Crowdfunding 101: Don't Worry, It's Legal

Crowdfunding 101: Don't Worry, It's Legal

Nov 28, 2011

In my previous column, I discussed the advantages of crowdfunding a film project through sites like Kickstarter, IndieGoGo and United States Artists. But this month, I ran into a most interesting question about crowdfunding: Is it legal in this country? The short answer is "Yes," but let me explain.

I started wondering about the legal issues in early November, when the U.S. House of Representatives passed a bill described as "legalizing crowdfunding." Confused, I wondered how it could be so prevalent and yet possibly not legal. I learned that the House bill would allow new companies and entrepreneurs to use Internet crowdfunding methods to raise money without the business having to first register with the Securities and Exchange Commission.

A little research helped me understand: The bills the House and Senate are considering are related to investments in a company's equity. Right now, American start-ups can't ask for or take money in exchange for equity unless they go through the SEC or work with accredited investors. But film productions raising money via crowdfunding websites aren't offering you equity. You're donating, not investing, and you don't get dividends if the film becomes a smash hit. You might get a gift in return for your donation, but that's not the same as equity.

If the law changes, will this change? Would we see movie productions using Kickstarter to raise money and offering you a real piece of the action in return? My guess would be no. Remember that most indie films aren't big moneymakers, so the odds of dividends are small. And the bookkeeping involved in giving equity to anyone who gives $20 or more wouldn't be worth it, they'd be drowning in paperwork. I think for now, I'd rather enjoy an innovative gift for my donation -- or in the case of United States Artists, tax deductibility -- than a risky investment prospect.

Meanwhile, filmmakers face other legal issues, some of which they're trying to address through crowdfunding. Brooklyn filmmaker Yunah Hong has finished a documentary called Anna May Wong: In Her Own Words, about the silent-film actress and her later career choices. The film has already screened at several festivals, but Hong would like to see it shown on public television. In order for that to happen, however, she has to secure the broadcast rights to the clips in the documentary from Wong's movies.

Hong has raised nearly $15,000 in pledges in her Kickstarter campaign -- but if she doesn't reach her $20,000 goal by Wednesday, November 30, she won't see any of those funds. She's offering t-shirts and posters of Wong, and DVDs of her documentary, to donors. If you give $5,000, she'll come to your town and screen her film for you personally.

Not all crowdfunding projects are about raising money for productions or even post-production costs. Over at IndieGoGo, the film La Hija Natural (Love Child) has a very unusual crowdfunding goal. This feature is the Dominican Republic's official submission for the Best Foreign Language Film category in the Academy Awards for 2011. The producers really want the movie to get one of the five nominations, so they're raising money to hold screenings in Los Angeles and otherwise promote the film.

Love Child, directed by Leticia Tonos, is about a young woman searching for her father, whom she's never seen, after her mother dies. So far, the campaign has only raised $245 out of its $17,000 goal. They're offering posters, DVDs ... and if you give $10,000, a weekend for two in the Dominican Republic that includes dinner with the film's stars and producers.

Finally, here in Austin, a project related to screening films, rather than making them, is running a successful Kickstarter campaign. Austin Cinematheque shows free movies in 35mm format several times a month on The University of Texas at Austin campus during the school year. Their usual venue is being renovated, so they've been raising funds to use to find a new temporary home for screenings and special events. Their goal was $1,000, which they're already hit with 13 days to go.

Categories: Features, Indie
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