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Limiting Liability, Pg. 3

Joint Venture
A joint venture is a special type of partnership, one formed for a particular and limited purpose. Producers often use joint ventures to combine the forces of two existing production companies for a particular project, like co-producing a film, writing a screenplay, or creating a television pilot.

To have a joint venture, the writers must have (1) a common business purpose, like the writing and exploitation of a screenplay; (2) shared profits and losses; (3) an express or implied contract to work together; and (4) an equal hand in controlling the relationship.

Limited Partnership (LP)
A limited partnership is a partnership in which some of its partners may enjoy liability protections.

  • The business is owned by two classes of partners: general partners and limited partners.

  • Only the general partners are personally liable for all the debts of the business. For this reason, there must at least one general partner.

  • Only general partners may obligate the business (authorize the business to enter into contracts, authorize loans, settle lawsuits, hire and fire, etc.).

  • Limited partners are liable only to the extent of their investments, but they have no management authority.

  • A person may be both a general and limited partner at the same time.

  • A state government filing is required to form an LP.

  • While not generally required, a partnership agreement is recommended.

Corporation
There are two types of for-profit corporations: a C. Corporation, and a Subchapter S. Corporation.
The features common to both kinds of corporations are:

  • The corporation is owned by its shareholders and managed by its board of directors and managers.

  • Someone can be both a shareholder and a director or manager.

  • Directors and managers legally obligate the business (cause the business to enter into contracts, authorized loans, settle lawsuits, hire and fire, etc.).

  • All shareholders enjoy limited liability status.

  • A corporation is created by filing documents with the state government.

  • Ownership interests are conveyed by the corporation issuing shares or by a shareholder transferring shares to another person.

  • “Bylaws” dictate how the corporation governs itself.

The two big differences between the S. Corp and C. Corp. are as follows:

  • The C. Corp. can have an unlimited number of shareholders, whereas the S. Corp is limited to 75 shareholders.

  • The C. Corp. is subject to “double taxation,” which means that the corporation is first taxed, and then the individual shareholders are taxed. The S. Corp., like partnerships, LLCs, and sole proprietorships, are only taxed at the individual income level.

Limited Liability Company (LLC)
The limited liability company, also known as an LLC, has become the business entity of choice for most small film production companies. This is because it has the limited liability advantages of the corporation with the flexibility of a partnership.
Its features include:

  • The LLC is owned by its “members.”

  • The LLC may be managed directly by the members or by managers whom they appoint.

  • Like the shareholders of a corporation, the members enjoy limited liability status.

  • State filing is required to form a LLC.

  • Taxation is on the individual member level, similar to the S. Corp., the partnership, or the sole proprietorship.

  • The rules dictating how the business is run are largely driven by the “Operating Agreement,” which is a very flexible and highly customizable contract between the members of the LLC.

  • In addition to contributing cash, members may also agree to contribute services to the company, such as directing the movie or writing the script; or to contribute property, such as the copyright to the screenplay or the ownership of the camera, or the use of an editing system.

Forming an LLC
LLCs are typically formed by filing “Articles of Organization” with the state government.

An operating agreement should be negotiated, agreed upon, drafted by a lawyer, and signed by the LLC’s members. The operating agreement usually governs the company’s structure, the duties and obligations of each of the company’s members, the amount and manner of the members’ contributions to the LLC, how finances are handled, and how voting is determined.

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