Film Financing (Different Methods)
The list below represents a number of ways in which films have been and are
financed. Some, of course, are not recommended.
- Obtaining a Check from a Studio. This is highly unlikely for your average
- Credit Cards. One Hollywood movie was totally financed by credit cards
and went on to make money, as well as a career for its producer. Not recommended.
- Selling your Body for Scientific Experiments. One motion picture was reportedly
financed in this manner. Not recommended.
- General Partnerships. A group of producers can get together, put up their
own money, form a partnership, and make a movie. This is not recommended
due to the fact that producers generally do not put up their own money to
make motion pictures. Also, with any general partnership, if one partner
creates liability for the entire partnership, all partners are individually
liable for the whole amount. Therefore, you do not want to be the "rich partner".
- Family and Friends. Not recommended. This could damage personal and familiar
- Bank. These funds are usually only available after equity or other financing
(i.e. presells) is in place, a distribution deal has been found with sufficient
collateral and completion bond has been established. Furthermore the bank's
very high rates, points and fees have to be paid. Also bank funds are the
last money in and the first money out. Such loans are extremely difficult
to obtain and can only be used in conjunction with other financing, not as
the sole source of financing for a film.
- Limited Liability Company (LLC). An LLC is a legal entity formed under
a statute, other than a partnership or a corporation statute that allows
an association of owners (and in some states, one owner) to carry on business
with none of the owners having liability for the obligations of the business.
The LLC creates limited liability for its owners (like a corporation), freedom
to structure management rights and financial interests in the entity in virtually
any configuration the parties wish (as in a partnership). The LLC will be
treated as a partnership for income tax purposes. The income, gains, losses,
deductions, and credits of the LLC generally will flow through to its members
for reporting on their personal tax returns. An operating agreement or member
agreement sets forth the agreement of the members of the LLC much in the
same way a partnership agreement sets forth the agreement of the partners
. These agreements provide terms regarding capital contributions, profit
and loss distribution, shares of distribution, management and voting rights.
- Limited Partnership.
A limited partnership consists of two types of partners. The first are the
limited partners who are the investors. The investors only lose what they
invest in the project and are not liable for any losses over and above their
investment (except when unusual conditions exist as when a limited partner
attempts to engage in running the business, in which case the limited partner
can run the risk of becoming a general partner.) The limited partner generally
has no say in the day-to-day operations of the project. The other partner
is the general partner, which is the producer or production company. The
producer puts up no money, but bears all the risk. The producer's potential
liability is unlimited to the limited partners and to the outside world,
should the partnership be sued. The upside is that if the film is a financial
success, the general partner reaps great profits without investing his or
her own money.
Even though the producer as general partner bears all risk, the producer can
be protected from liability by setting up the producer as a corporation to
act as the general partner/production company. The individual producer(s) hold
shares in the corporation. If the general partner is sued, only the assets
of the corporation can be reached. If all corporate formalities and laws are
followed by the shareholders, officers, and directors of the corporation, these
individuals should not incur personal liability. This takes much of the downside
risk out of being the general partner. The producer's personal assets are protected
by a corporate shield.