15 December 2000 - 30 January 2001
Catch-22
Brian Peterman
3:27 pm thursday december 15, 2000
Dear Mr. Cones,
I am an upcoming Producer for a company based in L.A., and I had a question concerning financing a film and finding interested investors. But first, here are a few back notes. I have been working on our first feature-length film for some time now, and I have gotten absolutely no where in finding investors or financing. I took it to my Publicist to show around town and he took it to a major studio. However, we have had no feedback whatsoever! I took the liberty of going on-line to post my project for potential investors to look at, but again, no luck. I then started "cold-calling" investors (via the internet) and distributors, both mini-major and major, to find some help. Well, you know. I have tried effortlessly to come up with some starting funds, or development money, or "seed money," for the project. I need to hire my Casting Director soon so that I can get things moving. I have people that have been waiting in the wings for two years now wanting to do this project. Mr. Cones, am I destined to not make any films or am I doing something wrong? Should I be doing the things I have been doing and keep being consistant or should I try something else? Also, is it legal to hold a fundraiser to raise funds for the project? If so, how can I go about doing so? Are there ways to contact investors without stepping on the SEC's Guidelines? If so, where can these investors be found? Believe me when I say the internet has helped out a lot, but I don't know where to find investors on-line. I would really appreciate any knowledge on the subject that you can share with me. Thank you for your time and efforts!
Cordially,
Brian Peterman
Producer, Truth Entertainment
re: Catch-22
John Cones
10:29 am friday december 15, 2000
Brian:
The bad news is that you have asked too many questions to answer in this small space. The good news is that most of your questions have already been asked and answered at some time in the recent past and those discussions are archived at this site. I would suggest that you spend some time reviewing the prior questions and answers, that you read "43 Ways to Finance Your Feature Film" and then call me at 310/477-6842 and I'll sit down with you and go over your options, looking at the advantages and disadvantages of each. I have routinely been offering an initial free consultation to independent feature film producers who are seeking financing for their feature films for the past 13 years. You are welcome to take advantage of that. If I can't point you in the right direction, I can certainly help you narrow your focus.
John Cones
speedball the movie financing
Drago
4:10 pm saturday december 16, 2000
I am writing to you regarding our feature-length film "Speedball", currently in development.
We are currently looking for investors who would be interested in a high-energy character-oriented Paintball sport movie.
"Speedball", being the First feature film on Paintball and promoting a high-tech/high-energy image far from the war games, has tremendous potential for distribution.
The sport recently knocked down Snowboarding from the 4th place of Extreme Sports, is played by 6.4 million players in the US alone and is a $600 million industry! Needless to say that the whole industry in the USA, South America and in Europe are supporting us. This feature film will enhance the Paintball Sport image and recognition to the audience worldwide.
We are proud to announce that "Speedball" has reached #1 on the Top Ten most watched trailers from over 1000 entries on Reelplay.com, arousing the interst of many players in the film industry.
We have interest from President Films in France for International Distribution, and are talking to several production companies in the US and Europe.
With characters being in their early-twenties, this project also capitalizes on the immense popularity of the current crop of young Hollywood actors who are hot with today’s audience. Well-known actors Cary Hiroyuki Tagawa (upcoming Wesley Snipes' The Art of War, The Last Emperor, Mortal Kombat),Taimak Guari (The Last Dragon) and Taran Smith (Home Improvement) are attached to the project.
Our Music Supervisor being a known Los Angeles DJ, the soundtrack will be very hip and commercial. For instance, we are in contact with the Red Hot Chili Peppers and Sneaker Pimps.
The Speedball Production team is currently constituted of young talented and dynamic members such as Writer/Director: Drago Lazetich (Theater Arts and Music Videos background);
Director of Photography: Stephane Cojot-Golberg (Face Off, The Slums of Beverly Hills);
Associate Producer/Production Manager: Mykel Denis (Close Call, Time Out); Senior Editor: Etienne-Pascal des Lauriers (Fargo, Mortal Kombat, Soldier, NYPD Blue);
Music Supervisor: Los Angeles DJ Pascal B.(Z Prods, 13th Tribe), Music Composer: Chad Skopp, Corporate and Entertainment Attorney: Todd Cleary, Esq., and Producer and Business Affairs: Laurence Benhamou.
For more information about "Speedball", please check our website at:
www.speedballthemovie.com
Don't hesitate to contact us by phone or e-mail.
Thank you for your time.
Sincerely,
Laurence Benhamou
Producer/Business Affairs
Speedball, LLC
3005 Main Street
Suite 410
Santa Monica, CA 90405
Phone(310) 452-6377
Fax(310) 559-0345
www.speedballthemovie.com
re: speedball the movie financing
John Cones
9:24 pm sunday december 17, 2000
Laurence:
That's great that you have made a lot of great preparations for getting your movie made (at least on the creative side), but you need to do your homework re film finance, and if you intend to raise funds from investors, you need to determine whether you are seeking financing from a few active investors or a larger group of passive investors. If the latter, and you have not registered your securities offering with the SEC at the federal level and in each state in which you hope to raise funds, then posting information on the Internet and soliciting interest from investors is a violation of the securities laws. Securities regulators at either the state or federal level could very easily see you site and/or postings and send you a cease and desist letter, precluding you from relying on a private placement exemption from the securities registration requirement. So go talk to a securities attorney right away, before you do irreparable harm to your fund raising effort.
John Cones
offering or investor vehicle -- which
David
12:29 pm wednesday december 20, 2000
HI John,
In your reply to Sarah on Wed. Oct. 11th, 8:23 a.m., you said at the end: "...it is not necessary to create the investment vehicle before conducting the investor offering." How does that work?
I have just started working with a securities lawyer who I have turned on to your site and this discussion. He and I both love it and thoroughly appreciate your wisdom and insight. We have just started, I have two film projects (one that's more ready) and are trying to figure out: inc. vs. dba; LLC, LP, etc.; go for funding for one or both films or, for both films with a plan that includes future projects to be developed (I have several of those, plus friend's films that are fairly well packaged as a possibility). As a former professional fundraiser who is inclined to ask everyone and their mother for money, I know I can't. Thank you.
David re: offering or investor vehicle -- which
John Cones
1:40 pm wednesday december 20, 2000
David:
When we wait until the minimum funding is achieved before creating the LLC or LP, we are offering pre-formation LLC or LP units, for a entity to be formed upon funding. Such units are still securities, thus all the securities rules still apply. If you attorney would like to talk to me about getting the language for such an offering or about helping him/her with such an offering, have him/her call me at 310/477-6842. You could, for example, conduct an LLC or LP offering for both films and structure it as a mini-maxi offering (the minimum would allow you to do one film, the maximum would allow you to do both films). I think that LLC's and LP's tend to be more suitable for so- called "project" financing, which is what is involved when you are raising money for one or more films. The corporation is more suitable for long-term, general financing in situations where you expect the investors to stay with you for a long time and participate in the revenues of all corporate activities. Project financing for individual films tends to isolate the revenue stream or streams for such films to a specified group of investors. A production company can serve as the manager or general partner of a series of such LLC or LP offerings for single films or multiple film projects. Again, have your attorney call me and I'll be happy to talk to him or her.
John Cones
re: offering or investor vehicle -- which
David
7:48 am thursday december 21, 2000
Hi John,
I want to thank you for your quick response. I definitely want to take you up on the offer to call and read in one of the archives that you might even offer an initial short phone consultation for independents for free (or used to?).
However, I will probably wait until after the holidays. I just bought your book, "43 Ways To Finance Your Feature Film" at the bookstore yesterday. I started reading it and it's great! Also, I'm through reading the current discussions and about 25% of the archives. I would STRONGLY SUGGEST that all readers of this forum do that--there is such a wealth of knowledge you've shared for free, that by the time one has seriously looked at just the present and past questions and answers, that it will be like taking a course on film financing. Also, as I read all of this and work with my attorney, we will have much more specific questions and be able to be respectful of your time. Thanks again for this fountain of the right knowledge.
David
Attaching elements to your project.
Toy Spears
12:04 pm saturday december 30, 2000
Can you attach stars, directors, etc. to a project you are attempting to raise money for? It seems like a catch 22. If you are trying to raise the money then you can't pay people to give you an okay on the project. Any advice?
Toy
re: Attaching elements to your project.
John Cones
5:02 pm saturday december 30, 2000
Toy:
Yes, that is the classic catch-22 for independent producers, but it's not impossible. One of the ways my clients have been able to handle the situation is to separate the early-stage financing from the production stage financing. First, they raise money from a group of passive investors to pay for costs associated with acquisition and/or development of the script and to pay for the costs associated with attaching talent, knowing that it does not always take a full pay-or-play deal to get commitments from recognizable names. Your job is to determine how much money you will need to hire a casting agent/director and to make the deals you will need to make with the talent you are seeking. Then, once you have your package in place (with enough lead time to allow for arranging production-stage financing) you go about seeking financing for the productin-stage (whether that be with a major studio/distributor, some form of lender financing or another investor offering).
John Cones
advertising for investors
Sarah
11:23 am wednesday january 3, 2001
Dear John,
Happy New year. Is it legal to place an ad in a newspaper or a trade paper stating that you are looking for investors?(IE the Wall Street Journal or Investors Daily? Are there any legal ramifications in doing this? I know you have talked about that there is a limited nunber of investors you can solicit directly in private placements. Is there any limitations in placing a Business or Investment opportunity add?
re: advertising for investors
John Cones
2:51 pm wednesday january 3, 2001
Sarah:
If you are trying to raise money from a group of passive investors, then you are selling a security, no matter what it's called. The federal and state securities laws require that in order to advertise or conduct a so-called general solicitation, the securities offering must be registered in advance with the SEC at the federal level and with the state securities regulatory authorities in each state in which you anticipate offers or sales. Such a registered offering is considered a public offering. The private placements are exempt offerings (i.e., exempt from the registration requirement because the issuer has complied with all of the conditions and limitations imposed on the use of the exemption). So, the answer to your question is that advertising in conjunction with a unregistered offering is not permitted.
John
product placements
Toy Spears
1:30 am friday january 5, 2001
Would I need to register witht he securities commission to seek financing through product placement? Would it be better to go through a company to solicit product placements or try to contact corporations myself? What could I expect a Corporation to give if they agreed to a product placement?
Thanks, Toy
re: product placements
John Cones
9:19 am friday january 5, 2001
Toy:
Selling product placements is more akin to selling advertising (i.e., a service in promotion of a product). The activity would not be considered selling a security, thus the securities regulators would not be involved. On the other hand, it is unlikely that you would be able to raise enough money from product placements to produce a feature film. In addition, there are several product placement companies here in Los Angeles, and their fees are fairly well established in terms of whether the product appears in the film in a favorable or negative light, for how long and which characters handle it, etc. In addition, the corporations are going to consider whether the film is likely to be distributed. With major studio releases, they know that the film is likely to get a decent release, but with independent films it's much more of a risk, therefore even more difficult to sell product placements. I would suggest that you first talk to some of the product placement companies, then try to talk directly to representatives of one or more corporate sponsors. I think you will find the above observations to be accurate, but let me know if you find otherwise.
John
Holding Company
Mike
8:21 am tuesday january 9, 2001
John,
An investor provides the bank with a SBLC to collateralize the production of three films ($20M). Each film is its own stand alone LLC (the investor is a 50% partner in each film). All three films are bonded. None of the films has any distribution attached, so delivery of a finished product is guaranteed by the bonding company to a holding company which will disburse funds to each individual production.The bank funds the holdng company directly. What fiduciary system would you set up guarantee the holding company delivers funds to each production company in a timely fashion, as per the draw schedule? The system has have to be acceptable to the bonding company. The goal, to insure that production funds do not "disapear". On the investor side, bonding and bank oversight protect against improper disbursements. All three films will be completed with 24 months.
Mike
re: Holding Company
John Cones
9:09 am tuesday january 9, 2001
Mike:
Your question is outside my area of expertise. You'll have to find someone else to advise you regarding such a transaction. Good luck.
John
Cost Comparisons
Kevin
1:55 am wednesday january 10, 2001
I am planning an independent film and need to do a cost analysis of the production (compared to shooting it in Hollywood, comparing investment in film to investment in other companies like dot-coms, etc.).
Does anyone know where I might look for numbers we can crunch and present to investors?
K
Limit to Investors Approached in Ohio
Kevin
2:58 am wednesday january 10, 2001
John,
Thanks for your service. I am curious as to what the limits are as to the number of investors that can be approached in the state of Ohio for a feature film project.
Thanks,
Kevin
re: Cost Comparisons
John Cones
8:42 am wednesday january 10, 2001
Kevin:
The film industry is notorious for not generating reliable numbers for people such as you who are attempting to prepare a business-like analysis and cost comparison. My experience is that you can provide one section we usually refer to as "Box Office Comparables" listing the domestic or worldwide theatrical box office for various films of a similar budget or genre and those numbers can be obtained online from various sites (some for a fee and some not). Then based on those numbers you can make certain reasonable judgments regarding the projected performance of your film. On the other hand, those projections should be based on a lenghthy series of written assumptions and I would avoid projecting only one level of performance. In other words, my clients typically project three levels of possible performance for their films (poor, good and excellent). Then they show what deductions are likely to be made at various stages in the revenue stream including the revenue-sharing formula as between the investor group and the production entity's management, taking the calculations all the way to a holder of a single investment unit. Other useful information for these purposes may be obtained by reviewing the so-called "trades" (i.e., The Hollywood Reporter and Variety). The Paul Kagan industry newsletters also provide useful information, although most of their coverage relates to the publicly held major studio/distributors and is usually available only on a subscription basis. The Acacemy Library may also be helpful. The bottom line is that there is almost nothing you can do to change the fact that investing in a single independent film is a risky investment, and ultimately your investors will have to accept that risk.
John Cones
re: Limit to Investors Approached in Ohio
John Cones
8:47 am wednesday january 10, 2001
Kevin:
The federal standard for a privately placed securities offering (per Regulation D) is 35 unaccredited investors and an unlimited number of accredited investors and foreign residents (see Regulation D for the definition of accredited investors). Most states, including Ohio have adopted compatible exemptions from their respective state securities registration requirements. On the other hand, many states have several different small offering or limited offering exemptions and each such transactional exemptions may provide for a different numerical limitation on the number of investors. Most states also now have their rules online, so do an online search for "State Securities Administrators" and find the listing for Ohio. Then see if there is a link to the Ohio site and check to see if their rules are posted.
John
Investors
Sarah
8:41 am thursday january 11, 2001
John,
I have several people who are interested in my project and want to see my bussniss plan. Which I have done ,yet I don't not have a prespectus. I can not aford to higher a lawyer to create it. Any advise.
sarah
re: Investors
John Cones
9:19 am thursday january 11, 2001
Sarah:
First,let's talk about terminology. Generally in the securities field, we refer to the securities disclosure document associated with a public/registered offering as a "prospectus". On the other hand, we generally refer to the securities disclosure document associated with an exempt/private placment type offering as an "offering memorandum". If you have decided, based on your preliminary discussions with a number of investors that you are going to have to conduct a securities offering (because you believe that in order to raise the money you need you will have to raise it from a group of passive investors and not just one or two active investors) and you feel you can raise that money from people you and others among your organization's upper level management already know, then you would most likely be conducting an exempt/private placement offering, thus utilizing the offering memorandum as your disclosure document. Assuming you have actually talked to one or more securities attorneys with experience in preparing feature film private placement offering memoranda and have an idea of what they charge, you may want to continue looking for a securities attorney who does enough of these particular type offerings that the fee can be structured to favor the independent producer (i.e., a modest flat fee, with more than half of the flat fee deferred to be paid out of the offering proceeds of a successful offering). In that scenario, the largest part of the attorney's fee is contingent on you successfully raising the minimum proceeds of the offering. To raise that part of the fee required to be paid up front, along with the fees associated with creating the investment vehicle (LLC or LP), notice filing fees, marketing costs, copying, binding and artwork, (i.e., your offering costs) you may want to borrow an amount to cover that from your best investor, someone that you know is supportive of your efforts. You may be able to convert that loan into an investment later (i.e., apply it toward the purchase price of a unit in your offering). If you have any questions about this approach, call me at 310/477-6842.
John Cones
Investor financing
Lia Scott Price
5:27 pm friday january 12, 2001
Dear Mr. Cones,
I am producing an independent film here in L.A. We have put together a creative and experienced team and most important, have been accepted by a distribution company with a strong track record, and have obtained a letter of intent as well as financial projections and expected returns on the film. We have formed a corporation, established an interest-bearing account for funds, and are working towards a $200,000 goal (we have already raised 1/3 of funds from friends and family.) We have written a business plan/exec. summary and prepared an investment info. package for investors. However, we are still unsure about how to find "passive" investors who we can present our investor package to. Do you have any suggestions on finding investors? I feel we are 80% of the way there. Any help would be much appreciated!
Lia Scott Price
Triton Film Group
re: Investor financing
John Cones
6:29 pm friday january 12, 2001
Lia:
If you are seeking passive investors, you will need more than a "business plan", unless you are using the term "business plan" as a misnomer and to mean "private placement offering memorandum". If there's one thing I've tried to make clear to independent producers seeking financing from investors, it is this very important distinction between the two documents, each of which is suitable for limited and different purposes. Since, you have apparently raised some funds, I hope you are using a well prepared securities disclosure document (private placement offering memorandum) and not just a business plan that does not comply with the securities disclosure requirements. Otherwise, you may be selling unregistered securities that are not in compliance with all of the conditions and limitations imposed on an exempt offering. You need to clear that up first. With respect to finding investors, presumably you know that for purposes of a private placement offering, you must have a pre- existing relationship with the prospective investors. However, you can expand that pool of prospective investors by conducting issuer sales through other persons who qualify as upper level managers of your organization (i.e., they are upper level management, have other duties besides raising money, are not compensated on a transaction-related basis and have not been engaged in the sale of securities in the past 12 months). You can rely on the pre-existing relationships of such persons for purposes of raising the needed funds. Generally, such persons are offered some appropriate screen credit, such as Executive Producer, Associate Producer, etc. Because of the pre-existing relationship requirement for a private placement, the appropriate question is not where to find investors, but through whom and under what circumstances would finding investors be permissible.
John Cones
re: Investor financing
Lia Scott Price
6:56 pm friday january 12, 2001
Dear Mr. Cones,
Thank you for your advice. Yes, we will follow your advice about changing our business plan to a private placement offering memorandum, and are working with a lawyer in that aspect. We have also previously covered ourselves with a private placement offering memorandum. I made sure of this before we even approached any of our investors, and we dealt with people who we had preexisting relationships with. Your suggestion of issuer sales is a great idea and we do appreciate your help and advice. Thank you.
Sincerely,
Lia
Contacting Investment Companies
Lia Scott Price
8:05 pm monday january 15, 2001
Dear Mr. Cones,
After forming our corporation, preparing our producer's package, private placement offering memorandum, and necessary disclosures, we have so far made contact only with potential investors we have a pre-existing relationship with. Recently I was given a list through a business contact of small business investment companies. Of course, I intend to get their submission requirements first, but by calling or sending them info. about our project and since these are basically "cold leads", will I be violating any securities laws or will my package be sufficient?
Sincerely,
Lia Scott Price
Triton Film Group
finance
scott
10:27 pm tuesday january 16, 2001
I am currently looking for finance/investors for a feature i have written and am wanting to direct, I live in Australia and I have never tried to find investors before. I was wondering what the first steps would be in gaining funding?
re: Contacting Investment Companies
John Cones
9:07 am wednesday january 17, 2001
Lia:
When you combine the relevant provisions of both federal and state law for a private placement offering, particularly one being made to some non-accredited investors, the pre-existing relationship with prospective investors, no matter whether individuals or so-called investment companies remains a requirement.
John Cones
re: finance
John Cones
9:20 am wednesday january 17, 2001
Scott:
My response assumes you intend to seek investors in the U.S. since my experience is limited to U.S. law and such laws do not apply in Australia or in any other non-U.S. jurisdiction. First, of course, you will want a completed script, then a professional breakdown of that script for budgeting purposes. You will need to come up with a good solid round number representing the amount of money needed from investors (in combination with funding from other sources, deferments or not) with which you feel you can produce your movie. A minimum and maximum figure gives you more flexibility. A small percentage of this round number needs to be allocated for offering expenses which is not a film budget item. Based on my experience, if you find that you need more than $1 million, that you not try to raise all of the funds from investors unless you are very confident that you have the investors in place. I've only had two clients in 13 years raise more than $1 million ($1.5 and $2.5 respectively). So, if your budget is more than a million, I would suggest that you create a different budget, one representing your acquisition, development and packaging costs; that you use a smaller amount of investor money to fully develop and polish your script and attach elements to the package so that you then can approach industry sources for production financing either taking the form of a production loan (negative pickup, foreign pre-sales, etc.) or some form of studio financing. If your budget is less than a million your will need to determine, at least preliminarly, that you are likely to be able to raise the minimum of your offering. If you feel you can, then you will want to get in touch with a securities attorney and start the process of deciding which type of offering to conduct and preparation of the offering disclosure document.
John Cones
SAG Contracts & other Points of Artist
Ernie
2:59 am tuesday january 23, 2001
I'm developing my second film and expect this project to be governed by WGA and SAG since the writer will probably be in the guild and the budget allows two or three 'name' actors. I haven't been successful searching the internet for detailed information about points to negotiate and requests to expect from talent agents once I begin inquiring. Beyond general fees I anticipate special requests in the form of riders and thorough discussions about profit participation. What else should I expect to negotiate with talent agents (and in one case directly with the actor) and do you know of a site or webpage that offers detailed information for producers who need to negotiate with seasoned talent agents? I've search through many books as well as the 'net and found little.
Thanks
re: SAG Contracts & other Points of Artist
John Cones
9:17 am tuesday january 23, 2001
Ernie:
Sorry, but this is not the right site for asking that question. This site is dedicated to answering questions about investor financing of independent film and other entertainment projects. Good luck.
John Cones
advertising for investors, again
Ethan Ramos
4:27 pm thursday january 25, 2001
John,
In your post of Jan 3., "Re advertising," you wrote: "advertising in conjunction with an unregistered offering is not permitted."
But I read elsewhere that advertising for intrastate offerings that are not registered with the SEC is permitted if 1) any ad specifies that the securities are being offered and sold exclusively to residents of the state where the issuer is organized and does business, 2) the securities, in fact, are sold only to residents of that state, and 3) the securities comply with any securities regulations of that state. Is that correct?
If so, are such intrastate offerings more convenient than a Regulation D offering?
By the way, I love your work.
Ethan
re: advertising for investors, again
John Cones
4:36 pm thursday january 25, 2001
Ethan:
I've never found the federal intrastate offering exemption to be that helpful for film offerings, since, not only is a large percentage of the money to be raised in the one state, but also most of the business has to be conducted in that same state, as well as sales of the product. With respect to a film, that is not possible. Film producers generally want to distribute that film all over the world. Check those requirements of the intrastate offering and see if that's not the case.
John Cones
Re Financing /actors
Sarah
7:53 pm thursday january 25, 2001
John
I'm talking with an agency about placing their clients in my film.Yet they ask is it finanaced, I tell them that I have investors who are interested and I have a sales Rep. that has been talking with distributors. They all like the story but need a cast.
I also have a company who loans money for the production interested in seeing the script. Yet, the company and investors both want to know who is in the film. I have a Golden Globe Awarded Producer and I'm talking with a director. How do I get the agents to become packagers for my film. I know that if they package their clirnts with my film the money and distributors will be there. But how do I convince them that this film will be financed.
Thanks
Sarah
re: Re Financing /actors
John Cones
3:58 pm friday january 26, 2001
Sarah:
One of the ways to get past this classic catch-22 is to determine a packaging budget (i.e., the amount of money it will take to obtain firm commitments from creative personnel by means of non- refundable deposits that are hopefully only a percentage of the full pay-or-play requirement)and to raise such funds from a group of passive investors. Once that investor money is in the bank and you can make firm financial commitments to such talent, it is more likely that the agents will be willing to obligate their clients.
John Cones
re: Catch-22 Mike Steger
4:11 am saturday january 27, 2001
There is a wall street company which produces films if you want to know how things work under SEC rules. see http://biz.yahoo.com/p/k/kloc.html
Thing is the offer of a Security as evidence of investment. You may be having trouble with financing because you are not offering the investors any security rights.
==========
movies/funding?
Alex Mays Hanzo
10:25 pm saturday january 27, 2001
I am a member of a small ,VERY small production company /or movie company as it were....
I am trying to find out how to go about recieving a grant and/or private investors to, in a nut shell put up the money for our movie
I am in accordance with the undersanding that there are places that offer grants for these types of things...or jus' some rich guy who wants to make a buck...well,i live in ohio along with my confidants,but we don't exactly know who, or where to get in t touch with this information...could you lend us a hand? please... We do also understand that at least a finished script/and or a short trailer must be provided in order to be considerd by anyone for financial help in this project.
Thank You for your time
sincerely, Hanzo
Film financing and tax deduction
Christian
2:17 am sunday january 28, 2001
Hello,
Are there substantive U.S. tax deductions for people who invest in motion pictures?
I know that in many European states there exist such incentives for investors e.g. in Germany 100% of an investment in motion pictures is (negatively) taken into account when the personal income is calculated. Is the legal situation in the U.S. similar? Thank you very much!
Christian
re: movies/funding?
John Cones
10:44 am sunday january 28, 2001
Hanzo:
Grants for a film are a very different form of financing than investor financing. First, you want to learn the differences between the two. Grants are typically made to non-profit organizations. Such funding is generally quite limited. Go to you nearest library or book store and ask to see their books on sources of grants. There are several books published that list the many foundations that provide grants for various purposes. You have to do a great deal of research to identify foundations that might be interested in providing a portion of the funding for your film. You will have to prepare an application for the grant or grants and wait for a decision.
With respect to investor financing, will have to make decisions regarding whether you feel your financing will come from one or two active investors (non-security) or from a larger group of passive investors (security). Then you'll have to decide whether you need to conduct a private securities offering or a public/registered offering. For information on these and other issues relating to investor financing and other forms of film finance, see my book "43 Ways to Finance Your Feature Film". It will provide you with a fairly good overview of the field. You might also want to read the archives of this discussion site. It contains the answers to quite a few questions posed by other independent filmmakers relating to investor financing. Good luck.
John Cones
re: Film financing and tax deduction
John Cones
10:52 am sunday january 28, 2001
Christian:
No, the significant tax benefits available for so-called direct participation programs (such as limited partnerships) and including film deals were eliminated by the U.S. Congress in 1986. There are still tax deductions available for such programs (e.g., feature film LLC's), but they are limited to the deductions relating to ordinary and necessary business expenses for a bona fide business, organizational costs and advertising costs. The investor will participate per his or her pro rata share in such deductions and the timing of such deductions depend on the nature of the expense. For example, the business expense deduction is available in the year the product is placed in service; the advertising expense deduction in the year incurred; the organizational expense deduction is amortized over a 60 month period. If this is of interest to you and you feel the tax consequences will be a primary motivating factor for your investors, talk to an accountant or tax attorney for more details. If your film can be produced in a foreign country, also consider talking to an international tax specialist who can guide you through the complexities of the tax benefits in such jurisdictions.
John Cones
role of active investors
Sasha
3:56 pm monday january 29, 2001
John
I'm thinking about an active-investor limited liabiity company for my film. What managment role should 50 or so active investors have regarding my film, and how can they be active in managment while avoiding any personal liability?
Thanks.
Sasha
re: role of active investors
John Cones
9:42 am tuesday january 30, 2001
Sasha:
Both federal and state securities regulatory authorities will deem it impossible to create and maintain an active-investor LLC with 50 investors. That's just too many. If one of the 50 is passive, you have sold a security and if you have not registered that security or complied with conditions and limitations imposed on an exemption from the registration requirement you will have sold an unregistered security which carries both civil and criminal penalties. If your investors are truly active (i.e., regularly involved in helping to make the project's important decisions) you may safely utilize the services of one or two investors. If you go beyond that you start increasing the odds that someone among those investors will be considered passive. If you need 50 investors to fund your project, go ahead and accept the responsibility of complying with the securities laws and deal with it. It is not as difficult as you may imagine, or as difficult as the promoters of other forms of film finance would lead you to believe.
John Cones
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