A handful of years ago I started a production company with three other filmmakers in Santa Monica, California. We were about ready to start selling copies of the first (and it turned out to be the only…so far) feature that we made so we thought it would be wise to pass that revenue through a company. The other thoughts were that it would give us some legitimacy for our next film as well as kick start the momentum that we lost in post-production on the last film. I was the “business guy” so the task to do the paperwork fell to me. We were so cash poor that LegalZoom wasn’t an option for us.
Starting a production company is pretty much the same process as creating any other company though there might be certain tax differences (particularly in states that offer production credits). We decided to go with a limited liability company (LLC) as we wanted to limit the exposure to our personal assets…not that we had many of those. We also went with a pass-through LLC which meant that each member would record their share of profits (there were none of those) or losses (lots of those) on our personal income taxes each year.
(If you decide to “start a production company” without actually creating a company, and you’re doing business using a name other than your own, you might need to file a DBA (Doing Business As) statement depending on the jurisdiction you’re in.)
I should point out that starting a production company has nothing to do with making movies. You can do the former without ever doing the latter. Many people do the latter without ever doing the former. In fact, I think that is how most of us start out. This post is only to outline the process should you ever choose to go down the path.
With the reminder that none of this constitutes accounting, financial, or legal advice the steps we took were as follows:
You’re going to want to do a Google search to make sure that meaningful and/or clever name isn’t already being used by another production company. You might only need to make sure it isn’t currently being used in the countries you’re most likely to distribute your film but it would be prudent to avoid any possible future confrontations. So pick something original.
Register the domain name if you want to. A custom domain name and website adds an air of legitimacy to your fledgling company but not much. Your reputation and resume matter much more than any name, website, or email address.
We registered a domain name for $20 and paid $4.99 a month for hosting.
Total cost: $24.99
Everybody needs to decide what roles, if any, each person is going to take in the business structure. Note that these are different from roles in the production process. The company president might be a production assistant on set. Letting people leverage their talents both on and off set should lead to better movies and less disagreements.
Roles you might want to include are President, Vice President, Director of Finance, Director of Marketing, etc. I thought it was important to have a specific person responsible for each business operation (operations, finance, marketing, development).
Create operating agreement
The operating agreement is what governs the way the company operates, how ownership is divided, how profits and losses are allocated (a different thing than ownership), and how roles are defined.
You’re going to want to spend a lot of time on this document as it will be referenced should there be any disputes amongst partners later on. And there too often are disputes.
Register LLC with state (of California)
We first had to file the Articles of Incorporation with the California Secretary of State. That established us as a LLC and in return they gave us a Secretary of State File Number. Cost for this was $70.
With that file number we were then able to file our Statement of Information with the Secretary of State. That outlines who the members of the LLC are as well as what industry you’re in (Film Production). Cost for that was $20.
Total cost: $90
Get EIN from IRS
Your new company now has to register for a tax id number with the IRS so that you can do fun things such as open bank accounts, pay employees, and do taxes. That can be done online for free and was a surprisingly simple process.
File with the state tax authority
Now that you have a tax id number you can start paying taxes to your state’s tax authority. In California that authority is the Franchise Tax Board. You have to pay during your tax year so your first year fee is due upfront. California has a minimum tax of $800 for an LLC which I believe is the highest in the nation. You can find the California LLC tax form here.
Total cost: $800
Register with municipality (Santa Monica)
As I was living in Santa Monica at the time we needed to fill out a Business License Tax Application with the city. That included a home occupation agreement. The business license tax was $0 as our gross revenues were going to be below $40,000 (minimum fee is $75 otherwise). There was also a process fee of $25.25 and a Zoning Code Conformance Review fee of $32.78.
Total cost: $58.03
(I think a lot of home based businesses skip registering with their city but we erred on the side of caution.)
Create business checking account
We opened our checking account at Wells Fargo. To do so we needed to provide them with a copy of our operating agreement as well as our tax ID number. Each authorized signer had to go into a branch and show them their driver’s license.
The account cost $12 a month and we had to pay $19.95 for checks.
Total cost: $19.95
You’re going to want to keep track of your accounts and your spending with software. It will make doing your taxes at the end of the year MUCH easier. Quickbooks is still probably the most used bookkeeping software for small businesses. GnuCash is similar and free but more difficult to use. Xero is an online accounting suite that I’ve heard good things about but have never used.
You’re going to want to create Revenue and Expense categories for each film. You might even want to create subcategories for each department. This way you can track the companies profit and loss as well as that of each movie you make.
Have an annual meeting and record meeting minutes
Limited liability companies are not required to hold annual meetings and record the minutes (record of when the meeting occurred, who attended, what was discussed, etc.) like a corporation is but it is a good idea. It shows that you’re operating as a company as well as provides a platform for each member to raise issues.
These meetings are where we laid out our goals for the year that we were then held accountable for during our monthly conference calls.
Minutes should be printed out and signed by each member to acknowledge their participation and agreement of what was discussed and decided on. This is important to avoid disagreements down the road.
It ended up costing us $992.97 to start our production company. As members we then loaned the company money to cover any ongoing costs that our meager revenues didn’t cover. While I don’t think we utilized that company to the extent that we could have (a whole other story) we did use it to produce a short film and in general was a good learning experience for us. It was a lot cheaper than business school. It also gave us accountability to each other to work on writing scripts, reading scripts, and moving forward on our productions.
One word of warning. Remember to be careful about the partners you start a company with. If you have any doubts at all going in then you probably shouldn’t jump in bed legally with them. You can hire them to work on your individual films rather than including them in your business. One of the points of having an LLC is to reduce risk so don’t choose risky partners.