Should Your Independent Film Incorporate Organize as an LLC?

Regardless of a film's credited production and/or distribution company, many movies are in fact their own LLC, created specifically for the purpose of giving rise to one finished film. Even if two different productions share many of the same personell, they would each be formed as their own LLC to ensure if something goes wrong on one project, the financing of the other would not be put at risk. FilmmakerIQ has just posted an excerpt from the book Independent Filmmaking, The Law & Business Guide for Financing, Shooting & Distributing Independent & Digital Films, which might come in handy if you're wondering whether you should incorporate for a film project:

If an individual filmmaker is not seeking investment financing, there may not be any benefit to forming a corporation, an LLC, or a limited partnership. Not only is the value of limited liability negligible, but most debt will come from personal loans or unsecured personal credit cards, and the financial risk associated with these obligations will not be changed by using a formal business structure. If the filmmaker is a guerrilla artist, or if she is shooting a short project with a small cast and crew, then she may be best advised to remain a sole proprietor. (See a very helpful comment from another lawyer below as to why this is wrong)

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On the other hand, if the size of the project increases or if investors are brought in, it is very important that the filmmaker switch to a formal business entity. The worst choice is to ignore the problem and have the law treat the project as a general partnership. The decision to switch need not be made immediately. Tax laws allow the sole proprietor to exchange the business for the assets of a new entity without paying a tax penalty. But from the outset of the film project, the filmmaker should have the business management in mind, and she should work with a lawyer and accountant as early as possible so that the necessary business entity can be created when the filmmaker is ready.

In an effort to suss these issues out for myself, I recently attended an incorporation workshop, and as a result I'm working on my own longer article about incorporating -- not just for independent film, but for independent creatives of any kind. Figuring out whether to operate as a sole proprietor, LLC, or C/S-corp is nowhere near cut-and-dry, once you mix in accounting (i.e., tax) ramifications.

Link: Guide to Creating an LLC for Your Independent Film