. It has a payroll. It has (or needs) a bank account. Then it creates a product, which can be sold, and there are marketing and advertising expenses, etc. So that LLC will buy insurance for the shoot, pay workers, etc.
This is just the info I was hoping for! I am also researching this stuff right now. I am from the States but living in Europe anyone have any experience from this end of the world on start ups and types of constructions?
Also anyone here have a clue as to how a "Trust" can be set up for a Film Company and what exactly are the benifits.
Suppose the aim of the company was to do feature work and part of that was to raise finance through various incentives to investors etc what would be the best way to go so that the eventul legal snags down the line are minimized.
Thanks,
Dogday.
Also anyone here have a clue as to how a "Trust" can be set up for a Film Company and what exactly are the benifits.
Suppose the aim of the company was to do feature work and part of that was to raise finance through various incentives to investors etc what would be the best way to go so that the eventul legal snags down the line are minimized.
Thanks,
Dogday.
JonathanLB - Would profit from the LLC go to the corporation, and what kind of taxation is that? Or is there a way to circumvent that? I plan on starting the incorporating process tomorrow myself using Portsurf, Int'l. (Have one more mind to bother about it....)
Two more questions:
Do you employ either an accountant or payroll company?
How do bylaws work, when/who/how do they get written/applied?
You've been crazy helpful, thank you much for that.
Dogday - No idea. Hopefully someone around here can help. Seems like an international community on board here...
Two more questions:
Do you employ either an accountant or payroll company?
How do bylaws work, when/who/how do they get written/applied?
You've been crazy helpful, thank you much for that.
Dogday - No idea. Hopefully someone around here can help. Seems like an international community on board here...
JonathanLB
Carbonite Member
Tony, hmm, I think that would depend on the setup. That is where it starts to get out of the realm of what I've actually done so far, so I don't want to lead you astray by talking about things I don't fully understand.
What I'm thinking, though, is there might be reasons to go about this in several ways. I'm not a lawyer so don't take what I'm saying for fact, but I am just gathering that if your production company actually owns your LLC, i.e. the film project, then if someone sued you for any reason on the feature film, they could come after the parent company, i.e. your corporation. If you kept them separate entirely, that's not possible. There's no legal relationship between the companies then, and as long as you've done nothing way out of line, you shouldn't have to worry TOO much about them piercing the corporate veil and coming after you personally for the LLC. So if they sue for $5 million and win, and your LLC has a value of only whatever the feature is worth, they can't come after you personally for damages. They will try, but usually they will fail. If that wasn't the case, it would be too dangerous to do business in this country at all. That would mean every time you take a risk in business, you are personally liable, and that's an unacceptable situation for businessmen. It's why you have to prove gross negligence to pierce the corporate veil.
It's a lot like this analogy. Playing video games can be fun, right? But what if when you played a video game, sort of like in The Matrix, your character's death actually results in YOUR death?! Nobody would want to play video games anymore. It just wouldn't be worth it. Same with a company. If you put $200,000 into your company, you are risking only that much, and nothing more. If your company owes too much money to continue operating, you can file for bankruptcy without having to cover your debts personally. Odds are it will still ruin your personal credit, but you won't lose your house, your car, your clothes, etc. haha. It's the same with stocks. If I buy $200,000 in stocks, and the company I own stock in actually goes bankrupt and owes its creditors tons of money, they can't demand that the shareholders pay back the creditors. That isn't a risk you are assuming as a stockholder. The worst that can happen is your stock goes to $0, worthless. It can't go to -$20 where you suddenly have to send the company a bunch of money just because you own stock. That, however, can happen of course in real estate investments. I have a number of real estate investments where if there's a bad month and the property lost $45,000, and I own 2% of that, well, I'm out 2% of $45,000. That's just part of the risk.
Ok so the other questions. I have an accounting company that does my paperwork, yes. Some people proudly proclaim that they do their own taxes. Since I was 14 or 15 there is no chance I would have been able to do that. I file state taxes in 5 states I think, I can't even remember, I know it's Washington, Oregon, California, Nevada, and Arizona for sure. My taxes are far too complicated to manage myself, so my accountant who handles the rest of the nonsense also handles my production company accounting.
I haven't worked with a payroll company yet. As someone on here wisely pointed out, though I'm too stubborn to do everything by the book all of the time, people who work on film shoots are not contractors usually, they are employees, and California is pretty rigid about that. It's just that nobody really cares, except them, and it's not enforced very well, so most people at the lower end of production pay everyone in full, as if they are independent contractors. The right way of doing things, though, which I will certainly do on my feature or any future corporate work, is to work with a payroll company, even Wells Fargo has payroll services and I use them for insurance and banking as well, then they will take care of that nonsense too. I believe there are some payroll companies that work with entertainment companies especially, but one of them I e-mailed must be one of the worst run little companies imaginable. I saw they were a sponsor of a film festival to which I submitted, so I e-mailed them and asked how we could work together because I'm in need of their services, and explained how I found them. That was probably 2-3 weeks ago, no response.
It's just infuriating to me when something like that happens. Here some of us are working our tails off to find clients, it's so hard to find clients, and then a client e-mails you just basically asking to hand over their money in exchange for your services, and these nimrods can't even respond? Wow... must be nice to have that many clients, I guess. More likely they're just poorly run, haha.
Corporate bylaws, well we used a pretty standard boilerplate for our Articles of Incorporation, the thing that made it more confusing was having a business partner. There was a lot of stuff that needed to be added. Let me be honest with you, as my dad told me when I was starting this up and in life you learn the hard way so often, I know I do, best advice is don't have a business partner. My business partner even gave me this advice before we did this company! He was totally right, and he's by the way a very smart guy, so I'm not saying I regret working with him. What I'm saying is his original suggestion was way better -- he suggested we BOTH form companies, and work together on a project-by-project basis. That keeps things so much easier, much cheaper and easier company formation, and you can easily negotiate a contract on every project you wish to work on together. So you could say on one project, well I'm not going to be doing that much on this one, so I'm fine taking just 25% of the profits. Or, hey, you know, on this project really you found the client but I'm going to be doing a ton of work and basically managing the whole thing, so I think 75% for me is fair. You can work things out before and that way there is never any animosity because it's all project dependent.
I think one of my biggest problems when we started getting some work was that I felt I was doing 90% of the work and getting more like 65% of the money. So it was like, yeah, I mean, I'm making more than half but come on I'm the one pulling the all-nighters and working 14 hour days here. I believe my business partner also realized this, and felt bad, but we had setup our company in a way that made it tough to do things right because that's the nature of film. Better to negotiate project to project, if you were thinking of having a partner.
What I'm thinking, though, is there might be reasons to go about this in several ways. I'm not a lawyer so don't take what I'm saying for fact, but I am just gathering that if your production company actually owns your LLC, i.e. the film project, then if someone sued you for any reason on the feature film, they could come after the parent company, i.e. your corporation. If you kept them separate entirely, that's not possible. There's no legal relationship between the companies then, and as long as you've done nothing way out of line, you shouldn't have to worry TOO much about them piercing the corporate veil and coming after you personally for the LLC. So if they sue for $5 million and win, and your LLC has a value of only whatever the feature is worth, they can't come after you personally for damages. They will try, but usually they will fail. If that wasn't the case, it would be too dangerous to do business in this country at all. That would mean every time you take a risk in business, you are personally liable, and that's an unacceptable situation for businessmen. It's why you have to prove gross negligence to pierce the corporate veil.
It's a lot like this analogy. Playing video games can be fun, right? But what if when you played a video game, sort of like in The Matrix, your character's death actually results in YOUR death?! Nobody would want to play video games anymore. It just wouldn't be worth it. Same with a company. If you put $200,000 into your company, you are risking only that much, and nothing more. If your company owes too much money to continue operating, you can file for bankruptcy without having to cover your debts personally. Odds are it will still ruin your personal credit, but you won't lose your house, your car, your clothes, etc. haha. It's the same with stocks. If I buy $200,000 in stocks, and the company I own stock in actually goes bankrupt and owes its creditors tons of money, they can't demand that the shareholders pay back the creditors. That isn't a risk you are assuming as a stockholder. The worst that can happen is your stock goes to $0, worthless. It can't go to -$20 where you suddenly have to send the company a bunch of money just because you own stock. That, however, can happen of course in real estate investments. I have a number of real estate investments where if there's a bad month and the property lost $45,000, and I own 2% of that, well, I'm out 2% of $45,000. That's just part of the risk.
Ok so the other questions. I have an accounting company that does my paperwork, yes. Some people proudly proclaim that they do their own taxes. Since I was 14 or 15 there is no chance I would have been able to do that. I file state taxes in 5 states I think, I can't even remember, I know it's Washington, Oregon, California, Nevada, and Arizona for sure. My taxes are far too complicated to manage myself, so my accountant who handles the rest of the nonsense also handles my production company accounting.
I haven't worked with a payroll company yet. As someone on here wisely pointed out, though I'm too stubborn to do everything by the book all of the time, people who work on film shoots are not contractors usually, they are employees, and California is pretty rigid about that. It's just that nobody really cares, except them, and it's not enforced very well, so most people at the lower end of production pay everyone in full, as if they are independent contractors. The right way of doing things, though, which I will certainly do on my feature or any future corporate work, is to work with a payroll company, even Wells Fargo has payroll services and I use them for insurance and banking as well, then they will take care of that nonsense too. I believe there are some payroll companies that work with entertainment companies especially, but one of them I e-mailed must be one of the worst run little companies imaginable. I saw they were a sponsor of a film festival to which I submitted, so I e-mailed them and asked how we could work together because I'm in need of their services, and explained how I found them. That was probably 2-3 weeks ago, no response.
It's just infuriating to me when something like that happens. Here some of us are working our tails off to find clients, it's so hard to find clients, and then a client e-mails you just basically asking to hand over their money in exchange for your services, and these nimrods can't even respond? Wow... must be nice to have that many clients, I guess. More likely they're just poorly run, haha.
Corporate bylaws, well we used a pretty standard boilerplate for our Articles of Incorporation, the thing that made it more confusing was having a business partner. There was a lot of stuff that needed to be added. Let me be honest with you, as my dad told me when I was starting this up and in life you learn the hard way so often, I know I do, best advice is don't have a business partner. My business partner even gave me this advice before we did this company! He was totally right, and he's by the way a very smart guy, so I'm not saying I regret working with him. What I'm saying is his original suggestion was way better -- he suggested we BOTH form companies, and work together on a project-by-project basis. That keeps things so much easier, much cheaper and easier company formation, and you can easily negotiate a contract on every project you wish to work on together. So you could say on one project, well I'm not going to be doing that much on this one, so I'm fine taking just 25% of the profits. Or, hey, you know, on this project really you found the client but I'm going to be doing a ton of work and basically managing the whole thing, so I think 75% for me is fair. You can work things out before and that way there is never any animosity because it's all project dependent.
I think one of my biggest problems when we started getting some work was that I felt I was doing 90% of the work and getting more like 65% of the money. So it was like, yeah, I mean, I'm making more than half but come on I'm the one pulling the all-nighters and working 14 hour days here. I believe my business partner also realized this, and felt bad, but we had setup our company in a way that made it tough to do things right because that's the nature of film. Better to negotiate project to project, if you were thinking of having a partner.
I would recommend consulting with a CPA before making a decision on the business entity (LLC, S Corp, C Corp) as well as having one do your quarterly and year-end taxes. A good CPA will save you money. You need to understand the tax implications and advantages of business entity type as they apply to your unique situation.
Main plan is to begin the incorporating process now. I don't become an s-corp until I file the paperwork with the IRS. Then I can figure out the LLC situation. I'm going to ask around at the show I'm at now to see if I can get some more info.
I do want to do things by the book, especially in terms of paying employees. Seems like that could bite you in the ass.
J Michael - I've got a good accountant referred to me by one of my coworkers, and he's an ace at setting up corporations. Most of the editors I work with are incorporated, and make mad savings doing so.
I do want to do things by the book, especially in terms of paying employees. Seems like that could bite you in the ass.
J Michael - I've got a good accountant referred to me by one of my coworkers, and he's an ace at setting up corporations. Most of the editors I work with are incorporated, and make mad savings doing so.
JonathanLB
Carbonite Member
It's good to do things by the book if you can. It's just that nobody at the lower levels pays employees by the book. I mean if you're shooting a project for your reel, you certainly don't say, "Gee ok I said I'd pay you $300 so here's the $262.58 minus withholding for..." Uhh, lol, you'd get funny looks to say the least. I have never even talked to anyone who has received a check like that for an indie production. That's more necessary on work for clients where you're actually reporting potential income, rather than just making projects for your reel. I'm not saying it's not good to do everything by the book, it is, but it's also a huge headache and any possible penalties for not doing them that way are not very significant no matter what anyone may tell you. As long as you are paying people more than minimum wage, they won't complain anyway. If it ever comes up, you could be subject to some back taxes of some sort but again it'd be insignificant really.