Setting Up Your LLC and Opening Your Bank Account
An LLC (limited liability company) is separate from your corporation. A corporation is more like your umbrella company that depicts your brand. You don’t raise funds under your corporation. I have a company called Snowfall Film, Inc., under which I produce my art house and family films. When Kate and I decided in the fall of 2004 to produce some horror films, we wanted to keep them separate from Snowfall Films and to instead create a company with its own brand, so we launched WindChill Films, Inc.
Every film you produce that you are raising money for will be a separate entity. If anything goes wrong and there is a lawsuit filed against your film, it will not affect your corporation. Also, for tax purposes, each film is kept separate, which will make your life much easier at tax time.
So let’s open your LLC.
OPENING YOUR LLC: YOU CAN DO IT!
Do you have to use an attorney to open your LLC? Well, I thought we did, at first. I hate to spend money before preproduction, but when Kate and I were beginning to work on Candy Stripers, the thought of opening an LLC by ourselves sounded scary and complicated. So we called an attorney and paid him a lot of money – money that should have gone toward production. I found out after the Candy Stripers’ LLC was open just how ridiculously easy it is to open an LLC! It literally takes a few minutes and in the State of California it costs only $70. So there is no excuse to pay an attorney $2,000 or more to do it for you. In California, it’s as easy as going to www.sos.ca.gov.
However, if you really don’t want to open the LLC on your own, there are companies that will do it for you for a fraction of the price of an attorney. Just Google “opening an LLC” and you will get a number of companies that will help you do it for a small fee. There are companies and sites like legalzoom.com/llc, incfile.com, www.smallbiz.com, incorporate.com/llc, and many more. Also, in your state, province, and country, there are obviously different ways to open your LLC, so please go online and do your research or call your state/provincial government office for information. I take advantage of their staff and attorneys all the time. They are free, so why not call them and learn from them? Even if you are using an attorney of your own or having a company like Legal Zoom do the work for you, I still recommend doing your own research, just to educate yourself in this area. You are the producer, which is in fact the manager/president/CEO of your company. Take full responsibility for holding that position at all times.
WHERE DO I OPEN MY LLC?
When I was teaching the Low Budget Film workshop, that question came up in every single class. I know that in the United States the cost of having an LLC varies from state to state. People would ask if they should open their LLC in a state where LLC taxes were less expensive. My attitude is: don’t mess with the government. Your film company is like any other company, so be professional about it. The law states that you should open your LLC in the state in which you will be doing business. So if California is where you will be “doing business,” then open your LLC in California.
WAIT UNTIL YOU’RE READY
When we were preparing to open the LLC for Candy Stripers, we were so anxious to get started that we just went ahead and opened the LLC. We had finished development on the screenplay and were busy working on the business plan and private placement memorandum, so we thought, why not go ahead and do the LLC paperwork at the same time? It was November. We were finished putting the PPM packages together, which wouldn’t go out to investors until January – but we still went ahead and opened the LLC in November. Crazy! We ended up having to pay taxes for the year we opened it even though we weren’t ready to do anything with it at that time.
Also, in the State of California, there is not only a yearly $800 cost for the franchise taxes for an LLC but there is an $800 charge that has to be paid four months after you open your LLC. That charge is required as a payment for the following tax year. So there we were, barely ready to go out and raise the funds, and we were spending money out of our pockets. Be conscious of your timing.
STEP # 1: CLEAR THE NAME
Okay, let’s open your LLC. The first thing that Kate and I did was list our first three choices for the name of our company. For example, Séance, LLC; Séance Films, LLC; and Séance Productions, LLC. Then we went online to www.sos.ca.gov and found the form for the name clearance. We entered our three choices in order of preference. It didn’t cost anything at all, and in minutes we got notice that our first choice was available. You can also fill out a hard copy and mail it in. You will get your notice back within a week. Figure 5.1 shows what the form looked like.
Figure 5.1
STEP # 2: ARTICLES OF ORGANIZATION
In the State of California, at the time we were opening Candy Stripers, Séance, and Portal, the form that we had to fill out was one page long and the cost was $70. Filling out the form takes a few minutes. Basically, the information you have to give is your name, address, phone number, and how many managers there are. That’s about it!
Be careful with the number of managers. Even if you are going to have 25 or 30 investors, they are not managers. If you are the only person involved and it is your LLC and your film production company, then check “one manager.” In the case of our films, there were both Kate and myself, so I checked off “more than one manager.” That is all the information you need. Pretty simple and basic and certainly something you can do yourself. You can do this online or fill out a hard copy and mail it in to the Secretary of State’s office.
To get the hard copy back with the red stamp and state number on it takes at least a few weeks. When you get that number, you can move on to the next step: the LLC form. The LLC form is shown in Figure 5.2.
Figure 5.2
STEP # 3: GETTING YOUR EIN NUMBER
Once we had our assigned state number, I went online and filled out the one-page form to get our federal EIN (Employer Identification Number). This was completely free and literally took only a few minutes to get back from the federal government. Go to www.ein.com. Figure 5.3 is the first page of the EIN online form.
Figure 5.3
CERTIFICATES AND SEAL
The one disadvantage of doing it yourself is that you don’t get investor certificates or the seal packet that gives your company the embossed seal. Don’t worry; there are companies online where you can get those items (and more) if you want them. I never bothered ordering the certificate but I did order the seal and ended up using it only once on one film. The seal and certificates are not at all expensive. You can probably get 20 or 25 certificates for around $30 and the seal for about the same. Your investors may be impressed with having a certificate with their name on it stating that they invested in your film. It might be worth the cost to order them.
OPENING YOUR BANK ACCOUNT
You’re thinking, come on, a section about opening a bank account, really? I know, it sounds like it would be commonsense and pretty easy. Well, it is easy, but even opening a bank account comes with a certain learning curve when it’s for a business – specifically, a film. Plus, I have a few tips for you that I learned along the way that may save you some money.
WAIT UNTIL YOU’RE READY TO OPEN YOUR ACCOUNT
Don’t open your bank account until you are absolutely ready and know you have investor’s checks about to come in the door. Why pay the $10 or $12 dollars a month in banking fees for an account if you’re not ready? I made that mistake and ended up having an account open for months and months before we received our first check. In addition, you will need both your assigned LLC Secretary of State number and your EIN number if you are opening an account in the United States. This process may differ depending on which country you are planning to open your business in. With each film, you need a different LLC, and the same goes for your bank account: you’ll need a new one for each film.
OPEN TWO ACCOUNTS
Of course, you will need to open a business checking account, but there is another account you can open that will give you interest! I hate to pay for the wrap party out of the budget, and although I set aside money for the party as part of the operating expenses, I found an even better idea when I was opening the bank account for Séance. At Bank of America it’s called a “maximizer account.” It’s a business savings account that allows you to earn interest on your money. On Séance, by the time we were ready to shoot and I needed to move the money into the checking account, we had earned $835 in interest, which more than paid for the wrap party. So check to see what your bank offers in regard to a business savings account. For the few minutes it takes to open the account, it’s worth it.
If you want to go ahead and open your accounts before you have checks from investors – but you know it’s close and you want to be ready – then you can usually open both accounts with as little as $100 in each. Kate and I have done that each time, and if you decide to this, just keep the deposit receipt so you can be sure to get reimbursed when you enter preproduction.
WHAT TYPE OF CHECKBOOK SHOULD YOU ORDER?
We looked at all the different types of checkbooks that Bank of America offered and decided on the one that offered three checks per page, each one numbered and each with a check stub attached. Figure 5.4 shows one of the checks.
Figure 5.4
The checks were available in different colors, so with each film we chose a distinct color. There is no carbon paper to bother with and the checks and stubs are plenty big. I love using the check stubs, so let me tell you a bit about how to use them. I learned this one the hard way. I was doing the taxes for Séance. It was March and we had shot the film in May and June the year before. Trust me, remembering details from eight or nine months before is not something you want to do.
Because of the budget size on these films, I was the one who would be doing the detailed outline for the annual taxes. I always send everything off to an accountant, but only after I have done all the paperwork. It can be the difference between a bill for five hundred dollars and a bill for five thousand.
When I began the accounting on Séance, I had broken down my sheet into all the categories related to the film. Then I started going through the checkbook stubs and adding up all the items related to each category. I had been pretty good with details, even including which items were budgeted, operating expenses, and finder’s fees. However, when it came to petty cash that was spent during preproduction and principal photography, I hadn’t made a note of exactly what it was needed for. It totaled nearly $7,000. So I called Mike, and together we tried to recall what each of the petty cash checks had been used for. I remembered $1,000 going to craft services one day and Mike remember something else, and eventually, after an hour on the phone, we remembered each category that each check was allotted to. What a waste of time and energy!
If I had asked each time and written it on the check stub the moment I got the check request and wrote the check, I would not have had to go through that painful exercise. The moral of this story is to keep detailed (very detailed) records on your check stubs. That’s what they are for, so use them – no matter how busy you are at that moment.
MAKING DEPOSITS: DETAILS
Speaking of details, here is another area where you want to be conscientious. You will get a good-sized book of deposit slips and a stamp with all the company checking account information on it. So when you flip the check over that you are going to deposit, you just have to stamp it. When you fill out the deposit slip, once again, put as much information on it as possible. Once I fill it out, I remove the carbon paper and on my copy I write even more information. I write the name of the person that check is from, for example, which has come in handy more than a few times. I’ve had calls around tax time from investors asking when they sent their check and when I cashed it. Instead of going through old bank statements, I can just glance at the deposit book and there is all the information. Any little time-saving device is valuable.
GET YOUR VISA OR MASTERCARD NOW
Here is a step that is very, very important, yet is also something that many producers forget to handle. On the day you are opening your account, fill out the paperwork for your film company’s Visa or MasterCard. It will take a little time to come in, so don’t leave it to the last minute. Also, you and your line producer will need the Visa/MasterCard the minute you begin preproduction. Your line producer will need to use it to make deposits to certain vendors. You won’t necessarily be putting any money on the credit card itself, but it is often required to hold vendors.
THE CHECKS AND VISA ARE IN YOUR NAME ONLY!
You are the producer. You are the only one who gets to sign the checks and the credit card is in your name only. Please read that sentence again a couple of times. Of course Mike (our line producer) would get to use the credit card to hold vendors, but the cards themselves were in our names only. Kate had one and I had one – period. Also, regarding the checks, they are in your name and only you have the check-signing authority. Anything else is crazy. This is a business, and you are accountable to investors. You don’t have the right to play this game any other way than as a business professional.
One of my students just didn’t listen, and because he was the writer/director in addition to producing the film, he felt overwhelmed and gave his line producer full check-writing privileges. He also gave his line producer a credit card in his own name. The line producer was a great guy and even came highly recommended, but toward the end of the shoot he fell off the wagon and took the credit card and ran up personal charges of over $25,000! My student was liable for this money. In the end, he needed to go out and raise additional money for post and delivery.
As much as Kate and I loved our line producer (he and his wife are personal friends of ours), there is still no way I would ever give him either the right to sign checks or a credit card in his name. It is not about me and my personal relationships or about how busy I might be. It is a business and I am responsible to the investors associated with that business.
CHECK REQUEST FORM
When your line producer needs money, he or she will bring you a check request form; this is when you look it over, approve it, write the check, sign it, and hand it back to him or her. Figure 5.5 shows the one that Mike used on our low-budget film projects.
Figure 5.5
PAYROLL COMPANY OR NOT?
During your actual film production, if you are doing the film as a SAG signatory project, your line producer will need to hire a payroll company to pay the SAG actors. However, for all the rest of the cast (the ones who are non-SAG) and the crew, Mike drew up a list of everyone and how much their salary was each week. He would bring me the list on the day everyone was being paid. I would write out the checks and give them back to Mike for him to deliver to people on set before we left for the day.
Also, long after the film is completed and sold, you will have to continue to use a payroll company to make your residual payments if your film is SAG signatory. It is not at all expensive and well worth it, as they are the experts in working with your sales company’s report and figuring out the SAG residual payments for both your international and domestic sales.