Is a California LLC the right way to go for a film production company?
May 10, 2013 1:47 PM Subscribe
I'm going to be producing a low-budget feature film, and hopefully more in the future. I'm considering setting up a company via LegalZoom or similar and just want to know if there are any "gotcha"s before I start.
It will obviously be a small company, with the only principal being me, and no employees except freelancers hired to work on the films(s). My main goal is just to protect myself from personal liability in the event of a lawsuit, though I also think maybe it might help us in being able to hire interns for course credit. And I'm sure there are other reasons which I'm not thinking of.
I was considering going through a lawyer, but the referral I got flaked, so I figured this might be something I could do myself. I just want to make sure:
a) LLC is the logical choice for this sort of company
and
b) there are not any issues I'm missing. I am aware of, and prepared to pay, the $800 minimum tax per year charged by the state.
and
c) Legalzoom is a good resource to do this myself.
Thanks!
It will obviously be a small company, with the only principal being me, and no employees except freelancers hired to work on the films(s). My main goal is just to protect myself from personal liability in the event of a lawsuit, though I also think maybe it might help us in being able to hire interns for course credit. And I'm sure there are other reasons which I'm not thinking of.
I was considering going through a lawyer, but the referral I got flaked, so I figured this might be something I could do myself. I just want to make sure:
a) LLC is the logical choice for this sort of company
and
b) there are not any issues I'm missing. I am aware of, and prepared to pay, the $800 minimum tax per year charged by the state.
and
c) Legalzoom is a good resource to do this myself.
Thanks!
IAAL, IANYL, TINLA.
You really need to go talk to a lawyer and a CPA about this. To truly determine whether you are "missing" any issues, a conversation with a professional of 30 minutes to an hour should bring up most of those issues. The conversation will depend heavily on who you are, and what your current understanding of the issues regarding the starting and running a movie production company is.
My experience with Legalzoom (and companies like that) is they provide the bare-bones minimum, which may or may not be what you want to make yours. Generally speaking, if you don't clarify the topic in the bylaws or operating agreement, the State makes those decisions for you. That might be fine, that might be the exact opposite of what you are looking for.
Also, use this time to find a lawyer to consult on a regular basis as your business grows. It is very useful to have an attorney that you can call and have them know who you are and what you are doing, rather than going through the interviewing process while there is a time-sensitive matter that needs attention.
posted by China Grover at 2:00 PM on May 10, 2013
You really need to go talk to a lawyer and a CPA about this. To truly determine whether you are "missing" any issues, a conversation with a professional of 30 minutes to an hour should bring up most of those issues. The conversation will depend heavily on who you are, and what your current understanding of the issues regarding the starting and running a movie production company is.
My experience with Legalzoom (and companies like that) is they provide the bare-bones minimum, which may or may not be what you want to make yours. Generally speaking, if you don't clarify the topic in the bylaws or operating agreement, the State makes those decisions for you. That might be fine, that might be the exact opposite of what you are looking for.
Also, use this time to find a lawyer to consult on a regular basis as your business grows. It is very useful to have an attorney that you can call and have them know who you are and what you are doing, rather than going through the interviewing process while there is a time-sensitive matter that needs attention.
posted by China Grover at 2:00 PM on May 10, 2013
Response by poster: I know tons of people, including my own mother, who form simple companies like this without talking to a lawyer.
Absent a *compelling* argument for doing so, I do not plan to consult a lawyer for this. I'm asking about the general practices of people who form film production companies in CA, not "you need a lawyer" boilerplate. Thanks.
That said, the making (and hopefully distribution) of the film itself will probably involve consulting one or more entertainment attorneys at some juncture. So if someone did have a recommendation of a *cheap* L.A.-based entertainment lawyer who works with these situations, I would be willing to listen. In a previous question I was recommended California Lawyers for the Arts, but their first referral to me failed to return my call in a reasonable time.
posted by drjimmy11 at 2:08 PM on May 10, 2013
Absent a *compelling* argument for doing so, I do not plan to consult a lawyer for this. I'm asking about the general practices of people who form film production companies in CA, not "you need a lawyer" boilerplate. Thanks.
That said, the making (and hopefully distribution) of the film itself will probably involve consulting one or more entertainment attorneys at some juncture. So if someone did have a recommendation of a *cheap* L.A.-based entertainment lawyer who works with these situations, I would be willing to listen. In a previous question I was recommended California Lawyers for the Arts, but their first referral to me failed to return my call in a reasonable time.
posted by drjimmy11 at 2:08 PM on May 10, 2013
I know tons of people, including my own mother, who form simple companies like this without talking to a lawyer.
And if nothing goes wrong, nothing will go wrong. But if something does go wrong, these sort of self-serve business entities tend to fail spectacularly.
Absent a *compelling* argument for doing so, I do not plan to consult a lawyer for this.
The compelling argument is that where small business entities are concerned, one size does not fit all. It's trivially easy to create a business entity, but getting it to do what you want it to do--hell, even figuring out what you want it to do--is far from trivial.
I'm asking about the general practices of people who form film production companies in CA, not "you need a lawyer" boilerplate. Thanks.
That isn't boilerplate. It's all that can really be said given the facts that you've presented. What kind of tax status do you want? How do you want the bylaws to work? Who is going to be your registered agent? How do you want ownership shares to work? Is your LLC going to have a manager as part of the bylaws? If so, how is he appointed and removed?
You don't generally pay lawyers because their services will save your ass 100% of the time. 90% of the time you'll be fine just winging it. But that last 10%--probably higher given the complicated mess that film production is--things will go wrong, sometimes wildly, dramatically, unbelievably wrong. Spending $500 on legal services to get yourself set up properly can literally save you millions down the road.
I'm not exaggerating. I recently litigated a case in federal court where a small business owner tried to save himself a few bucks on his commercial auto policy by having the shuttle busses for his event venue insured with a holding business entity, not the event venue entity. Turns out that he never transferred the title of his vehicles to the holding entity and completely botched the lease agreement between the two entities, and my client--the commercial auto company for the venue--denied his claim, potentially exposing him to several million in uncovered liability. If he'd spent even an hour with a lawyer rather than, I shit you not, pulling down a DIY lease from British Columbia*, this entire mess could have been avoided. Instead, he save about $200 a year in commercial auto premium and well into five figures fighting the federal lawsuit.
You do the math.
Rule of thumb: any time you're involved in a commercial venture with more than about $10k at issue, you should probably figure on spending some small percentage of the total in legal fees to make sure the shit stays where it is instead of hitting the fan. It's just one of the costs of doing business.
And TL;DR version: LegalZoom is almost never a good solution for doing anything yourself, as there is no ability to take your particular circumstances into account, and the service is actually illegal in some states as constituting the unlicensed practice of law.
*The business was in Indiana.
posted by valkyryn at 2:31 PM on May 10, 2013 [5 favorites]
And if nothing goes wrong, nothing will go wrong. But if something does go wrong, these sort of self-serve business entities tend to fail spectacularly.
Absent a *compelling* argument for doing so, I do not plan to consult a lawyer for this.
The compelling argument is that where small business entities are concerned, one size does not fit all. It's trivially easy to create a business entity, but getting it to do what you want it to do--hell, even figuring out what you want it to do--is far from trivial.
I'm asking about the general practices of people who form film production companies in CA, not "you need a lawyer" boilerplate. Thanks.
That isn't boilerplate. It's all that can really be said given the facts that you've presented. What kind of tax status do you want? How do you want the bylaws to work? Who is going to be your registered agent? How do you want ownership shares to work? Is your LLC going to have a manager as part of the bylaws? If so, how is he appointed and removed?
You don't generally pay lawyers because their services will save your ass 100% of the time. 90% of the time you'll be fine just winging it. But that last 10%--probably higher given the complicated mess that film production is--things will go wrong, sometimes wildly, dramatically, unbelievably wrong. Spending $500 on legal services to get yourself set up properly can literally save you millions down the road.
I'm not exaggerating. I recently litigated a case in federal court where a small business owner tried to save himself a few bucks on his commercial auto policy by having the shuttle busses for his event venue insured with a holding business entity, not the event venue entity. Turns out that he never transferred the title of his vehicles to the holding entity and completely botched the lease agreement between the two entities, and my client--the commercial auto company for the venue--denied his claim, potentially exposing him to several million in uncovered liability. If he'd spent even an hour with a lawyer rather than, I shit you not, pulling down a DIY lease from British Columbia*, this entire mess could have been avoided. Instead, he save about $200 a year in commercial auto premium and well into five figures fighting the federal lawsuit.
You do the math.
Rule of thumb: any time you're involved in a commercial venture with more than about $10k at issue, you should probably figure on spending some small percentage of the total in legal fees to make sure the shit stays where it is instead of hitting the fan. It's just one of the costs of doing business.
And TL;DR version: LegalZoom is almost never a good solution for doing anything yourself, as there is no ability to take your particular circumstances into account, and the service is actually illegal in some states as constituting the unlicensed practice of law.
*The business was in Indiana.
posted by valkyryn at 2:31 PM on May 10, 2013 [5 favorites]
I agree wholeheartedly with valkyryn. There are a lot of ways an LLC can go wrong and fail to protect your assets. You may properly form the entity (the service LegalZoom will arguably provide you) but your ongoing business practices, bylaws, etc., can result in the LLC being pierced and your personal assets being at risk, as valkyryn's story so clearly illustrates. An experienced entertainment lawyer can advise you on how to conduct your business, as well what the standard business practices in the industry.
It's ridiculously easy to successfully form an LLC. It's also ridiculously easy to go wrong in the conduct of your business in ways that open you up to liability or that make you look unprofessional to people in the industry. And it's ridiculously easy to lose a lot of money if you think you're protected by an LLC and someone sues you and successfully pierces the veil.
So in response to your part B, yes, there are issues you're missing. Most of us here who might have some expertise in the area can't/won't get into exactly what issues you might be missing because a) we don't know all the facts of your situation, b) we're not your lawyers and can't give you legal advice without violating legal ethics, and c) we may not be licensed in California. This is not reflexive "you need a lawyer" advice; this is subject matter I wouldn't advise my best friend on without clarifying our lawyer/client relationship, and it is something I would advise my best friend to talk to a lawyer about whether they hired me or not.
posted by katemonster at 3:20 PM on May 10, 2013
It's ridiculously easy to successfully form an LLC. It's also ridiculously easy to go wrong in the conduct of your business in ways that open you up to liability or that make you look unprofessional to people in the industry. And it's ridiculously easy to lose a lot of money if you think you're protected by an LLC and someone sues you and successfully pierces the veil.
So in response to your part B, yes, there are issues you're missing. Most of us here who might have some expertise in the area can't/won't get into exactly what issues you might be missing because a) we don't know all the facts of your situation, b) we're not your lawyers and can't give you legal advice without violating legal ethics, and c) we may not be licensed in California. This is not reflexive "you need a lawyer" advice; this is subject matter I wouldn't advise my best friend on without clarifying our lawyer/client relationship, and it is something I would advise my best friend to talk to a lawyer about whether they hired me or not.
posted by katemonster at 3:20 PM on May 10, 2013
I think an LLC is the way to go, and you might want to ask this on LA Producers' Yahoo group or Doculink.
posted by Ideefixe at 3:44 PM on May 10, 2013
posted by Ideefixe at 3:44 PM on May 10, 2013
Response by poster: we're not your lawyers and can't give you legal advice without violating legal ethics
I am not asking for "legal advice." I am asking for either a) how to do this without a lawyer or b) a referral to a lawyer.
posted by drjimmy11 at 4:20 PM on May 10, 2013
I am not asking for "legal advice." I am asking for either a) how to do this without a lawyer or b) a referral to a lawyer.
posted by drjimmy11 at 4:20 PM on May 10, 2013
I am not asking for "legal advice."
I am asking for either a) how to do this without a lawyer ..
OP,
That's legal advice you're looking for.
Get a lawyer. The consensus is in. For good reason.
posted by Kruger5 at 4:37 PM on May 10, 2013 [3 favorites]
I am asking for either a) how to do this without a lawyer ..
OP,
That's legal advice you're looking for.
Get a lawyer. The consensus is in. For good reason.
posted by Kruger5 at 4:37 PM on May 10, 2013 [3 favorites]
I did it all myself, and even drove to Sacramento to file in person and pay the expedited service fee (which you can only do in person). The form is not hard to fill in, and applying for a tax ID online is really easy and it takes minutes for them to assign you one.
posted by w0mbat at 6:33 PM on May 10, 2013
posted by w0mbat at 6:33 PM on May 10, 2013
If it's a real, serious business, get a real, serious lawyer involved. I don't know anyone who has regretted the small fee (in the long term) of getting a real face-to-face lawyer to help form their business entity. But I could tell you some hair-curling tales of shit gone wrong with pushbutton business web sites. One of those stories involves me in court, another involves a friend having to file bankruptcy because they didn't know how to run the company properly to limit their liability.
Unfortunately I don't have any referrals for you in the LA area, but it's worth putting more effort into.
posted by Ookseer at 9:03 PM on May 10, 2013
Unfortunately I don't have any referrals for you in the LA area, but it's worth putting more effort into.
posted by Ookseer at 9:03 PM on May 10, 2013
As far as referrals to lawyers, check out Martindale. You can do a pretty sophisticated search by location, practice area, and firm size, which should narrow down your choices to a handful or so. Peruse their websites and you should be able to get a pretty good handle on what they actually do. After a few phone calls, you should be up and running.
posted by valkyryn at 6:17 AM on May 11, 2013
posted by valkyryn at 6:17 AM on May 11, 2013
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posted by drjimmy11 at 1:59 PM on May 10, 2013