An equity investment can be structured in a number of ways. For example, an investor could be a stockholder in a corporation, a non-managing member of a Limited Liability Company (LLC), or a limited partner in a partnership. However, the most typical structure for independent film financing is the LLC and I primarily will be discussing this type of equity investment.
An equity investor shares in the potential rewards of a successful project and the potential risks of project that fails to recoup its financing and make a profit.
Someone is considered an investor when the provide funds and they do not take an active part in the business venture, in the case of independent film, that business being the development, production and distribution of the project, Such persons or entities, and their interest in the LLC that is producing the project are known as securities.
Since producers seeking equity financing are selling securities, both state and federal securities laws apply.
State and federal securities laws require that most securities be registered with the state and/or federal governments. However, producers can avoid the expense of registration if they qualify for one or more statutory exemptions. These exemptions are generally restricted to private placements, which entail approaching people one already knows as opposed to a public offering w. offers can be made to strangers.
T. are a variety of exemptions to federal registration though these exemptions have still have filing obligations including the filing of documents with the SEC and often the appropriate state agency for every state in which an investor resides.
The exemptions have varying requirements and restrictions but all security offerings, even those exempt from registration, are subject to the antifraud provisions of the federal securities laws, and any applicable state anti-fraud provisions. Consequently, the offeror, that being the producers, will be responsible for any false or misleading statements, whether oral or written. Those who violate the law can be pursued both criminally and civilly. Moreover, an investor who has purchased a security on the basis of misleading .rmation, or the omission of relevant .rmation, can rescind the investment agreement and obtain a refund of their investment
T.fore, when seeking to finance your film through equity investors, it is very important to consult an entertainment attorney experienced in this type of film financing.
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How to get financed