the production company and team

THE PRODUCTION

COMPANY AND TEAM

http://www.fsproducingclass.com/fpm2

What is the RESPONDENT SUPERIOR DOCTRINE?

A production company or a producer is legally responsible for the actions of its employees performed in the scope of the duties.

The Respondent Superior Doctrine means that if your employee gets into a car accident while picking up crew members, your company is responsible for paying the damages from any lawsuit that may occur.

If someone on your crew infringes on a copyright, your company is responsible.

Furthermore, if your employee enters into a contract or deal memo with a third party on your behalf, your company may be bound by that contract.

THE PRODUCTION COMPANY

What is a business entity?There are many types such as a limited liability company (LLC), limited partnership (LP), or a corporation (INC). There are many advantages to setting up a business entity.

Advantages of the Business EntityYou can separate your personal finances from the company’s finances.

You can divide the fiscal risk among several people. The members, partners or shareholders of a business share in the company’s profits or losses.

Your company is considered a legal person, and as such can enter into contracts, bring lawsuits and hold intellectual property rights such as a copyright to a film or production.

Your business can last longer than you. Ownership, shares and such can be passed on from generation to generation.

You can avoid personal lawsuits. If your company breaches a contract, copyright or other issues it will be the company that will pay the damages not you or the members. (However that is not true in all business entities.)


Types of business entity?

SOLE PROPRIETORSHIPGENERAL PROPRIETORSHIPLIMITED PARTNERSHIP (LP)C CORPORATION (INC.)S CORPORATION (INC.)LIMITED LIABILITY CORPORATION (LLC)

LOAN-OUT COMPANY


SOLE PROPRIETORSHIP

The sole proprietorship is the default form of business.

You are automatically a sole proprietorship the moment you start doing business by yourself without having formed another kind of company.


SOLE PROPRIETORSHIP


Advantages:Virtually no legal paperwork is involved in the process.

There is often a lot of freedom from government regulations.

Since there is only one member to the company, decisions are made quickly and easily.

All profits go to you.

Disadvantage:There is no limit of liability. If your business is sued you are sued. If the business defaults on its debts, you are personally responsible for those debts.

GENERAL PARTNERSHIP


A partnership is formed when two or more people work together to own and operate a business of profit.

There is usually no government filling required to create the general partnership.

It is highly recommended that a partnership agreement or deal memo is created to outline each partner’s respective rights and roles.

A general partnership carries with it certain legal implication, such as:


Fiduciary duty: Each partner has a legal duty to look out for the best interests of each of the partners.

Unlimited Personal Liability: Generally, each partner is personally responsible to the other debts and obligation is the other partners incurring during the time of the general partnership.

Partnership Property: Unless there is an agreement created ahead of time, the entire partnership (not the individual partners) will own all property acquired by partnership funds brought into the partnership or contributed to the partnership.

Partnership Proceeds: Unless there is an agreement created ahead of time, all partners will share equally in the income and losses of the general partnership, regardless on the amount of work and contribution each of the partners do.

GENERAL PARTNERSHIP

Advantages:

It is easy to set up.

Disadvantage:

General partners must answer for the debts of the other partners made during the scope business, so choosing the wrong partner can get you into personal financial trouble.


JOINT VENTURE (GENERAL PARTNERSHIP VARIATION)

A joint venture is created for particular purpose for a very limited time. Producers tend to use the type of general partnership to combine forces of two existing production companies for a particular project or production.


To create a Joint Venture: There must be an established purpose.Shared profits and losses must be outlined.There must be a contract outlining the work that will be created together.There must be an equal hand in controlling the relationship, a balanced leadership hierarchy.

LIMITED PARTNERSHIP (LP)


Only the general partners are personally liable for all the debts of the business. Only the general partners may authorize the business to create contracts, authorize loans, settle lawsuits, hire & fire and so on.

You must file with your state to create a limited partnership (LP).

The limited partners are liable to the extent of what they have invested. Limited partners have no management authority.

A member can be a general partner and limited partner at the same time.

A limited partnership is a partnership in which a few of the partners each have some liability protection. The limited partnership is broken into two groups, the general partner and the limited partners.

THE CORPORATION (INC)The corporation is an artificial legal entity which, which

is made up of a number of natural persons or other legal entities.


As a legal entity, the corporation receives legal rights and duties.

THE CORPORATION (INC)Five rights always exist for a corporation:

…the ability to sue and be sued

(this gives the corporation access to the courts)

…the right to hire agents

(this gives the corporation the right to hire employees)

…the right to make by-laws

(this gives the corporation the right to govern its internal affairs)


…the right to a common treasury (this gives the right to hold assets separate from the assets of

its members)

…the right to a common seal (this gives the corporation the right to sign contracts)

THE CORPORATION (INC)

There are two types of for-profit corporation: a C. Corporation and a Subchapter S. Corporation. There are feature that both corporation have in common:

The corporation is owned by shareholders and managed by a board of directors & managers.

Members can be both a shareholder and a director or manager.

Directors and managers can cause the business to authorize the business to create contracts, authorize loans, settle lawsuits, hire & fire and so on.




Ownership interests are conveyed by the corporation by issuing shares.

The corporation is created by filing documents with the state government.

“By-laws” will be created to dictate how the corporation will govern it.

(The Hover Board)

All shareholders enjoy limited liability status.


There are two major differences between the S. Corporation and C. Corporation:


The C. Corp can have an unlimited number of shareholders and the S Corp is limited to 75.

The C. Corp is subject to a double taxation. The corporation is The corporation is taxed, and then the individual shareholders are taxed. taxed, and then the individual shareholders are taxed.

LIMITED LIABILITY COMPANY (LLC)

The limited liability company has become most small film production companies’ business entity of choice. In that respect, it is similar to a corporation, and is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners.

Unlike a regular corporation, however, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC.

A limited liability company with multiple members is typically treated as a partnership for tax purposes, thereby avoiding double taxation.



Advantages:

The LLC is owned by its members.

No requirement of an annual general meeting for shareholders.

No loss of power to a board of directors.

Typically there is much less administrative paperwork and record keeping.

The members enjoy the limited liability status.

Only a state filing is required to form a LLC.

In addition to cash contributions, members may also agree to contribute talent and services to the LLC, such as writing, directing, editing, etc.



Disadvantage:Many states, including - Alabama, California, Kentucky, New

Jersey, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax (or capital values tax) on LLCs.

A franchise tax is a tax charged by some US states to corporations formed in those states based on the number of shares they issue or, in some cases, the amount of their assets.

It may be more difficult to raise capital for an LLC, as investors may be more comfortable investing funds in the better-understood corporate form.


LOAN-OUT COMPANY

When properly organized and maintained (that is, by your attorney and accountant), loan-out corporations are generally effective at providing limited liability protection to protect your personal assets, and will also provide the possible tax advantages alluded to above (which may benefit you at a level well below $200K/yr) depending on your circumstances.


LOAN-OUT COMPANY

All contracts with loan-out companies should include an inducement clause.


An An inducement clause inducement clause is is a promise by the artist that a promise by the artist that he or she will perform the he or she will perform the services required by the services required by the production company production company as if as if he or she were hired he or she were hired directly by the company directly by the company rather than through the rather than through the loan-out company.loan-out company.

LOAN-OUT COMPANY

Advantages:The first is financial. Because the studio is paying you as a corporation, rather than

as an individual, it’s easier to deduct business expenses, such as office space, assistants and computers. Your corporation can set up a pension plan for its sole employee: you.

The second advantage is liability. But the corporation can help shield your personal assets (your house, your car, your toothbrush) from lawsuits.

Disadvantage:

The only real drawbacks of incorporating is the expense and the additional paperwork — quarterly statements.


Online Help

http://www.legalzoom.com

https://www.turbocourt.com

http://www.expertlaw.com


THE ATTORNEY

THE ATTORNEY

One of the first things you should do is to establish a relationship with a good entertainment attorney.

Because our industry is a highly specialized one, you should get a lawyer with an entertainment and intellectual property background.

THE PRODUCTION TEAM

THE ATTORNEYYour attorney will:

Create and form your business with the state.

Prepare the internal company documents such operating agreements, the bylaws, and partnership agreements

Offer advice with regarding your employees, other production companies and distributors

Help you with working with investors and the investors’ solicitation process

Prepare a screenplay clearance report, alerting you to potential legal issues contained in the script

THE PRODUCTION TEAM

THE ATTORNEYYour attorney will:

Negotiate or help in the negotiation of key cast and crew agreement

Draft the cast, crew and other contracts for the producer.

Advise on union, labor and employment issues.

Can work with the financiers, agents, and lending intuitions in setting up and managing the escrow accounts.

THE PRODUCTION TEAM

THE ATTORNEY

If you simply can’t afford an attorney, contact your local

Volunteer Lawyers for the Arts Organization www.vlany.org

THE PRODUCTION TEAM

THE ACCOUNTANT

THE ACCOUNTANT

Managing money, handling taxes and even supervising payroll is a full-time job. If you are dealing with a budget of thousands of dollars of more, you should hire an accountant.

There are two basic and broad types of accountants for your production company: the first type of accountant would handle general business accounting & tax preparation and the second type would be a production accountant to handle the particular film’s accounting.

THE PRODUCTION TEAM

THE ACCOUNTANTYou should hire an accountant as early as possible when you

create your production company.

Ideally the accountant and attorney will work in together in the creation of your production company.

See if your attorney can recommend an accountant and vise versa.

THE PRODUCTION TEAM

THE ACCOUTANTYou accountant will:Get federal tax ID number (also called an

Employer Identification number or EIN)

Set up a payroll with income tax withholding for employees

Work with your attorney when setting up fiscal accounts

Create and keeps track of accounts ledgers recording of the investors

Prepare income and expense reports

THE PRODUCTION TEAM

THE ACCOUTANTYou accountant will:Keep a tight rein on costs, and alerting the production

company at the earliest possible moment to potential overages

Ensures the payrolls checks are passed onto the correct members

THE PRODUCTION TEAM

After the film’s completion they will provide investors with budget reports, tax documents and other fiscal information

After the film’s completion, the accountant will track royalties, licensing fees, film rentals and other resources derived from the licensing of the film

property.

FREELANCING & TAXES

Things to Expect When Filing Your Taxes as Freelancer

You’ll Most Likely Owe MoneyAs a freelancer, the tax code is more cumbersome than as a waged or

salaried employee. Double it if you are working freelance and working part-time.

For freelancers, most of the time you work for a production as a sub-contractor. You’ve probably filled out a W-9 form that gave the production your tax information with the understanding they weren’t going to withhold any taxes.

Just be prepared that because you aren’t having money taken out of each paycheck you received, you’re most likely not going to receive a tax return, but in fact YOU owe money to the government.

THE FREELANCER


You’re going to have to pay self-employment tax

As a sub-contractor and freelancer, you’re technically self-employed. Even if you worked for 3-months on the same production, you’re still self-employed. The production, as its own company, has sub-contracted out you, to do certain work for them.

That’s why you’re going to have to pay what is called a self-employment tax.

Since, as a self-employed freelancer, you are both the employee and the employer (you employ yourself), you have to pay the full share of that 15.3%.

THE FREELANCER


You may be charged an underpayment penalty

Income tax is a continual tax which means that it has to be paid throughout the year.

THE FREELANCER

The federal government expects you to pay a certain amount of estimated taxes by the end of designated payment periods split into quarters.


You qualify for more deductions than the average person

But here’s the advantage for you as a freelancer: you qualify for way more deductions than the average person. Like, a lot more. ….Why?

Because the government has decided you’re your own business, so you get to deduct items like a business. This could include your cell phone, your website, your toolkit, and possibly even your Netflix account — all because they are necessary costs for your “business,” aka you!

THE FREELANCER


You’re more likely to be audited

Back to the bad news: you’re more likely to have the IRS place a skeptical eye on your tax return. The simple fact of the matter is that the more going on with your return, the greater the chance something gets inputted wrong or calculated erroneously.

Or the IRS may determine that your number of deductions is so absurdly high that they need to make sure they are legitimate.

There’s nothing you can do to avoid being audited and I don’t advise dumbing down your return to avoid it — just be truthful. And, realistically, the chances of you being audited are still very small.

THE FREELANCER


The IRS gets told about every job over $500.00

Filing your taxes is an exercise in honesty, in some ways. You are expected to tell the IRS how much you made and then pay them a certain amount of money based on that. That’s why audits exist — because some people try to “squeeze” the numbers or straight up lie about them.

But the IRS also gets informed about how much you make by the person paying you if they paid you more than $500.00 in a year (and if they are operating in compliance with the law).

That’s why you have to fill out forms on every freelance gig you get hired for. They need your information to tell the IRS at the end of the year how much they paid out to people like you and who those people are.

THE FREELANCER


You’re going to need a paper trailTo accurately report how much you’ve made and also how much to deduct,

you’re going to need a paper trail. This includes receipts, bank statements, credit card reports, invoices, and anything else with official finance information on it.

The paper trail doesn’t have to be literal, of course — it can include PDFs and online statements — but some type of proof for what you’ve made and spent is needed. …Why?

To help you accurately report deductions. Plus, the IRS can open an audit on you up to 3 years after you’ve filed. Paperwork, in the case of an audit, helps prove you were truthful.

THE FREELANCER


It’s up to you to be truthful

THE FREELANCER

Filing taxes as a freelancer isn’t like a normal job where all your earnings are neatly reported on one form. It’s up to you to collate and gather the mix of money you’ve earned throughout the year and tell the IRS about it.

Don’t let the taxes pile up on you and accrue interest. The IRS can quickly make back taxes prohibitive to pay.

Pay the tax man. Because he’s coming anyway.

THE INSURANCE BROKER


Productions require several different types of insurance.

Establish a good working relationship early with an insurance broker experience in the film industry, is a must.

THE PRODUCTION TEAM


A production will not get funding without insurance!

Actor Issues

Past Producer Problems

THE PRODUCTION TEAM

THE INSURANCE BROKERInsurance areas:

General Liability: This policy pays third parties for damage caused by the production company.

Worker’s Compensation: This is a legal requirement if you are employing people. It covers work related injuries to employees. Along with general liability is the one of the first type of insurance package you will acquire.

Errors and Omission Insurance (E & O): This is a policy that pays claims arising from intellectual property disputes.

THE PRODUCTION TEAM

THE INSURANCE BROKERProduction Insurance PackageInsurance brokers who service the film and television industry commonly offer production

insurance packages that include….

Negative film and tape. This helps insure the film negative and tape against damage. When your footage is damaged payment on this claim will fund your reshoots.

Talent Insurance & Essential Element Cast. This will compensate the production company for losses incurred as a result of an actor’s injuries or illness.

Equipment Insurance. This will compensate the production company for losses incurred as a result of damage to equipment and replace it as quickly as possible.

Car Insurance. This will compensate the production company for losses incurred as a result of damage to production vehicle and replace it as quickly as possible.

Location Insurance. This will compensate the production company for losses incurred as a result of damage to a location and repair it as quickly as possible.

Art Department. This will compensate the production company for losses incurred as a result of damage to a prop, wardrobe, etc and repair it as quickly as possible.

THE PRODUCTION TEAM

A WORD OF ADVICE:

Don't even think of trying to hide something from them!

They're too smart for that and they've seen every trick in the book.

THE PRODUCTION TEAM

http://www.fsproducingclass.com/fpm2

the production company and team

Documents

production company advantages

kind of company

limited liability company

business share

business entities

business defaults

business of profit

types of business entity