Donations + Securities Question

A

Andrew McCarrick

Carbonite Member
I'm wondering if anybody know would know if my website complies with securities laws? I'm not selling securities or investments, just asking for donations, and giving merch. in exchange for the donation. The donation agreement makes it clear that the donation does not directly releate to being given that merch.

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I saw Barry post in another thread about this, but it seemed like he was referring to something a little different than this.
 
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i agree with jim. this is something that you should discuss with a lawyer before proceeding.
 
I'm no lawyer, but I think you're on shaky ground. Many of the things you offer in return for the donations are, in fact, dependent upon the movie being made and being completed successfully. If the movie isn't completed successfully, then nobody gets a DVD, an IMDB credit, or much of anything else. That right there might cause the SEC to consider it an investment rather than a donation.

SEC fines and penalties can be severe. You really can't afford not to consult a qualified attorney before proceeding any further.

My 2 cents, for what it's worth.
 
You do make a valid points. What should I be consulting here, a Securities Attorney, Entertainment Attorney, or would one without a speciality suffice?
 
A) I am NOT a lawyer.

B) I suspect you are fine if you are not seeking equity investment and are retaining 100% ownership of the film. Your model is right in line with what Kickstarter.com and IndieGoGo are doing.

C) If you had 501c-3 non-profit status those donations would be tax deductible.
 
Zak Forsman said:
C) If you had 501c-3 non-profit status those donations would be tax deductible.
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Or if you partnered through a nonprofit organization using a process called "fiscal sponsorship", those donations would become tax deductible (and tax deductible makes it a lot more likely that someone would donate).

Some nonprofit organizations will extend their umbrella of non-profitness to you, in exchange for a percentage of the donations, usually maybe 5% to 10%. So the person makes a donation to, say, the Film Arts Foundation, and then the Film Arts Foundation makes a decision to make a grant to you for 90% of what they received.

Becoming certified as a nonprofit is not easy, and sometimes people find it of significant helpfulness to partner with a nonprofit.

And, I'll let you in on a little big secret here: lots of times, big-money investors don't WANT ownership. Ownership = liability. If they own a piece of the company, they can be sued. And if you've got a $10m+ individual as an owner of your company, guess who they'll sue? So sometimes you can make a compelling presentation, and the rich person might even want to help you, but the hassles of ownership aren't worth it to them. But they might just decide to donate some dough your way, because it'll avoid all the hassles, it helps you, and it gets you out of their office. Having a nonprofit fiscal sponsor can help that, and if it gives them 35%-45% of their money back (due to the tax implications) then it becomes that much easier of a pill for them to swallow.
 
Andrew McCarrick said:
I'm not selling securities or investments, just asking for donations, and giving merch. in exchange for the donation.
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Yes, but you are making a de facto sale of merchandise that may or may not ever exist.

Ask yourself why you're offering merchandise -- and the answer is obviously going to be "well, because people won't donate if I don't".

So you're not really, truly asking for donations, are you?

A donation has no strings attached and has no expectation of anything in return.

If you're setting up that you're going to give them something in return, that's where you get on more dicey ground.

I don't know if your proposed site has any problems or not, but there are multitudes of ways that people come up with "great ideas" that just happen to run afoul of laws. For example, there was "who wants to be a movie star" where the producers actually auctioned off leading roles to the highest bidders, on yahoo auctions. Oops. Turns out that California labor law prevents the practice of people paying for job consideration (or something, don't remember the exact problem) and that it ran afoul of a whole lot of issues. So they modified it so that the person winning the bid could not get the job for themselves, but they could "nominate" someone else to win the role...

Anyway, there are laws out there that you may not even know you're running afoul of. Hence why people are advising you to contact an entertainment or securities lawyer.
 
Andrew McCarrick said:
Thanks guys. I guess I'll have to get some money together to talk to a Securities Lawyer.
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Or just cut out the perks and ask for donations outright with nothing in return. Say, "I need you to help me make this movie." Give them at least a good chunk of the script to read. If you've got actors set for any of the roles, post their headshots, resumes and demo reels, plus the bios of any or all of the crew. Get people excited about your movie! Make them want to help you.

I always think about the woman I read about several years ago who'd lost her job and was $20,000 in debt, if I remember right. She put up a website just basically asking people to send her money to help her get out of debt. No offer of anything in return. From what I read, in just a few months she was completely debt free and had several thousand dollars in the bank.

If you're a good salesman and you believe in your movie, then pitch it and see what happens. Of course, you'll have to go out and promote your site and your project all over the worldwide web, and drive traffic to your website. It won't be easy. But I firmly believe it can be done.
 
You also might consider who you're asking for money from. If you are asking for out and out donations, and the content of the film is geared towards a certain group or subject, then your pitch can be a little different. People who donate because they believe in the project have a different relationship to the project than people giving because they expect some monetary return. Then there is no need to offer stuff in return, because that's not why your donors are on board.

Or you can check out a fiscal sponsorship program as well.
 
Maybe it doesn't comply. Ask a qualified attorney. There are lots of people out there doing it the wrong way -- the illegal way. Your concern is making sure you do it the right and legal way. That's all.
 
It sounds like all they're offering is a screen credit IF the person chooses to want one. I'm not sure whether that's an effective skirt around the laws or not. But it doesn't seem like any other promises are made.

He does refer to the SAVEKARYN.COM website, which is the story I mentioned earlier.

Again, still consult a qualified attorney. I do believe an approach like this CAN work, but you have to tread carefully.
 
DJDecay said:
Again - Tax Accountant and Tax Attorney - "Securities" has _NOTHING_ with what you are doing. It's the Federal Trade Commision (FTC) and IRS that might indict you for fraudulent non-for profit, or for-profit operating as non-profit - not the SEC or NFA.

The only time the SEC might be interested in you is if you were accepting stock or securities as a donation (instead of money).

Taxes and Trade practices, and your Local Laws in NJ and City you live in (that also covers people who donate out-of-state or in-state.)

LINK1: http://www.njleg.state.nj.us/2008/Bills/A3000/2616_I1.HTM
LINK2:http://www.law.cornell.edu/uscode/uscode26/usc_sec_26_00000509----000-.html

Clearly the way its set up right now it will not fall under USC 501.

LINK3: http://www.law.cornell.edu/uscode/26/usc_sec_26_00000502----000-.html
LINK4: http://www.law.cornell.edu/uscode/26/usc_sup_01_26_10_A_20_1_30_F.html
LINK5: http://www.law.cornell.edu/uscode/26/usc_sup_01_26_10_A_20_1_30_B_40_III.html

Even if you were disseminating shares of common stock from your C-Corp to investors and giving them a hat, the SEC would not care what you'd write in your articles of incorporation.

Basically the "donation" term has to go, it a "contribution" to the making of project XYZ, which is not a "charitable" or "tax-exempt" organization that will pay taxes on the money recieved as if it were doing "trade" or "accepting equity contributions" - contributions for the purposes of construction do not apply.

IF you are a person, or a private corporation (not a fund or a charity) and you did not receive the merchandise for free from a private corporation (so that a fund or a charity can benefit) its not a donation. It's just selling things to people or "trade". - Sort of like a RED Pre-Order is not a donation or a red, its a deposit, if RED does not ship you one (if they don't manufacture it) they have to give the money back or the FTC gets involved. Where did the language with Securities come into all of this?




I am Not a Lawyer - this is not legal advice.
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I don't see how I'm "operating", or giving the illusion of operating, as a non-profit....

It's clearly stated in the agreement that it's not a donation and a non-tax deductible gift.

"
(1) Any money, property or service donated by you (each a "Donation") in connection with the proposed future film project currently entitled 'The Spirit of Rock' (the "Project") is considered by you to be a non-refundable, non-tax-deductible, non-exchangeable gift.

(2) Any Donation accepted by the Company is considered by the Company to be a gift and not payment, income, revenue, or profit of any kind.

(3) Your Donation is not in any way a loan to or an investment in the Company or the Project and does not entitle you to any form of equity or participation in the Company or Project. "
 
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