legal, intellectual-property, business-structureI live in Minnesota, USA. Some friends and I are interested in starting a company that makes short films of various sorts for YouTube and other platforms. I’m not entirely sure how this is going to work but I do know that:
So given the above, how do we structure things so that people are compensated for their work, but also only get paid if the whole endevor actually manages to turn a profit? Do we just make everyone members of an LLC? Or do we need to give people stock in an S Corp? How do we handle the scenario where we make something with one actor, but then we don’t make anything else with them, but also the company or the specific film they worked on becomes profitable?
If you give everything away and make it equal under an LLC, then you will face two challenges. 1) not everyone will work the same amount, 2) Each film will have different levels of success. The only way to get around this is to vary the amount of shares given, but that would be a headache.
Another approach is profit sharing. You could either get everyone to sign-up to a profit sharing agreement. This should give x% of net profit to each participant on an annual basis. A way to make this work better would be for the net profit to be reduced when a person becomes less involved with the project. For example, active members receive 5% of company net profits. Alumni (have not contributed in 6 months) receive 1%.
The second way of doing the profit sharing is on a film by film basis. This would require bespoke agreements for each film. Another headache.
I would suggest a general profit sharing agreement that pays out annually and you just keep people informed regularly on the status active/alumni and try and get together on annual pay day.
I don’t know US company types well enough to make a more specific recommendation on this aspect.
This is a relatively complex scenario given the number of people and the open endedness of the projects and people involved in each project. To create an LLC or other company to handle this, you’d likely need to spend at least a few thousand in attorneys fees to have corporate docs drafted. You’ll have to make annual filings with your state and do annual tax returns for the company…
I strongly recommend to keep it as simple as possible for as long as possible. Though, whatever you do, put it in writing so that it is clear as to what everyone has signed up for.
Perhaps you could create a template agreement that would apply to a single project and you could adapt that for each project you work on. The template agreement would include the following:
As you can see, even this simple approach is fairly complicated…
This is going to be a bit of an oversimplification, but try :
Make an S Corp for the company. The people who’ll be running it will be the managing partners. the rest will be silent partners. This way you could all have equity stake in the company; i.e: if one of your shorts make it big, you all share in the profit. If you guys keep losing money, you all keep losing money. Everyone has skin in the game.
Whenever you hire people within your crew, hire them as an independent contractor . Each person could even be their sole proprietorship production company. Sole props take minimal paperwork.
Make deal memos where these independent contractors work for deferred profits. You can define deferred profits at wage dollars/per hours worked.
Pay them wages as your money comes in.
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