The film making business is notoriously risky with the amount of projects that end up in the red and/or with a lawsuit. As such, it's critical to ensure that your personal assets are protected. One of the easiest ways to protect your personal assets from a production disaster is to operate your production through an LLC. The formation of an LLC isn't as straightforward as one might think seems so it's always wise to work with a competent attorney to ensure that your LLC is formed the right way.
LLC stands for “limited liability corporation”. Like the name suggests, LLCs limit liability. Liability is limited by separating the owner's personal assets from their business's assets, debts, and lawsuits. If a production was run through an LLC, in the event of a lawsuit it will be a lot harder for someone to come after the personal assets of the producing party(ies).
LLCs provide an important level of protection but simply having an LLC doesn't provide unlimited protection. Officers, directors, shareholders, and members can be held personally labile if there's sufficient evidence to “Pierce the Corporate Veil”. As such, there are certain guidelines for operating an LLC that should always be followed. The corporate veil may be pierced if the LLC engages in “fairly egregious actions, misconduct, or abuses benefits and protections”. For example, intermingling personal assets with the LLC's assets is grounds for piercing the corporate veil. Therefore, it's a good idea to keep separate bank accounts (personal v. LLC) and not use LLC funds to pay for life expenses. The corporate veil can also be pierced if the LLC is inadequately capitalized such that it's borrowing to pay off previous creditors.
Hopefully your production goes off without a hitch, but any experienced producer will tell you that's rarely the case. Even if you're on a low budget, take the extra step to give yourself a little body armor in the event of a worst-case scenario.
This article is meant to give a broad overview of LLCs and why they're important. Nothing in this article is meant to be legal advice and should not be taken as such. Always consult with an attorney before making any legal decisions. Feel free to reach out to my office at pittentertainmentlaw.com, [email protected], or (424) 202 – 4239 .