Five Legal Questions To Ask BEFORE Crowd-funding You Next Film (or Creative) Project
I recently had the opportunity to share the stage at a Chicago VentureShot Community panel presentation on crowdfunding an independent film project. My client successfully raised enough funds to produce his film through the Crowdfunding site KickStarter.com. Due to the unpredictable life with three small children I was not able to physically attend although I did participate in real-time using Twitter. What follows is a series of questions that were discussed during he panel.
If you are considering using a crowd-funding platform (e.g. Kickstarter) to raise funds for your production, here are five questions at you should ask BEFORE you launch your campaign.
1. Are there legal distinctions to using Kickstarter to collect funding for projects rather than doing it the traditional way of seeking investments from friends, family, fools or private investors?
Yes. The biggest difference between the (current) crowd funding method and the traditional equity-investor model is the value proposition being offered in the crowd-funded model. I say “current” because crowd-funding today does permit solicitation or sale of an ownership interest.
2. What are the legal steps to protecting projects before putting them on a Crowdfunding site?
I recommend my clients look at three areas of legal protection before putting a project on a Crowdfunding site.
First, consider forming a legal entity to protect you, your partners and the assets of the business. The most common entities are corporations and limited liability companies.
Second, do a trademark clearance search to make sure the brand names you want to use (e.g. the name of the production company and/or the name of the Film (or project)) are not in use by someone else. Nothing is worse than investing thousands and sometimes tens of thousands of dollars in a project only to learn that you have to change your name.
Third, make sure you have a clear chain-of-title for all the eighths you need to exploit. This means properly documents and executed Option Agreements, Script Purchase Agreements, Talent / Cast & Crew Agreements, Right of Publicity Waivers, Music/Film Score clearances and any other waivers or releases necessary to reproduce, promote, distribute and creative derivative works from the Film.
3. Are there legal upper bounds to funding through Kickstarter specifically?
Wile there are no dollar limits on the amount of money that can be raised using Kickstarter, there are limitations. For example, a project must reach its funding goal before time runs out or no money changes hands. Also, once a funding goal is reached, the project must be started or the money must be returned to the backers.
4. What are the legalities of taxation on film projects through Kickstarter? A they different per state?
Although the federal Film Tax incentives are no longer available many states still offer some. Each state is different and many require a certain amount of money be spent in the state, in a certain period of time, in order to qualify for the incentive. Consult a qualified lawyer to determine eligibility for Film Tax Incentives.
5. If you can’t finish a project that has been fully funded on Kickstarter, what legal liability comes into play?
CrowdFunding describes the collective cooperation, attention and trust by people who network and pool their money via the Internet to support efforts initiated by other people or organizations. Leavens, Strand, Glover & Adler has a decades long history assisting Filmmaker and Film productions clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs). We provide guidance on regulatory and industry trade association compliance.