LLC or not, for micro budget indie ?

J

Joe N. Obody

Member
I was sort of planning that I would have to form an LLC even for a micro budget feature indie, now I am not so sure.

What did those of you who have made micro budget feature length indies do-- did you form an LLC for the film, or not (just use your name, sole propriertor, maybe a DBA assumed name)?

I thought the whole purpose of an LLC is protect oneself personally about getting sued, but the Limited Liability Company (LLC) by its very nature is limited liability meaning the LLC owner can still be held liable at some point for any lawsuits and such, right?; and as I am learning, regardless of LLC or not one should get general business liability insurance, workmans comp insurance (even if using independent contractors), and volunteers insurance (for any volunteers on the film, actors or otherwise). So with all that liability insurance, why even form an LLC at all in the first place? I am confused.

I guess it is not a huge deal to form an LLC, about $200 in fees to file in my state, but still if not needed I would forego forming an LLC.
 
You misunderstand. The point of a limited liability company is specifically that the members have "limited liability" -- that's a good thing. The alternative, of course, is to have "unlimited liability" -- and that could be disastrous. Nobody should lose their house, their car, their savings, etc., just because they made a movie.

IANAL, so take this with a grain of salt, but it is usually considered prudent financial planning to conduct your business activities under the shell of a separate legal entity, such as an LLC.

You ask about insurance -- well, having an LLC is another layer of insurance. And it allows you to wind down or sell the film without it being tangled up in your personal finances. It is generally prudent to have.
 
Barry_Green said:
... an LLC is another layer of insurance. And it allows you to wind down or sell the film without it being tangled up in your personal finances. It is generally prudent to have.
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Thank you Barry. Do you (Or anybody reading this) think one LLC is enough for a first micro indie feature film, or should I have two? What I mean is, on filmpspecific.com I learned how at least for bigger budget indies ($1M-$5M blueprint indies) Taormina (Adam) discusses having one LLC for oneself to which all profits flow, and then one LLC for each indie film that is made, so that the main LLC is protected from individual film liabilities. Seems a bit much at this stage to form two LLCs, one for me and one for my film; one LLC for the film does seem wise, then dissolve it if and when the time is right, and also form a main LLC when one graduates to the bigger leagues.
 
Well, look -- it all depends on how big you think the film will get, and on whether you're likely to get sued, and on how likely you are to be sued... both for this film, and for the future. And, it also depends on your own personal financial situation. If you're living off ramen and driving a 1983 Honda Civic, you don't really have much to fear from a lawsuit. If you've got a net worth of $2 million or more, people will invent excuses just to sue you, so you should have as much protection in place as you can afford.

Are you going to have a budget in six figures or above? If not, then having multiple layers of corporate entities would indeed seem overkill.
 
Barry_Green said:
Well, look -- it all depends on how big you think the film will get, and on whether you're likely to get sued, and on how likely you are to be sued... both for this film, and for the future. And, it also depends on your own personal financial situation. If you're living off ramen and driving a 1983 Honda Civic, you don't really have much to fear from a lawsuit. If you've got a net worth of $2 million or more, people will invent excuses just to sue you, so you should have as much protection in place as you can afford. Are you going to have a budget in six figures or above? If not, then having multiple layers of corporate entities would indeed seem overkill.
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My Ramen days are long gone, :) and i do indeed have assets to lose, so I think at least one LLC for now is prudent as you suggest. It will be a micro budget though, we are talking well under $30k budget. Once I go over six figures, especially over mid six (as Taormina/Adam discusses for the blueprint method), seems prudent to then set up the multiple LLCs (in fact he even suggests a third LLC, viz an LLC for the state the film is made in).

I do wish I understood better just how much an LLC protect's oneself. The LLC limits liability, but then why purchase business/volunteer/workmans liability insurance when filming under an LLC, if the LLC shields oneself personally? I don't get that. I can see those insurance premiums protecting an LLC that has actual assets to lose, but an LLC formed to make a micro/no budget film?
 
Actually, the purpose of having a separate LLC for each film is so that if you are sued for one film, and you lose, the person suing you can't get the assets of any other film except the one they sued. It's a smart move.

If it were me, I'd set up an LLC specifically for this film you're planning. Then setup a separate LLC for each future film. That should be reasonable protection, I would think. (But like Barry, I also am not a lawyer.)
 
Joe N. Obody said:
The LLC limits liability, but then why purchase business/volunteer/workmans liability insurance when filming under an LLC, if the LLC shields oneself personally?
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You purchase the insurance so you don't have to lose whatever assets your film has. If someone gets hurt, property gets damaged, or you get in a legal scrape that is covered by the insurance, then the insurance pays out the claim. This saves you from the expense and hassle of going to court, and it keeps you from losing any profits or other assets the film may have.
 
Another benefit to creating an LLC PER production is if you become union signatory (Sag, etc.) since the contractual agreement is between them and the production entity. If you become a SAG signatory production company my understanding is every production you engage in from that point on must be SAG Signatory. If you create an entity specifically for the film and sign that entity with SAG, there is no future commitment regarding new productions.
 
Chris Adler said:
Another benefit to creating an LLC PER production is if you become union signatory (Sag, etc.) since the contractual agreement is between them and the production entity. If you become a SAG signatory production company my understanding is every production you engage in from that point on must be SAG Signatory. If you create an entity specifically for the film and sign that entity with SAG, there is no future commitment regarding new productions.
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Very good to know. :)
 
Good points made.

Here's another way to think about it, that might clear it up: To make it easier to engage in business, the Government allows us to create entities like LLCs that the law regards as *separate people* from the person who owns their equity. As a separate person, the LLC has rights, can own property, and can be named in a lawsuit.

The "limited liability" aspect means that any liability the LLC creates is *limited* to that separate entity, and is not transferrable to the owner of the LLC. So if you own a truck, and the parking brake failed, and it rolled down the hill and smashed someone's car, they would sue you and probably win. However, if the same truck were owned by your LLC, they could only sue the LLC for the assets the LLC owns. They could not sue you and take your house. That's the limitation of the liability.

This is one of the reasons that every major feature film is owned by a separate LLC. Also, it's common to keep the minimum amount of money and other assets in the LLC, so there's less at risk if there's a lawsuit.

That's the purpose of an LLC for a production. A personal LLC has additional functions. In Hollywood, they call a personal LLC a "loan-out corporation," because instead of hiring you personally, they make a deal with your loan-out LLC, and then the LLC "loans you out" to the studio paying them. You don't get paid by the studio, you get a salary from your LLC.

The main purpose of this is to reduce your tax liability. An LLC typically gets taxed at a lower rate than an individual, so it often makes more sense to keep your income in the LLC, and draw a minimal salary for living expenses. Loan-outs can also spend money on offices, cars, gear, education and other business expenses before taxes. LLCs are generally taxed on the money they retain at the end of the year. Many LLCs take advantage of this by spending as much as they can on business expenses, and end up with no cash to tax at year's end. If you took that money as income, you'd have to pay tax on it *before* you spent it on a new camera.

As a general rule of thumb, the tax benefits of a loan-out kick in once you're earning about $500k gross. You may still want it for the additional level of liability protections, though.



I am not a lawyer. This is not legal advice. Your mileage may vary. Consult your attorney.
 
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Neither of us are lawyers, so take that for what it's worth, but popcornflix again nails it pretty well. Only part I'd clarify here is that while the LLC is the entity that's going to be sued in a things-went-wrong situation, there are still ways that it could come back to haunt you personally; mainly through negligence. If you do something profoundly stupid and reckless, you can't expect to hide entirely behind the shield of an LLC. So conduct your business professionally and competently, carry the proper insurance, and in doing so, the LLC should shield your personal assets in case something goes wrong somewhere.
 
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