Business Plans for Filmmakers

4. The Company or Investment Vehicle

53 4. The Company or Investment Vehicle Once again, the more traditional major section of a business plan called “The Company” (or sometimes “Company Description”) appears to be a carryover from the corporate business plans, in the sense that it is important in such business plans to spend some time talking about the company in which the investors are investing. In project financing, where investors may be investing in the revenue stream of one or more films but not investing in the production company, it may not be appropriate to name this section “The Company” and devote so much time and space to a discussion of the production or development company. Rather, it would be more appropriate to refer to the section as “The Investment Vehicle” and spend more time and space discussing the investment vehicle. For this reason, it is important to know the difference between the two and which applies to the filmmaker’s specific situation. Labeling the section “The Company” might be misleading or even confusing to prospective investors because by its very terms, this section heading implies that the investment being considered is an investment in the company. Again, in project financing, the investment vehicle may or may not be an entity or a company. It could be an investor financing agreement or a joint-venture agreement (i.e., merely contracts). Contractual Investment Vehicles If one or the other of the two contractual investment vehicles are being used (investor financing agreement or joint-venture agreement), it may be appropriate to create a section relating to the company so that information about the production or development company can be provided. In these instances, the filmmaker will want to talk about the nature of the company (i.e., whether it is a sole proprietorship or a general partnership, when it was formed, the location of its offices The Company or Investment Vehicle 54 and who the owners are, at least the controlling owners). For this purpose, the filmmaker may want to use the phrases “wholly owned by” or “majority-owned by,” whichever applies. The filmmaker will also want to disclose whether the company is doing business under a fictitious name (dba) and when and where the fictitious name filing occurred. If the company has any history as a business, the filmmaker will want to provide that factual information. On the other hand, it could also be a corporation yet to be formed or a membermanaged LLC now existing or to be formed, both of which are companies but which have little history. Yet again, the filmmaker may have a well-established film-production company that will be used with another investment vehicle and thus will want to provide some discussion relating to that established company, even though the investors will not be directly investing in it. Whatever the circumstances , it is important that the business plan accurately reflect that situation in both the section heading and the text. Company-Type Investment Vehicles If one of the company-type investment vehicles is being used (corporation to be formed upon funding or the member-managed LLC), then the investors are actually being asked to invest in the company. In these two instances, it is not misleading to have a “company” section and the information provided for the two investment vehicles in the paragraphs below would also be provided for this company. Once again, the choice of investment vehicle has an impact on what is written throughout the business plan. As an example, if a filmmaker comes in to see a business-plan consultant and tells the consultant that he or she has already committed to sell the prospective investors a specified percentage of “the company,” that is a form of “corporate speak.” With corporations and possibly member-managed LLCs, a filmmaker may sell a percentage of the company, but with investor financing agreements and joint ventures, the filmmaker is not selling a percentage of the company. Instead, in those situations, he or she is selling a profit participation in a defined stage of the film’s revenue stream. Thus, there are a couple of lessons in this example. One, filmmakers need to be careful about committing to a specific revenue-sharing scheme until certain about which investment vehicle will be used. Secondly, all language used in the business plan must be consistent with that preliminary decision: the choice of investment vehicle and whether that investment vehicle is different than the operating or production company. Corporation If the company is a...