Protecting Your Indie Film: The Entertainment Law Legal Guide

Article written by Jeanne Lau.

Congratulations on completing your screenplay! I’m sure you’re now gearing up to put your project into motion. But while making an indie film can be an exciting venture, failure to appropriately protect yourself and your creative work can sometimes lead to problems down the line.

Use our guide below to learn more about how to better protect your indie movies and other creative works from an entertainment law perspective. Then, give Lyda Law Firm a call and see how we can help you protect your indie film today.

First things first: Entity formation

So, now that you’ve done some of the fun stuff, it’s time to focus on the next stage of your creative journey: entity formation. Forming a legal entity is one of the best things a filmmaker can do to protect themselves from potential personal liability. 

Forming an LLC (Limited Liability Company) or other type of business entity is a crucial first step in setting up the legal framework for your indie film. Below, we'll discuss several aspects to consider during this process.

LLC or Corporation?

Both types of business entities provide certain protections from liability. However, there are certain advantages and drawbacks to each.

The biggest downsides to a corporation are (1) strict, burdensome corporate formalities and (2) double taxation. Double taxation means that when money comes in, the corporation is taxed, and then when you pay yourself, you are taxed again.

On the other hand, LLCs are generally easier to form and have fewer and less strict rules and formalities. Additionally, an LLC is a pass-through taxation entity (i.e., only the member is taxed, not the LLC itself).

Not all businesses are the same, so what works for one filmmaker may not work for another. Thus, before selecting an entity structure, be sure to speak with an experienced entertainment attorney to discuss which entity type might work best for you and your needs. For more information on the various types of business entities, please see our guide, “16-Step Legal Checklist For Startups And Small Businesses”.

What is an LLC?

An LLC, or Limited Liability Company, is a type of business structure that protects the owner(s) or member(s) of the company from liability, debts, and potential lawsuits. Basically, the LLC acts as a “shield,” and if the LLC itself gets into trouble, usually, the individual members are not personally liable. 

Thus, when it comes to making an indie film, having personal liability protection can be extremely beneficial.

For a general overview of LLCs, please see our blog post, “The ABCs of LLCs."

Will an LLC provide 100% protection?

It's important to remember that forming an LLC doesn't guarantee that you will always benefit from personal liability protection.

Despite the LLC acting as a personal liability shield, there are certain situations in which a court may “pierce the veil” (i.e. pierce the shield) and hold the members personally liable for their wrongdoing. Examples of such situations include: 

• Using the LLC as an “alter ego” for yourself; or

• Intentional misconduct by you as an LLC member.

Failure to sufficiently capitalize the LLC, failure to comply with applicable law, and/or using the LLC for personal purchases might all constitute using an LLC as your alter ego. An example of intentional misconduct, on the other hand, might occur if a member intentionally commits battery against a crew member while on set. In any of these scenarios, the member may be held personally liable, rather than liability falling on the LLC entity.

With all that said, these are broad categories and examples in which having an LLC may not protect you. As such, when it comes to questions of personal liability, be sure to speak with an entertainment law attorney to discuss the particular facts and circumstances surrounding your case. 

Forming an LLC in California

First you must check the name availability for your LLC. Be sure to include the words “LLC”, or “Limited Liability Company”. 

Once your name is good to go, you must sign and deliver the articles of organization to the Secretary of State for filing. You can do this online or in person.

After filing the articles of organization, you will then need to file a statement of information within 90 days of your initial filing. You may also do this online or in person. Please note that you will also need to file a statement of information every two years thereafter.  

In California, the LLC must pay annual tax, even if the LLC is not conducting business. The annual tax of $800 is due and payable by the 15^th day of the 4^th month or on April 15 of your taxable year. We do advise consulting with an accounting regarding your LLC taxes, especially when you start making a profit. 

Next step: Create an operating agreement

Once you decide that you want to go ahead with an LLC, the next step would be to create an operating agreement. An operating agreement works sort of like a prenuptial agreement prior to marriage. You want to clearly define the roles and responsibilities of each member before making the commitment. 

The most important points to consider in an operating agreement are:

1. The roles and responsibilities of the members
2. How to resolve disputes
3. How much capital contribution is expected from the members 
4. How to terminate the company
5. If there are intellectual property issues, who owns the rights - LLC or the member(s)
6. How do you add or remove a member
7. Is the LLC member or manager managed

The more members in your LLC, the more detailed your operating agreement should be. Thus, contact an attorney who can help you create an operating agreement that is specifically tailored to your needs. 

Other considerations

Even after setting up your business entity, there are many other steps you may need to take to protect your indie film and filmmaking business overall. Below are a few additional considerations to keep in mind.

Safety

Safety is paramount. As a filmmaker, you should always provide a safe, and supportive environment for your talent and crew members.

Safety procedures and guidelines should be strictly enforced. You may consider setting aside part of your budget to hire individuals to oversee and enforce safety protocols. 

Talent and crew member agreements

An operating agreement isn't the only type of agreement you may come across as you create your indie film. For example, talent and crew member agreements, while not required, can provide additional protections for you and others who work on your film.

Such protections can extend to intellectual property rights and even liability for third-party acts. For example, if you own the rights to your screenplay, you may clarify this in the agreement so that it will not be misappropriated by the crew member and passed off as their own work. 

Generally, you should consider the following clauses in your agreements:

1. Whether travel or other expenses are reimbursed 
2. Non-disclosure and confidentiality
3. Clarification that all intellectual property rights belong to the LLC 
4. Events triggering termination (e.g. alcohol or substance abuse on set)
5. Indemnification for third party acts (if the crew member contracts services with a third party)

Of course, this is not an exhaustive list. Thus, consult with an attorney in your state to discuss other terms that may apply to your particular situation.

Please note, however, that if you decide to hire talent or crew who are part of the union, you will need to abide by their guidelines and either reference them or incorporate them into your agreements. 

**On the other hand, if you are a crew member or actor/actress reading this, you may also want to consider hiring an attorney to review the agreement. Typically, non-union agreements are not too favorable, and as such, be sure to read your agreement carefully. 

Insurance

Lastly, it’s important that you obtain insurance for your LLC. In the event of liability, the insurance company can help shoulder a considerable amount of financial burden.

As with any small business, this is an important business judgment of yours, so be sure to put an adequate amount of thought into it and seek appropriate professional assistance and/or advice.

Contact an entertainment attorney today

Making an indie film requires a great deal of hard work and dedication. Thus, make sure that you provide your creative work with the legal protection it deserves.

At Lyda Law Firm, we believe that legal services in the entertainment industry shouldn't be reserved solely for the elite. That's why we've made it part of our mission to assist new and aspiring filmmakers as they get their careers off the ground.

From entity formation, to contract drafting and review, and everything in between, Lyda Law Firm has the tools and resources to help you start and grow your filmmaking business. Contact us today to speak with one of our attorneys and see what our team can do for you.