We aren't business majors and don't have business experience. We have lots of experience in film production, but unfortunately there isn't a money person in our mix. I'm posting in a few business/accounting/finance communities in the hopes that some of you might be willing to have a look and offer advice.
The business plan PDF can be downloaded by following this link.
We particularly need the following questions answered (below the cut):
We want to set up an escrow account to hold the investors money until an agreed upon date when production will start. Does this cost anything, and what would be the best place to go to do serve as an escrow agent?
We know that we want the production company to be some form of corporation to limit liability, but which form will be best for us? All paid personnel, including the producers, are subcontractors in this business plan (both to limit our need to deal with payroll, withholding, etc., and to simplify the tax situation for the business). However, if the business continues and is successful we would like to make those involved actual employees at a later date. In other words we would like to keep our options open. The ideal situation that I can imagine tax-wise for the company is that at the end of the year the company owes nothing in taxes, the entire tax burden is transferred to the investors and subcontractors, and the business owns the equipment. Is this feasible, or am I missing something? Most of the small production companies that I know of are LLC's, but I know that S-corp and C-corp are out there as well, which of these would be the best fit for us?
Are there any tax hurdles to be aware of when dealing with money from investors? First of all, I assume that when we first receive the money from the investors, and then spend it in the making of the films, it is not considered income, but money that was put toward business expenses. Our plan is that if any portion of the budget is not spent, it goes back to the investors after all production is complete, but are there any tax catches to any of this? Also, when profits start coming in and going back to the investors, is the tax burden on the investor, the business, or both? If the business does owew any taxes as profits come in, what is the tax that will be taken out of the gross profit? In other words, if we have $400,000 invested, how much more than that will we need to make back to break even, or do taxes not start until the investment is recouped?
If we choose to go with an outside accountant, how much should we budget for their services? Also, I am assuming that if the investors wish to audit us, or have any third party monitoring of income, that would be something they would pay for separately outside of this budget?
We want to make sure that the investors do not hold direct control over the company, which almost certainly excludes selling them shares of the LLC, but what exactly are the investors buying? Do we need to set up a separate investment corporation and sell shares in that? Are we selling bonds, with the promise to repay them not in interest over a set time, but in profit? Is the investment money viewed as a loan, again not repaid in interest over a set time, but in profit?
Of our $400,000 budget, approximately $373,000 is spent money. The other approximately $27,000 is contingency money that we would ideally return to the investors if unspent in production. Some of that $373,000 is only partially deductible under IRS rules (either due to depreciation spread out over years, or due to it being meals and other things). What is the best recourse for us to 1) make sure that the corporation we are forming is never in the position of owing taxes, but that the tax burden we pass along to ourselves doesn't increase significantly a year or two later. 2) that the equipment is owned in perpetuity by the company, and that at the end of this one year contract, we the producers, do not wind up with the depreciated value of the equipment figured as personal income to them.