On the previous post in this series I talked about financing, this time around I will focus on the different legal entities under which you can register your production house. So I once again surfed the World Wide Web and discovered that most starting filmmakers begin their careers as independent filmmakers and in accordance to that, is how they set up their production companies; that is if they so choose to form one.

The two common types of legal entities that are usually used by independent filmmakers are: Limited Liability Company (LLC) and Individual/Sole Proprietor. I ran across a third one, and thought I should include it; it is the Doing business as (DBA).

An LLC is a type of legal entity that provides protection to its owners, by being a separate entity altogether. If for any reason, the company finds itself in legal trouble like a lawsuit, and has to pay out a large sum of money, then the company itself takes the hit because only company assets would be bare. Since the personal property of the company’s owners is not part of the company, then those would run no risk. There are times when there are personal guarantees and sometimes personal property is used as collateral, in which case, those would be considered part of the company and could be seized if needed, in order to pay out.

However, an LLC does have its share of disadvantages. It takes great unavoidable expense to maintain, and there are very strict rules as to how money can be moved around. Also, as I understood it, an LLC has to have, among many other things, shareholders and directors. Finally, LLCs have to submit accountant prepared reports to the proper authorities.

An Individual/Sole Proprietorship is the opposite of a Limited Liability Company, I would say. Because instead of the company being a separate legal entity, it’s legal and financial aspects are the same as those of its owner. Therefore, if the company gets in trouble, both company assets as well as the personal property of its owner would be on the line. Also, company income and personal income would be the same, and that eliminates pretty much every tax advantage. However, the cost to maintain an Individual/Sole Proprietorship is very reasonable the, requirements for accountant prepared reports are minimal and sometimes it is not even required to register a name for your business.

“Doing business as” means that the business is running with a name different than that of its owner. It is usually used to keep the owner’s identity private. I think this is used very frequently, a number of businesses could have one parent company and the general public is not aware. But since business owners have legal responsibilities, in order to “[Do] business as,” they must file a DBA statement, which I believe can be done at the town hall. Parent companies can be a sole proprietorship or a Limited Liability Company, for which the appropriate rules and requirements, as I mentioned above, must be followed.

I still do not know which way is best for me. The first one that comes to mind is the LLC, for the protection it offers, and as long as business is conducted honestly and honorably, filing and reporting should be no problem. However, the fees that must be paid could become a hardship for me as well as for those just beginning and, lest I forget, the need of lawyers and accountants, will only increase the financial requirement.

I, yet again, want to reiterate that this is a learning experience for me; I need all the help I can get. If anyone out there sees any inconsistencies or can offer information that I failed to mention, by all means step in, it will do nothing but help. I have started a thread about this in the forum, feel free to comment and offer your insights there, as well as on the comments section of this post. And next time on Bloddard.com, “Find a Locale to Set Up.”

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Related posts:

  1. How to Start a Video Production House: The Locale
  2. How to Start a Video Production House
  3. How to Start a Video Production House: Buy or Rent Equipment
  4. How to Start a Video Production House: Financing
  5. How to Start a Video Production House: The Business Plan