When an independent film is successful, it is the result of the creative, networking and business abilities of all those involved. It is important for the filmmaker to receive sound legal advice and be aware of how and why distributions are made.
Most films pay participants a flat fee. These payments are usually apportioned based on the planned number of weeks for production. Except for those production members actively involved in pre-production, payments will not begin until principal photography.
Cast and crew members may be paid per diems, as well as salaries. These are modest payments based on the number of days worked and are designed to assist with personal expenses (such as food and travel).
When shooting an independent film, cash flows are a major issue. By deferring expenses, filmmakers can shoot a movie with less money than would normally be required. This allows budget expenses to be paid from the film’s future revenues.
It is often not possible to defer all expenses, but participants are often willing to defer all or part of their salaries. As the salaries are budgeted costs, they must be paid before any capital is returned to investors or profits are paid.
The other form of payment to film participants is from profit participation in the film. Definitions of “profit participation” are open to manipulation. However, many independent filmmakers do not have the studio overhead or other charges that major studios have. As a result, there is more likely to be legitimate profit distribution.
“Profit” must always be defined in legal documentation. “Profit” is what is left after all expenses are paid, all investment is returned to investors and a reserve fund is made for the ongoing operations of the film company. Except as provided in profit participation agreements, all profits belong to the film company. Due to the importance of profit participation agreements, they should be referred to in the offering documents for the film company.
Profit participation agreements should stipulate when profit is earned. This should be when an employment task is successfully completed, as opposed to when an employment contract is signed. The filmmaker should ensure that their manager/legal advisor negotiates all contracts to maintain sufficient leverage in situations where actors decide to walk away from a project.
For further information, please contact me at ggoodsell@ami-world.com