Film Financing

Under federal law, investments in films are often considered “private placements” because they are not offered to the general public and do not meet other requirements of a public offering. Private placements do not need to be registered with the Securities and Exchange Commission (SEC). However, you must still prepare a private placement memorandum for investors. In addition, you must file exemption paperwork with the SEC – most commonly, a Form D.

Where the securities offering does not fall within the Form D exemptions and is deemed a public offering, registration is essential. SEC rules are complex and legal advice should be sought to avoid liability.

Filmmakers also need to comply with state securities laws, commonly known as “blue sky laws.” These laws vary by state, so it is important to adequately research each state’s requirements. Generally, you must comply with the blue sky laws of the state where your potential investor lives and file a copy of your Form D, a state-specific form, and a fee.

Borrowing money from a lender, also known as debt financing, is frequently used to fund a film project and has certain advantages. The lender does not get an ownership interest in the film company or share in the film proceeds. This means there is no obligation to comply with federal or state securities laws, and lenders are not entitled to any rights as shareholders. However, loans are secured with collateral, which can include the filmmaker’s rights to the screenplay and minimum guarantees from distributors. In addition, the lender may require a personal guarantee and/or completion bond.

Loans must be repaid with interest, which can be high. However, interest is usually tax deductible. Money is also owed regardless of whether the film is a success. Finally, lenders can also limit the ability to obtain alternative means of financing, which can be a significant drawback.

If you have sufficient funds, you may consider financing all or part of your movie. There are no legal restrictions and no securities laws concerns if you are funding it entirely by yourself. However, costs can quickly add up in film production, and you may jeopardize your personal financial situation.

In some cases, you may be able to obtain financing from parties who are not seeking something in return.  For example, friends and family may be willing to provide money for your film as a gift.  However, you must take care that this arrangement is not a loan or an offer to share in the profits of the film.  It is best practice to consult with an accountant or tax professional before accepting donations.

In addition, foundations can be a source of funding.  Some organizations offer grants to filmmakers, and while they are competitive, it may be an avenue worth pursuing.