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Setting Up Your Production Company: All About LLCs

Helpful guidance on when, how, and why to consider establishing an LLC for your next independent film project.
June 5, 2024

John Hadity

EP Blog-John Hadity-All About LLCs

Before you seek funding for your independent film, you need to set up a business entity for your project. This post explains how a Limited Liability Company (LLC) works and why it presents a versatile way for producers to mitigate risk while managing finances—from funding through filming and even in post.

Throughout, I’ll explain various LLC structures and functions, talk about timing, and detail how LLCs apply to international projects and co-productions.

To start, let’s go over some definitions. 

What is a Limited Liability Company (LLC)?

An LLC is a legal entity that serves as the primary rights holder on your project and is the entity through which your equity financing flows. It controls the financing and distribution for a film or television project.

There are three primary components of an LLC:

  • Members: A production LLC often has multiple members, including investors and other key stakeholders involved in the project. Each member contributes financially or through services to the production and usually has profit-sharing arrangements, as outlined in the operating agreement.
  • Manager(s): LLCs appoint one or more managers responsible for overseeing the day-to-day operations of the production, including budgeting, hiring crew, securing locations, and managing logistics. Managers are members of the LLC and make all the business decisions for the enterprise, including how distribution will be handled.
  • Operating Agreement: The operating agreement outlines the rights, responsibilities, and obligations of the members and managers involved in a project—providing clarity and accountability for all parties involved. Meant to serve as a governing document, this agreement typically includes details on decision-making and conflict-resolution processes as well as profit distribution specifics. 

Basic functions of a production LLC:

  • Financing: An LLC solicits investments from individuals, production companies, studios, and other sources. It may issue membership interests or equity stakes in exchange for capital contributions to cover pre-production, filming, and post-production expenses.
  • Production Management: The LLC is responsible for all the logistical and creative aspects of production, including—but not limited to—scheduling, hiring personnel, securing filming locations, managing equipment rentals, and coordinating post-production activities. The LLC ensures that the project adheres to the budget, timeline, and quality standards agreed upon by producers and stakeholders.
  • Distribution and Marketing: The LLC oversees marketing and promotional efforts to attract viewership to the project and secures distribution deals with networks, streaming platforms, and other distributors.
  • Revenue Distribution: As revenue is generated, the LLC manages the distribution of profits according to the terms outlined in the operating agreement. Revenue can come from distribution deals, licensing agreements, or ancillary sources such as merchandise sales and streaming royalties. Payments are typically sent to investors recouping initial investments, shareholders, and residual or royalty recipients.
  • Legal and Contractual Matters: The LLC enters into contracts and agreements with production-related parties, including talent, crew, vendors, distributors, and other third parties. It also obtains necessary clearances, permits, and insurance coverage.

Put simply, a production LLC is a central hub for coordinating all aspects of a project, from inception through release and beyond. The entity serves as a legal framework for organizing resources, managing risks, and maximizing success.

Production entities: How to choose the best option

A production entity can be established as an LLC, C-Corp, sole proprietorship, partnership, or S-corp—with LLCs and C-Corps being the most common. Each option has distinct advantages and disadvantages relating to operational flexibility, liability protection, and tax implications: 

  • Sole-proprietorships, partnerships, and S corporations are all known as ‘pass-through entities,’ which means taxable income ‘passes through’ to the personal tax return of the owner. The owner pays personal income tax on company profits but can also withdraw profits as tax-free dividends from the company. 
  • C-corporations pay corporate tax on income, then distribute any remaining money to stockholders. Stockholders must also pay personal income tax on money received, meaning it is double-taxed.

Productions typically utilize one of two LLC types:

  • Single Member LLCs are straightforward to set up and manage, making them ideal for independent producers who prefer minimal administrative burden. However, they offer limited liability protection when shielding the member’s personal assets from legal claims or debts incurred by the production. Also, decision-making authority rests solely with the member, potentially limiting collaborative input and creative exchange. Single-member LLCs are often taxed as sole proprietorships by default, which may result in less favorable tax treatment than other structures.
  • Multi-member LLCs allow for shared decision-making and resource pooling among multiple members, promoting collaboration and diversification of expertise. This setup accommodates a wider range of skills, resources, and investment contributions, enhancing operational flexibility and scalability. However, differences in vision, goals, or financial contributions have the potential to disrupt the production process. Managing relationships and resolving conflicts requires clear communication and comprehensive operating agreements.

The choice of how to structure your LLC often comes down to how the investors are involved and the producer’s desired level of control. 

In the indie film space, it’s common for producers to use two entities: a multi-member LLC for rights management and fundraising and a C-Corp for physical production. In this situation, the C-Corp handles all elements of physical production—hiring talent and crew, entering into leases, making purchases, and so on. By separating physical production activity from the LLC members, producers can both minimize the possibility of conflict leading to disruption during filming and avoid exploitation of rights issues. 

To make sure you’re set up for success, we recommend consulting legal and financial professionals to help you choose the most suitable corporate structure.

Timing is key: When to establish your LLC/production entity

Ideally, you should establish an LLC as soon as underlying rights have been secured and you are ready to start your fundraising. 

Prior to setting up your production entity, it’s important to know if you’ll be working domestically or internationally, where you’ll be filming, and if you’re pursuing a partnership or collaboration, like a co-production. Once you have answers to those questions, you can work with an entertainment accountant and attorney to determine the best corporate structure for your LLC.

How LLCs apply to international productions and co-productions

Not surprisingly, productions become more complex when filming internationally or collaborating with another individual or team via a co-production. In either case, producers must navigate regulatory requirements, tax implications, and contractual obligations across multiple jurisdictions. It may even be necessary to set up multiple entities in order to comply with regulatory tax laws and be eligible for international tax credits. Learn more about the various types of co-production partnerships and how to vet partners in this guide to co-production.

Due to the complex nature of international filming, it’s best to speak with an entertainment attorney, experienced accountant, and incentives experts to determine the right structure for your project.

Pros and Cons of using one LLC for multiple productions

Using a single entity for multiple productions looks great on paper. Streamlined administrative processes, cost savings, and enhanced brand recognition are quite appealing! And if you establish a production entity that serves as an umbrella company for multiple projects, you can capitalize on economies of scale by consolidating resources and taking advantage of existing relationships with investors and talent.

Though the convenience factor is high, there are several potential drawbacks to consider. 

Specifically:

  • A new project may have unique financial, legal, and operational requirements that conflict with the interests of other projects under the same LLC. For example, one project may require a different investment structure or revenue-sharing model than another, leading to complexities in managing finances and fairly allocating resources.
  • Co-mingled funds get complicated, especially if you’re working on a project that continues earning revenue for months or years after its release. 
  • If one project faces legal issues or financial challenges, all assets operating under the LLC are potentially at risk. If a project fails to meet financial obligations, creditors can come after the LLC’s other assets to settle their debts. 
  • Administrative management of transient cast and crew is challenging if you merge multiple productions into one LLC, especially when distributing residuals or royalties. 
  • Errors and omissions insurance coverage gets muddied when liabilities are co-mingled. 
  • Proving chain-of-title is more difficult, which can be problematic when working with various film unions, as they require extensive paperwork for each project. 

Put simply, combining multiple projects under one LLC blurs the lines of liability and accountability. While the idea may initially seem appealing, it’s not always the most practical choice. 

Maintaining separate entities for each project provides greater financial protection, risk mitigation, legal clarity, and creative autonomy—ultimately enhancing the likelihood of success. 

The big takeaway: Expert consultation is essential

While understanding the fundamentals of LLCs is a great start, navigating the intricacies of indie film financing requires expert guidance. Entertainment Partners’ experienced in-house accountants, attorneys, and incentive experts are here to help. We've managed tens of thousands of productions and have spent decades helping producers like you make sure you're set up for success. When you're ready to discuss your next project, get in touch.

This article contains general information we are providing on a subject that may be of interest to you. Nothing in this article should be considered tax, accounting, or legal advice. You should consult with your own tax, accounting, or legal advisors regarding the applicability of this information to your specific circumstances.

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