The Chicago Academy of Visual Arts (CAVA) recently sponsored a conference titled "Truth or Myth," featuring 10 Chicago-based professionals who earn their living making or promoting independent films and who were willing to share their experiences with first-time producers. This extraordinary panel–a list identifying these professionals is available at CAVA’s Web site (www.smsprod.com)–provided many practical insights into the business of making independent films.

After the main panel presentation, two of my attorney colleagues, Tim Kelley and Nancy Fallon-Houle, and I spoke for an hour about the most common legal hazards faced by independent film producers. An outline of our presentation titled "The Seven Deadly Sins of Independent Film Production," will be posted after May 31 on my law firm’s Web site, www.defrees.com.

For those of you who didn’t attend, in my opinion, the most common legal dangers facing independent Midwest film producers are as follows:

1. Formation Interruptus: The failure to select the right structure for the production entity or the failure to plan for (and document) the operation of the production entity.

2. Failure To Build Good Fences: Production is a collaborative effort, but many independent production companies fail to create rules and service agreements for owners who also provide screenwriting, directing, acting services. Disputes among the principal owners often prove fatal.

3. Taking Risks When Taking Money: Many independent producers either lose control of the project or unknowingly violate state and federal laws when raising and using other people’s money.

4. Acquiring Air or The Copyright Shuffle: A lot of independent film makers fail to prepare enforceable Option/Purchase Agreements for acquiring literary and other intellectual property rights.

5. Above The Line Chaos: Attachment agreements, Deal Memos, Standard Terms & Condition are essential, but well-drafted agreements are rare.

6. Yes Sir, May I Have Another?: The real audience for most independent film producers is the film’s proposed distributor, but most distributors won’t buy a film which doesn’t meet certain legal requirements.

7. Closing The Barn Door: Producers who are trying to hold onto precious dollars rarely involve a lawyer at the beginning of a production; unfortunately this is when lawyers are needed the most.

While these issues are far too complex to discuss thoroughly in this column, there is just enough space to expand briefly on each issue. So it here goes.

Formation Interruptus and Failure to Build Good Fences
The first two sins are really two faces of the same coin. On one side, the producers fail to anticipate which type of entity (for-profit corporation, limited liability company, limited partnership or a not-for-profit corporation) will best fit their long range plans and interests.

Remember that "form follows funding," which means that your likely source of funding will strongly influence the type of entity you select. For example, if you intend to fund your project through third-party investors, then a limited liability company or a limited partnership is preferred. On the other hand, if primary funding for your documentary is likely to come from foundation grants, you may need to form a non-profit company and apply for tax exempt status under section 501(c)(3) of the Internal Revenue Code or you could also affiliate your project with an existing non-profit company which already has 501(c)(3) status.

The need to build good fences is based on the reality that film production is a difficult, collaborative process and even the best of friends sometimes find themselves unable to complete their project because of personal or artistic disputes. The beginning of the relationship is the best time to create rules for solving controversies and to draft agreements describing what happens to the project (and the underlying scripts, music and production rights) if irreconcilable differences arise. See my prior PerformInk column "Getting To Know You" in the April 28 issue.

Taking Risks When Taking Money
For some reason there is a belief among independent film producers that they can solicit and accept thousands of dollars in investment without complying with federal and state laws governing the sale of securities. There is always a story about a friend who made this picture, or that short, and who swears that independent film makers don’t need to worry about such exotic things as private placement memoranda and SEC filings. The reality is that securities laws often do apply to funds raised by independent producers. So keep in mind that if an investor has enough money to fund you, he or she probably has enough money to sue you.

Acquiring Air and Above The Line Chaos
More independent film projects flounder on these two sins than any other and yet it is fairly easy to avoid these rocks without giving all your money to your lawyer. For example, one of the panel members suggested that first-time producers simply buy a CD full of standard entertainment legal forms and then review the applicable ones with your lawyer to see which need to be modified to fit the circumstances of your production. In this way, your lawyer is editing rather than creating documents and your cost should be reasonable.

Film Distributors and Involving Legal Counsel
The audience for most independent producers is the target distribution company, which is likely to purchase or license the film. And most distribution companies (or the Errors and Omissions Insurer) will want to examine a ton of legal documents proving that the producer is the sole owner of all elements of the film and has the exclusive right to exploit the film. A sampling of the types of documents, warranties and representations demanded by distributors is contained in two prior PerformInk columns titled "What Film Distributors Want." Given this, it is wise to add an attorney (or a seasoned production professional) to your "production team" as soon as you begin spending serious time or money on the project. It may cost some money up front, but it is considerably cheaper than ending up with a beautiful and expensive 90-minute home movie.

©2000 Robert J. Labate. This column is provided as a source of information and is not to be construed as legal advise or opinion. The characters and situations are entirely fictional. You may send questions or comments to Robert J. Labate, Defrees & Fiske, 200 South Michigan Avenue, Suite 1100, Chicago, IL 60604.

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