Forming an LLC?

B

Blutarski

Active member
What are the advantages? Someone mentioned that I should do it. My plan is to film a feature this summer. I am going the low budget route. I'm sick of going to screenplay pitch festivals and pitching to hungover interns that don't have the power to say yes.
I want to film what I am writing but also want to cover myself in case of the unforeseen. Are there tax advantages?
 
The main advantage is that it can help protect your personal assets. An LLC (or a corporation) is a separate legal entity. It owns the film, you don't. So if it gets sued, IT gets sued, and you don't. If something awful happens and someone needs to sue big, if you have a properly-formed, properly-separated LLC in place, then the person suing shouldn't be able to take your house, your car, and your other personal assets.

Tax advantages? For most folks? Not really. An LLC can be set up for pass-thru taxation (same as a subchapter S corporation). That means any profits or losses in the LLC/corp are not taxed separately, but they flow through directly to your 1040 tax return. So there's a tax advantage as compared to a conventional corporation (which would be taxed on its income, and then any distributions to you would be taxed as well). But as compared to just holding the ownership of the film as a sole proprietorship, there's not really a whole lot of tax advantage to having an LLC or s-corp, and in fact it'll make you file a separate tax return.

That said, it is always always recommended to get a separate legal entity in place. Depending on your state, it can be quite inexpensive to establish ($200 or less, usually). But you will also have to establish a separate bank account and an employer identification number (EIN). If you just commingle the funds of the LLC with your own money (i.e., pay the company's debts from your own money) then you haven't established the LLC as its own identity, and may lose the corporate shield that the LLC can provide (when properly established and maintained).
 
Yup, great stuff from Barry. That pretty much sums it up!

If you're doing the film with other people involved too, it makes more sense to have an LLC than a smaller pet project. I'm partnered with another production company with two producers, so we need this separate entity that we all run together.
 
Yep, any corporation or LLC can be pierced by a D- law student kid for commingling funds with personal funds, you gotta watch out for that.

I open about one LLC a week in the state of Missouri, online it's $50 (walk it in to the state and it's $105), EIN # is free and can be done online, you can do it all in less than 30 minutes online (about 5 if you have done it before).

If there is a Bank of the West around you they are paying new business account holders $100 for opening a business account with them, ($100 min deposit to open the account) so they pretty much pay for your LLC or Corporation fee's and checks you order, free debit card and checking if you maintain a $2k balance, if less than a $2k balance it's a $5 a month charge. It's a good way to start a biz and get paid for it.
 
Nice, Chip! That's smart, haha, very smart.

Yeah it's just a nice, easy way to do a film shoot in general, though, where you put the entire budget in the bank account, you know what you are working with and have a schedule of drawdowns, a budget for the project, etc. Keeps everything tidy and separate from personal finances. It also gives an entity through which all profits can be sorted and distributed later.
 
They also offer free online banking so both you and the other producer can stay on top of the expenses.
 
vnguyen972 said:
State Fee in TX is over $300... so ridiculously high... can one form an LLC from out of state?
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Yes if you have a location there, if not it might be considered a front and it could be pierced. There are legal companies in other states like Delaware that offer services for doing such a thing that are legal but those fees would prob be more than $300 although TX allows a foreign (out of state) co. to file an LLC there so you might want to check with each state.
 
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I also heard that one might want to form an LLC from a state that has higher financial incentive for a film production, but I wasn't sure how it works to form an LLC from out of your own state; but it sounds like it's more trouble than not.
 
Don't get caught up with that stuff. If you're not a multistate corporation, just keep it simple and form the corp in the state you're based in, in the state you plan to shoot the film in. If you're going to be traveling to a state with a better film incentive, you might want to form the LLC in that state, but if you're doing it locally, form it in your own state and be done with it.
 
Another benefit that wasn't mentioned is that if you become a SAG, DGA, or signatory of any other union for your film, that agreement is with your business entity which really lives only within the context of that one film.
 
Yes, Snazzy Flapper brings up an excellent point. If you become a SAG signatory, once your entity is a signatory, it will always be a signatory -- so the proper way to do it is to sign the SAG agreement through your LLC. Otherwise, if you sign it personally, any production you ever do will have to be SAG! (or any other union, etc). Whereas if you sign it through the LLC, every production that LLC does will have to be SAG, but you could make a new LLC for non-union work if that is important to you.
 
That's a very good point that Snazzy brings up. Although it doesn't matter for short films, apparently. I spoke to them about that and my agreement with them was for only my short, so I just did it through my production company, it wasn't a general SAG agreement that binds me to use SAG for everything I ever do. Then again I don't really mind too much because any project that I do that is not corporate work or music videos will be SAG anyway, and they don't care about music videos or corporate work, those are non-unionized areas.

Also as far as LLCs go, you can establish your LLC for any film in your own state, not the state you're shooting in, I asked about this because I was curious and the producers I work with said they just do it in California even if they're shooting in Michigan or wherever else, it's ok, you just have to be in good standing.

I'm thinking of joining the DGA on this feature, it seems like it will be worth it, so I'm about 90% sure I will. It's a fair chunk of change, but the perks and benefits seem to be worthwhile and eventually if you're going to be a serious director you basically have to be DGA.
 
Out of state can be an easy and cheaper way to go. Delaware is a great place to form an LLC. That is what we did. Many people looking to easily form and maintain an LLC, use Delaware and Nevada. These states have very accommodating laws for out of state incorporation. There are companies that wil do everything for you, File all the necessary papers and send you your LLC documents for $200. No fuss... No muss... very easy.

If you want to go this route, PM me and I'll give you the name of the company that we used. They are very good.
 
Just remember to abide by the rules of an LLC - yearly meeting, and in MA, the $500/year cost to have the privilege of saying you are an corporation in the state.

Michael
 
MichaelP said:
Just remember to abide by the rules of an LLC - yearly meeting, and in MA, the $500/year cost to have the privilege of saying you are an corporation in the state.

Michael
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Is that an MA requirement? I thought one of the advantages of an LLC over a standard corp was that meetings were not required, but optional...
 
Might vary from state to state, but that is also a requirement in CA.

It's strange to hear that Texas is so expensive. Forbes recently did a feature on the best states to form a business and Texas was surprisingly #1. California, not all that surprisingly, was #50. I would love to have something as easy as you've got going in Missouri, Chip. It would take all the hard decision-making out of how to handle certain legal structures.
 
Barry_Green said:
Yes, Snazzy Flapper brings up an excellent point. If you become a SAG signatory, once your entity is a signatory, it will always be a signatory -- so the proper way to do it is to sign the SAG agreement through your LLC. Otherwise, if you sign it personally, any production you ever do will have to be SAG! (or any other union, etc). Whereas if you sign it through the LLC, every production that LLC does will have to be SAG, but you could make a new LLC for non-union work if that is important to you.
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Oh, also, this isn't quite correct – signing a SAG Term Agreement only signs you through the end of that term (the period until SAG's next contract negotiation, generally every 3-4 years or so). So it's not "for life" just "a possibly annoyingly long time," depending on how your situation changes.

The advice given is still sound. Make SAG work for you, not the other way around.
 
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