Producing a movie is expensive, which is why film financing is one of the first things you should consider when trying to get your project off the ground. Fortunately, there are several ways to finance your film, such as loans, investments, donations and grants. There are advantages and disadvantages to each type of financing depending on the nature of your project. Each one of these also has legal complications associated with them, so it is essential to work with an attorney to guide you through the options and ensure you comply with the law.
How Can You Secure Investments for Your Film?
Typically, filmmakers seek investors for their projects. Generally, the investor will help fund the film in return for a portion of the film’s proceeds. This type of investment is considered a “security” – a financial interest in which the investor expects to receive some sort of profit. Such a security interest may be subject to state and/or federal securities laws.
A securities offering must disclose material facts regarding the investment, including the specific risks associated with investing in the film. This is done in the offering plan or private placement memorandum, as discussed below. Federal and state law dictate what information must be included and whether registration is required. Failure to comply with these laws can lead to serious consequences, including civil and criminal liability.
Federal Securities Law Requirements
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.
State Securities Law Requirements
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.
Is Borrowing Money from a Lender Right for You?
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.
Should You Personally Finance Your Film?
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.
Can You Get Donations or Grants to Finance Your Film?
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.
Before you start looking for financing for your film, consult an attorney to discuss what alternatives make sense for your project.
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