Wednesday, December 23, 2009

The Biz of Running an Independent Film Production Company

I have been running my production company now for about five years. It has been quite a learning experience. Luckily I had owned a book packaging company in NYC for a while so I had some knowledge of setting up a business. Thank goodness for that because otherwise I would have really been lost. Learning how to start a business at the same time as figuring out how to produce films would have blown my mind, I think.

I don't know of any go-to resources out there that tell you how to start your own film production company. You basically have to talk to colleagues and figure out how they did it. Or you can consult with your accountant or entertainment lawyer, if you even have them on your team yet. 

When we started our company, we began as a DBA (or Doing Business As). It allowed us to secure a name for the company and open a business account under that name. We thought, why spend the yearly fee on owning an LLC in California until we felt we really needed to?  In California it comes out to about $820 per year at a minimum to have an LLC. California is one of the most expensive states in which to have an LLC. Lucky us!

One of the main reasons LLCs are formed are to provide you with liability protection. Since we were primarily doing development the first year or so and I was working on projects under other companies, we thought let's wait a bit on the costly LLC.

Once we started putting together projects for production, it was now time to start our production company's LLC. We wanted our company, not us as individuals, managing our projects. So Wonder Entertainment is typically a managing member of the companies we create for each individual film that we make. 

What's that you ask? We have companies for each film too? Yes! You need to offer your investors an investment vehicle in which to invest, i.e. an LLC, for each film. Otherwise, they would be taking stakes in your production company. 

So that $820 really adds up when you are talking about having the LLC for your own production company that mainly does development and then $820 per year for all the LLC's that are created once you are ready to make a film. 

So let's say you have made 10 films under California LLCs and you have your LLC for your production company then that's over $9k per year just to have the privilege of operating a company in California. I feel privileged every time I write the checks. 

So when you go to make a film in California, make sure you are really going to be making it before you open the LLC. 

And once you form the LLCs, you will need an attorney or a legal service like LegalZoom to draft the operating agreement and an accountant to do the taxes for each company. You may even need to hire a bookkeeper to keep your books up to date on each company. 

Then you need to worry about keeping track of all your expenses so you can write them off at tax time. This is very important as you can receive a sizable tax break if your expenses are high. You will probably have to purchase Quickbooks so you have software that can track your expenses and allow your accountant to have an easier time doing your taxes.

If you are hiring employees then that's a whole other scenario. Employees? Wouldn't that be nice? .... Sorry, I was dreaming there for a second about actually having an employee to help me do what I do. It was a lovely dream. 

There's also the question of opening an office or not. We started out with an office in Hollywood and after a year and a horrible experience with a money-grubbing landlord (that is a whole other story I should discuss sometime), we decided we didn't need the overhead and we all started working out of our home offices. Perhaps someday an office will make sense again but right now, working in my PJs with my cat in my lap suits me just fine.

Now that you have the business of your production company settled, you can focus on the fun stuff: making movies!


Camden Watts said...

This is such a helpful article, even though I'm in N.C. It's good to know that you have a parent production company and then individual sub-companies for each film. Thanks for taking the time to explain it!

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Liz Gilbert said...

Thanks for the article. Just out of curiosity, did you have partners in your parent production company? Did LegalZoom have a specific option agreement for production companies? This will be the first time we've set up an LLC with partners, with different ownership percentages. We're just a little nervous about getting the agreement set up.

janekk said...

Yes we have partners in the parent company. I'm not sure what you mean by option agreement for each company? Do you mean operating agreement? If so, yes, you need an operating agreement for each company. Hope this helps!

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