film finance and production legal

The Essential Guide to Financing Your Independent Film

Navigating Regulation D

If you're an independent filmmaker seeking investment funds for your next project, congratulations! You’ve reached a significant milestone! The prospect of film financing may seem daunting, but the starting place should be understanding the regulatory landscape surrounding private offerings. This will be crucial for securing film financing while staying compliant with federal and state securities laws. Let’s dive into the essentials of film finance and production legal for films.

Regulation D private offerings, commonly known as “Reg D Offerings,” allow businesses, and your film production entity specifically, to raise capital by selling “securities” without having to fully register these securities with the Securities and Exchange Commission (SEC). When financing your independent film, you will very likely be offering a security to your investors in one of the following ways: by offering partial ownership stake in your production entity, by offering participation rights, such as a percentage of gross or net proceeds after the film is distributed and in exchange for their investment, or by utilizing a debt instrument, such as taking out a loan. All of these are considered “securities” for legal purposes, which would normally need to be registered with the SEC.

Fortunately, Regulation D offers exemptions for private offerings, which means certain forms of securities can be exempt from the reporting and registration requirements. Crucially, this means you as a filmmaker will be spared from the tedious and expensive headache that is formally registering your securities with the SEC. One of these exemptions is Rule 504, and is likely to be the most suitable exemption for your film financing needs. Rule 504 permits offerings of up to $10 million within a twelve-month period to both accredited and non-accredited film investors. This means you can offer your securities to a wider range of film investors irrespective of their income or net worth, since the SEC usually requires accredited investors meet certain income and net worth thresholds in order to invest in securities. However, you need to be wary of the specific limitations with Rule 504, such as the mandatory compliance with state securities laws and regulations in all of the individual states in which your securities are offered or sold, otherwise known as each state’s “blue sky laws”.

To effectively utilize your Rule 504 exemption, you must file a Form D notice with the SEC within fifteen days of the first sale of securities. If you are raising money from investors residing in California, you must also comply with the state blue sky laws overseen by the Department of Financial Protection & Innovation by filing a Limited Offering Exemption Notice, also within fifteen days of the first sale of securities. As outlined above, this first sale of securities will likely be the first investment you receive from a financier for units or shares of your company.

Remember, compliance with both federal and state securities laws is critical when it comes to financing a film. And if your offering includes out-of-state investors, you must also consider their state’s blue sky laws and exemption requirements. Compliance helps secure your film project’s future and ensure you will not face penalties from the SEC. These can be complicated situations, so if you are unsure about any of these aspects, consider bringing on an entertainment attorney to help make sure you stay in compliance.  

If you are looking for an attorney who can effectively advise you on film finance and production legal for films, then reach out to Ameri Law.