What is an SPE? (Part 1 of 2)
August 16, 2016
Everything You Need to Know about the SPE
When expenses grow as large as they do in filmmaking, it is important to keep accounting straightforward as well as establish clear roles for participants. Film producers can achieve each of these goals through special purpose entities also known as the SPE. We will now take a look at exactly what an SPE is and in a future post, delve into How to Form an SPE (Part 2).
What is an SPE?
SPEs offer tax, accounting and management advantages to filmmakers. With all that goes into putting together a film for release, simplifying the various processes through the formation of an SPE can be a huge benefit for producers. These companies essentially act as an umbrella – covering all that goes on during the filmmaking process and allowing producers to treat operations as though they were leading companies, rather than shooting movies.
An SPE is essentially a limited liability company. These legal entities are created to accomplish singular objectives, such as production for a film. Additionally, if a producer is working on more than one project at once it is possible to create an SPE, and then establish various subsidiaries for each project.
Filmmakers can simplify accounting, among other complex processes, by forming SPEs.
Why and when do filmmakers form SPEs?
The best time to form an SPE for a filmmaking project is as soon as possible. This means before you accept any investments, acquire any assets or incur any sort of liabilities. Once you’ve formed it, you will be able to establish a clear structure regarding ownership, management and administration. With one of these entities formed, producers can implement bylaws or operating agreements that clearly specify roles, processes, voting rights and other structural necessities.
In addition, SPEs help with the accounting process. Producers and their financial teams can more easily separate essential assets from non-related ones. When numbers get as large as they do in filmmaking, the ability to simplify and streamline accounting processes through an SPE can be a huge advantage.
Benefits of forming an SPE
SPEs offer benefits when it comes to investment as well. It is easier for private investors to fund these entities. They offer the proper structure for the sale of equity investment. This can come in handy for filmmakers who require additional funding to get their projects off the ground.
Finally, as LLCs, SPEs protect their owners. The liability of shareholders, partners and members is limited to the amount invested, while the owners of these entities are protected from claims. This means that in the unfortunate case something goes wrong during filming, the individuals involved don’t risk significant damages.
How to start an SPE
When it comes to film projects, SPEs can prove especially advantageous. From structural confirmation to accounting simplification, there are numerous benefits for producers to exploit through these entities. Our next post will explore how filmmakers can form SPEs for their own projects.