How do I start a film production company?
Internet Filmmakers' FAQ
A film production company is no different from any other type of company, so the same rules and processes apply. Starting any new business requires a good deal of research and planning, particularly if you are intending to raise money from third-party investors to help fund the venture.
The first thing that most people do before starting a new business is write a business plan. A business plan is a document which outlines how the business will be set up, how it will operate, and how it will make money. As most business plans are written for people who may not necessarily have first-hand knowledge of the industry in which the business is going to operate, the plan normally must also include an overview of the market and information on how the business is going to compete effectively in that market. All information presented in a business plan should be researched and supported with verifiable facts. It’s not a good idea to use anecdotal or made-up information in a business plan - at best it just means you are deluding yourself about the viability of your business idea; at worst, getting investors onboard with inaccurate information could land you in hot water further down the track.
Business plan writing is a bit of an art form. There are plenty of books on the subject, and most business courses at tertiary institutions will teach you how to write them. You may also want to consider a piece of software called Business Plan Pro, from Palo Alto Software. This program contains a range of sample plans, and walks you through each step of the process. FilmProposals.com also has a sample business plan for raising money for independent films which is available to purchase from their web site.
Aside from your business plan, another key consideration for setting up a film production company is the type of legal entity you will use. There are several different types business you can register, however the most common forms for independent filmmakers are either "Sole Trader/Proprietor" or "Limited Liability Companies." There are advantages and disadvantages of both types, so you really need to get advice from a lawyer or accountant before deciding what’s best for you.
With a "Sole Trader/Proprietor" business, you and your business and effectively the same thing in terms of financials and legals. The main advantage of this type of business is that they are extremely cheap to run because the statutory reporting requirements (e.g. annual accounts) are very minimal in most jurisdictions. In some states and countries, you do not even have to register your business name - you can simply pick a name (that does appear to be used by anyone else) and start trading. The standard tax implications apply if you earn money through your business, and although you and your business’ finances are technically one in the same, it’s always a good idea to use separate bank accounts for your personal and business transactions.
The main disadvantages of a sole trader business are that 1) there is no separation between your personal and business income for tax purposes, and 2) this type of business offers no liability protection. If you get sued by someone for something involving your business, all of your personal assets are liable as well. For example, consider the following situation: you are shooting a film and one of your crew falls off a ladder and breaks their spine (and you haven’t taken out any production insurance). If this crew member decides to sue your company for damages and wins, everything that you own (house, car, etc) can be seized to pay the monies owed if you do not have enough money to settle the claim. For this reason, most independent filmmakers opt for the limited liability company approach.
Limited Liability Company
As the name suggests, limited liability companies (LLCs) offer protection for their shareholders from liability incurred by the company. This means that in the example described previously, only the assets of the company would be exposed to the damages claim. The assets of the company directors and shareholders would be protected (assuming there are no personal guarantees in place). This protection exists because the LLC is a completely separate legal entity from its directors and shareholders. In most jurisdictions there are also tax benefits associated with incorporating as an LLC that aren’t available to sole traders.
The downside for limited liability companies is that they involve greater bureaucracy and expense to maintain. The bureaucracy comes in the form of the fact that a LLC must have directors, shareholders, articles of association, and there are rules about how money can be moved in and out of the company (eg. because it is a separate legal entity, you can’t just draw money out when you feel like it like you can as a sole trader). Running a LLC also involves certain unavoidable expenses. Most jurisdictions which register LLCs will charge a once-off registration fee, and these can vary dramatically between states and countries. LLCs are almost always required by law to submit annual accounts to their regulating authority, and normally it is necessary to involve accountants in preparing these.
In the US, limited liability companies have the suffix "LLC" appended to their names; in the UK and Canada, they are just "Limited" or "Ltd"; and in Australia, the suffix is "Proprietary Limited", normally abbreviated to "Pty Ltd". Registration of LLCs in the US is managed at a state level (normally by a relevant commerce department). In Canada it is possible incorporate at a Federal level through Corporations Canada; all incorporations in the UK are managed by Companies House; and in Australia registration is managed at a Federal level by the Australian Securities & Investments Commission. Visit the relevant website for more information.