BY BOB LABATE
A few weeks ago I had the privilege of moderating a panel of producers and entertainment attorneys at a seminar entitled "The Special Problems of Documentary Film." The seminar, which focused on issues unique to documentary film production, was sponsored by the Independent Feature Project (IFP), the Chicago Academy of Visual Arts and Columbia College.
The film producers on the panel included Karen Larson, the business manager of Kartemquin Films which produced Hoop Dreams and other award-winning documentaries; JJ Hanley, who developed and produced Kartemquin’s latest award-winning documentary, Refrigerator Mothers; and Laurel Legler (www.futurenowfilms.com), producer of the rock music documentary, MC5 * A True Testimonial . The attorneys included Tim Kelley and Peter Strand. (A complete list of speaker biographies and the seminar outline can be found at www.mbc.com.)
Documentary filmmakers face all the problems of producing a feature film and, additionally, confront challenges that are unique to documentaries. For ease of discussion we divide these challenges into four categories: Formation, Financing, Production Issues and Post-Production/Distribution Issues. For those who were unable to attend (and who cannot wait for us to repeat the seminar this fall in a longer, five hour format) the following is a summary of some of the issues we discussed in the Formation stage of creating a documentary film.
There is a general–and generally incorrect–assumption that a documentary film is only made by a non-profit company (NFP). While NFP’s are the source of many fine documentaries, an equal number of documentary films are made by for-profit companies . The major reason for selecting one corporate form over the other is usually the film’s anticipated source of funding.
If you expect your funding to come from a foundation or from the tax-deductible dollars of private donors, then the extra work, expense and reporting requirements associated with creating an NFP may be justified. Be warned however, the competition for foundation grants is fierce and it may take many months–or, more likely, years–before you receive full funding. And with any NFP, there is the added responsibility of preparing reports to the state and, possibly, having to endure periodic review by a panel selected by the funding foundation.
Creating a tax-exempt NFP is a two-step process: First, you form your NFP under state law; and second, you apply to the IRS for tax-exempt status. It is not a task for a novice (see "A Brief Guide To Forming A Not-For-Profit" posted on www.mbc.com), but those willing to tackle this project will find the handbook created by the Nonprofit Financial Center (www.nonprofitfinancial.org) to be an invaluable guide. The IRS also maintains a very informative Web site (www.irs.ustreas.gov) that has a special section just for NFP’s and charities.
The IRS does not favor NFP film companies, so expect that even a well written application for tax-exempt status will draw questions as well as a request for additional information. And because obtaining tax-exempt status may take six months or more, you should not accept grants or donations before you receive your tax-exempt letter unless it is done with full disclosure of your situation.
To save money and time, some documentary filmmakers turn to "Fiscal Sponsorship," an arrangement whereby an existing tax-exempt NFP agrees to "sponsor" your company so that you might qualify for foundation grant money. Fiscal Sponsors often take a fee "off the top" of the grants collected and, as you might expect, serious problems sometime arise between the filmmaker and the Fiscal Sponsor. Since a dispute with your Fiscal Sponsor can kill your project, such relationships should be entered into carefully and only with Fiscal Sponsors that have a successful record with NFP film companies.
For those who want to avoid such NFP trials, the easier course is to organize a regular for-profit corporation under the laws of your state. In Illinois, the Secretary of State maintains a very useful Web site (www.sos.state.il.us) from which you can download forms and search for the availability of your corporate name. The process is relatively simple and cheap, but don’t forget to apply for your Federal Employer Identification Number, which most banks will require before permitting you to open an account.
Documentaries, like any feature-length film, are collaborative efforts that take many years to complete. As time passes, relationships change and best friends sometimes find themselves at odds over a project that either belongs to both or requires the continued effort of both. Much trouble is avoided if, at the beginning of the project, you and your collaborator agree, in writing, to a few basic issues.
For example, how are proceeds from the film to be divided, who–if anyone–will be reimbursed for their expenses, and who will control the production company (whether it is a tax-exempt NFP or a for-profit corporation) and the exhibition, distribution and other exploitation of the film and the outtakes? It is important to decide, at the beginning, how you will resolve any disagreements and what happens to the project if one collaborator decides to withdraw her support?
Remember, under U.S. Copyright law both collaborators may be deemed to be "co-authors" of the work and for distribution, the signatures of both co-authors are often required. So, at the beginning, you need to decide what will become of the project if one person decides to withdraw? A few minutes spent at the Web site of the U.S. Copyright Office (www.loc.gov/copyright) or with a knowledgeable professional may avoid a lot of trouble or a complete breakdown of the project.
Finally, once you’ve organized your tax-exempt NFP or your for-profit company, you need to maintain excellent corporate and financial records and comply with state and federal requirements governing the operation of your company. For example, an Illinois NFP must have, at least, a three member board, and must file annual reports. Failure to do either of these may endanger your NFP status or may subject you to personal liability for the obligations of the NFP. And never, never pay personal expenses with your company’s funds unless you are willing to risk being personally liable for the debts of your company.
© 2002 Robert J. Labate. This column is provided as a source of information and is not to be construed as legal advice or opinion. You may contact me at www.mbc.com, labate@mbc.com or McBride Baker & Coles, 500 W. Madison Street, Ste. 4000, Chicago, 60661 312/715-5700.