Indie filmmakers often produce film projects “naked” – that is, without the benefit of corporate protections or insurance that covers their activities on a project. When discussing such “naked productions,” filmmakers often respond with “why should I go to the expense of incorporating – that’s money and time I could use for the production.”
That’s true – unless you have an “accident” and lose everything – including your personal assets.
First the basics: Filmmakers should always form some type of corporate entity, usually an “LLC”, to separate their film project from their personal assets and activities. Other forms of incorporation may be appropriate, but usually an LLC is perfectly adequate, and cheaper and easier than more involved “S” corporations or “C” corporations.
“LLC” stands for “limited liability corporation.” It’s simple to set up, and relatively inexpensive – with the assistance of a lawyer, usually all done for less than $1000. It can certainly be done without a lawyer, but if the LLC operating agreement or bylaws aren’t done right, the filmmakers could end up with trouble WITHIN the LLC, as opposed to trouble from OUTSIDE the LLC. And even if the corporate entity is formed correctly, those involved need to understand what “corporate formalities” are required to preserve the intended protection.
So what does the LLC do? Think of it as a liability condom.
The LLC structure allows the filmmakers to do what they need to do, while protecting them from possible harmful effects of their activities.
There are many situations that could result in the filmmakers being subject to PERSONAL liability for things that go wrong, or were done wrong – but here’s an easy example involving physical injury:
While shooting the horror/dance/musical “Zombies Got Talent”, done WITHOUT the benefit of an LLC liability condom, a lighting element falls from the rigging onto a film student volunteering as an assistant. The volunteer is seriously hurt, is rushed to the hospital, and is released many days later with mild but permanent nerve damage.
Between the hospital stay, MRIs, CT scans, PET scans, physical therapy and lost future wages and earning capacity, this could easily be a $100,000 injury. That volunteer will look to the production to be responsible for his injury and related costs.
If done properly, with an LLC encompassing the production and the “corporate formalities” having been followed, and hopefully an adequate amount of liability insurance for the production, it is likely that the liability for the injury will be “contained” within the LLC.
More specifically, the injured person probably will not be allowed to take the filmmakers’ personal assets, cash, home, car, or G.I. Joe with the Kung Fu Grip action figure collection – to satisfy the financial liability of the LLC.
The liabilities of the LLC would likely stay IN THE LLC.
And while many indie filmmakers may cavalierly say “I”m poor. No one can get anything from me,” a court judgement against you today can follow you for years. So when you have the successful hit with the fifth sequel in the zombie movie series, the maimed assistant may THEN reach into your pocket for his compensation.
The other important function of the LLC is to serve as the “legal person” that owns the intellectual property that IS the project, as well as being the entity that contracts with the above and below the line individuals that make the production happen. The LLC contracts with – hires – the director, camera operators, grips, actors, make-up people, craft services, etc. The LLC also contracts with the domestic and foreign distributors for the finished product.
Ultimately, it is ill-advised for any filmmaker to pursue a project without the protection of an LLC or other appropriate corporate entity. And while this may be accomplished without the involvement of an attorney, there are traps for the unwary, and actions only done half right may have the effect of never having been done at all.
Unprotected activity can be hazardous to your (financial) health.