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fundraising legal question

sonnyboo

Pro Member
indiePRO
IOTM Winner
when offering "investment" in your movie, I know there are several laws pertaining to how many people you can solicit or even speak to about the investment, but what about DONATIONS? There is a significant difference because someone DONATING does not expect a return ever.

But can you combine the two on the same project?

What are the legalities and risks?
 
You should probably get a CPA and/or attorney based in Ohio for tricky legalities and manipulations.

Easiest way *might* be to count it as a personal gift (Federal law allows people to make a cash gift to anyone tax-exempt to the tune of 10k, or so... per gift-giver. Not sure if any States place additional limitations). If the money comes in like that, you can turn around and put that gift-money into the project as *your* investment and share of the pie.

Always looks good when potential investors see that you already have a personal stake in it... or appear to have.

Regardless, you are going to need some kind of representation to make sure the prospectus is legit and does not leave you at financial risk if the investment doesn't pay off... may as well make them earn their fees by asking them ;)
 
Donations are just that - donations. As far as I know there are no legal limitations on the number of donations you can request or receive.

If you've got IRS 501(c)(3) charitable organization status, the donations are tax deductible. In most cases, it's a necessity when applying for grants.

Paperwork for 501(c)(3) isn't easy. I'm immersed in filing now and it's taken a couple of months just to get started. In case you're interested, go to the IRS web site (irs.gov) and take a look at form 1023.
 
I'm guessing donations aren't tax deductable (for those donating of course) as it isn't going to a non-profit organization?
 
Just be mindful of the wording... there's a difference between non-profit and charitable organizations.

Non-profit is a corporate structure (no stock issued, no dividends, etc.) which is defined at the state level.

Charitable is federal IRS 501(c)(3) where donations are tax deductible.

[This is, of course, for U.S. based organizations]
 

directorik

IndieTalk's Resident Guru
sonnyboo doesn't seem to be asking how to create an NPO but the best way to solicit investments for a feature film.

Film production is watched very carefully. some of you may be shocked, shocked I tell you, to hear there have been examples of less than honest people in the film investment business...

The "donation" of money has some legal meanings that can become confusing when using that term. Be very careful.

You can ask friends to give you money, "Donate to a worthy cause. Me!"

But you cannot solicit donations, "Donate to this worthy cause. A great movie about orphaned children."

Even a "commercial" project with no hope (or plan) to return an investment is still and "investment" as far at the law is concerned. the moment you step out of your immediate circle of friends and family, you better be very clear from a legal standpoint.
 

sonnyboo

Pro Member
indiePRO
IOTM Winner
No, what Sonnyboo is asking is about the legalities of ACCEPTING donations. The thought never occurred to me that anyone would GIVE me money not expecting to ever have a return.

This isn't my idea. Someone asked me to add a PAYPAL "donate" button the site for my feature because he'd give money & a lot of his friends would too. Before I'd ever consider doing something like that, I'd like to find out more about the laws.

FYI - I'm pretty confident I'm working on something profitable.
 

directorik

IndieTalk's Resident Guru
Okay.

I think I understand:

You are financing a project. A project you are confident is going to generate a profit. A friend suggested he and a lot of his friends would like to donate money to this project.

I understand that YOU aren't thinking of taking money from people without offering a return - but what about your friends and his friends?

Are they expecting to be counted as "investors" - in other words expecting a return of their donation plus some kind of profit?

Or will they all consider their donation just that? A donation to help their friend make his project?

If these friends want to "donate" (simply offer money to help you out) then there is no law saying you cannot accept help from friends.

If you make a public request for "donations" on your site (from people you don't personally know) you need to make it very clear, that any money "donated" to the project is NOT and investment. And what is "very clear" can become very murky, very fast.

If one person who doesn't know you personally isn't "very clear" and puts money into your PayPall account and "thinks" it's an investment, that person could cause you lots of trouble down the line.

Win or lose - you'll have to pay to defend your self.

From what you mention here, I suggest you get your friend to gather all the money from his friends and write you one check. And not make a public request for donations on your site.

That way you can make it very clear - in writing - to your friend that his money is:
1) a donation. It will never be paid back or returned in anyway.

or

2) an investment. It will be returned under these terms: (an draw up a contract with the terms)
 
For what it's worth, an online comic strip called Goats has been holding a fundraiser for themselves so the two gents who do the strip can do it semi-full-time. In exchange for a donation of $100, they'll give the donor an original comic strip. Thus, it's "technically" the purchase of the strip that costs $100, but really it's a donation to the greater cause.

That may not be quite the same thing as you could do with a film project, but it does stir the possibilities a bit. As for how legal their approach is, I suppose it's all there in black and white. You can check it out at http://www.goats.com/ -- it's currently mentioned in the last daily entry on the homepage (July 06 entry if it moves off that page).
 
Now that's a damn good idea. We're going to start a sponsorship section to our website and sell our product for "sponsorship" and give a little extra for the "donation" - that will count as a sale in the books.
 
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