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Author: The Movie Fund Blog
FILM PRODUCTION… A STRUCTURED FILM INVESTMENT
Every film has a different budget and Film Investment. Some are low budget at £5 million or less, such as Paranormal Activity. Some are mid-budget at £15 million or less, such as The Descent, whilst others are much, much higher! Generally, independent films rarely go over a maximum budget of £30 million.
In return for your investment. Investors in a film produced by The Movie Fund will receive equity in the production, the production company, or both, as well as a profit-share on the potential revenues from the film and subsequent sales of DVDs, Blu-Rays, merchandise, etc.
With movies that have a low budget, i.e. £5 million or less, the entire film production and Film Investment is incorporated into a limited company or partnership, registered with Companies House in the UK, just for the production of that one film. The company or partnership is there as a means to bring together in one place all the operational activities, financial assets, revenue receipts and liabilities that will be associated with that movie including tax, payroll and management. Whether the company is independent or a subsidiary of The Movie Fund, once the film has been completed, the relevant production company or partnership will be dissolved.
As the film production is registered as a company or partnership, all investors become shareholders of the production company and are entitled to share equity in respect of their invested capital. It also means that the company is able to borrow against the equity, and it can be sold to another company. Senior personnel, including producers and directors, become a member of the Board of Directors, and the crew involved with that film can benefit by holding shares in the production company or partnership, receiving any dividends in due course by film investment.
The production company deals with all the paying of any tax due, and the receiving of any revenues generated. It also owns any intellectual property, i.e. DVDs, merchandise, Blu-Rays, posters and interactive games that are produced.
Enterprise Investment Scheme (EIS)
The production company will also be registered as part of the UK Government’s Enterprise Investment Scheme (EIS). As part of this scheme, the production company will be able to authorise investor’s certificates which are then presented to HMRC (HM Revenue & Collections), the UK’s tax officials, demonstrating that the investor is entitled to certain tax reliefs including deferral of Capital Gains tax, relief on Income tax and Inheritance tax, as well as tax relief on loss of income.
(Please note that it is no longer allowed to ‘daisy-chain’ multiple EIS-registered production companies).
The ‘Production Slate’
At The Movie Fund, we work on a number of different films, documentaries and other projects at the same time over a period 3 to 5 years. This means that it is logistically unworkable to create a registered production company for each project so, they are amalgamated into a ‘production slate’; investors can invest into either a specific project or into a ‘fund’ or ‘pool’, which is then distributed accordingly by the Advisory Board. The Advisory Board is usually an external investment partnership that finances the production either by giving the production company a loan or by film investing in the company.
In order to make several films simultaneously, The Movie Fund requires operating capital and will aim to create and develop products in order to generate revenues to provide a return for film investors, and enable profit-sharing. In addition, movie and film investors may invest capital as a whole or part of a production’s budget in the form of a ‘sale & leaseback’ agreement; in return, the investor will receive a fixed percentage as a return on their investment, a profit-share on any licensing revenues following the release of the production, as well as any relevant tax reliefs.
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