This article is for educational and entertainment purposes only. This is not legal advice and should not be relied on as such. Every case is different. Consult a licensed professional in your state. Viewing this website or its content does not create an attorney-client relationship with Lyda Law Firm or any of its lawyers.
Article written by Jeanne Lau.
Congratulations on completing your screenplay! I’m sure you’re now gearing up to put your project into motion. Now that you’ve done all the fun stuff, it’s time to focus on the next stage of your creative journey: the LLC (Limited Liability Company). Before you start filming, there are several legal procedures a filmmaker can take in order to protect themselves from potential liability.
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.
Forming an LLC (or other type of business entity) is a crucial first step in setting up the legal framework for your film. Below, we'll discuss several aspects to consider during this process.
Both business entities provide protection from liability.
The biggest downsides to a corporation are (1) strict, burdensome corporate formalities and (2) double taxation. This means that when money comes in, the corporation is taxed, and then when you pay yourself, you are taxed again. On the other hand, the LLC does not have a lot of strict rules and formalities, and is a pass-through taxation entity (only the member is taxed, not the LLC itself).
For more information on the various types of business entities, please see our guide “16-Step Legal Checklist For Startups And Small Businesses” (hyperlink: https://lydagroup.com/blog/startups-checklist/).
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 members are not personally liable. For a general overview of an LLC, please see our blog post “The ABCs of LLCs."
Despite the LLC acting as a “shield”, there are certain situations which will allow the court to “pierce the veil” (i.e. pierce the shield) and hold the members personally liable. These situations include:
(1) Using the LLC as an “alter ego” for yourself. This may include failure to sufficiently capitalize the LLC, failure to comply with applicable law, and/or using the LLC for personal purchases.
(2) Intentional misconduct by you as an LLC member.
With regards to the last situation, an example would be if a member intentionally commits battery against a crew member (e.g. LLC member strikes a crew member without any legal justification). In that scenario, the member will be held personally liable, rather than the LLC. With all that said, these are broad categories of when the LLC will not protect you, and as such, we do advise you to contact an attorney if you face a potential issue of liability.
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 to a 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:
The more members in your LLC, the more detailed your operating agreement should be. Please contact an attorney if you want an operating agreement tailored to your needs.
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 the articles of organization is filed, you will 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 need to file the 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 15th day of the 4th 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.
Your agreements can also provide some protection, especially with regards to intellectual property rights, and 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.
Please note 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.
Generally, you should consider the following clauses in your agreements:
This is not an exhaustive list - consult an attorney in your state.
**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.
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 to it and seek appropriate professional assistance and/or advice.
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