Technically there is no need to form or use a company to make a film, but in most cases it is a good idea to do so.
For short films, it is less important, but producing the film through a company can bringĀ benefitsĀ in areas such as reclaiming tax (e.g. VAT or GST) and limited liability if things go wrong. It’s worth bearing in mind that in some countries you can just register yourĀ businessĀ name and start trading. This type ofĀ businessĀ is known as a ‘sole trader’ in many jurisdictions. Although usually cheap to register, sole trader typeĀ businessĀ do not offer any liability protection to their owners, as in effect the owner andĀ business’ finances are one in the same. As such, sole trader businesses are not recommended for films. AĀ businessĀ type which provides limited liability to its owners is far more suitable.
When it comes feature films, having a properly incorporated company with limited liability is essential. Typically a new company is incorporated specifically as a ‘vehicle’ to produce the film (i.e. it does not have any otherĀ activitiesĀ besides producing the one film). These companies are often called ‘special purpose vehicles’ or SPVs. Besides the same tax and liabilityĀ benefitsĀ mentioned earlier, the mainĀ advantageĀ of this approach is that all of the finances are ring-fenced within the company, which makes it simpler to manage and more transparent to the various parties which will be involved. It also means that if things go wrong, because the company is legally separated from its owners (and other production partners), any claims against the production can only be made against that company.
Later down the track, the production vehicle can also be used to manage the distribution of the producer’s net revenues to the various participants in a fair and transparent way, since the company is subject to normal accounting rules.
So the upshot is for feature films, you should always incorporate a limited liability company to produce the project. The downside is you will incur once-off registration fees, and the costs of preparing and submitting the annual accounts to respective authorities in your jurisdiction, but this is ultimately a small price to pay for theĀ benefitsĀ gained.
