It's Time for a Film Financing Revolution with New SEC Rule

With the Securities and Exchange Commission’s new securities registration process, film financing may never be the same.

The SEC’s recent exemption, called “Reg A ,” will give filmmakers a new way to offer securities. Though the regulation wasn’t intended to control crowdfunding websites specifically, it will offer filmmakers and investors new ways to use them. For some time, a number of filmmakers, often independent, have been raising money for productions through websites such as Kickstarter.

These sites allow people to invest in campaigns, such as a film-funding initiative, but do not offer any financial return. Instead, investors are offered other amenities, such as merchandise, mentions in the credits or opportunities to meet those involved with the movie.

Reg A brings new registration rules for some offerings

The Reg A exemption is expected to change this. If issuers meet public offering registration requirements, they can sell ownership stakes through crowdfunding websites, as long as the site provides all the requisite forms and takes care of filing with the SEC.

The registration requirements, listed in full by the Hollywood Reporter, are as follows:

• The limit on the offering is $50 million within a 12-month period.
• Investors are restricted from offering more than either their annual income or net worth, excluding their homes – whichever is greater.
• The issuer must fill out a document from the SEC. The form contains detailed information and must be approved by the federal agency before the issuing company can accept investments.
• Those involved in the offering cannot have been found guilty by a court or administrative industry in any prior violations of securities laws.
• The offering material has to contain accurate facts.
• The issuer must file audited financial documents with the registration form. The issuing company will also be required to file follow-up reporting with audited financial statements for the SEC for one year after the offering.
• The issuer must use a registered transfer agent to record ownership and transfers by investors.
• The issuer does not have to comply with state securities laws, which can otherwise complicate offerings due to differences.

Other activities allowed under the SEC exemption

If all these requirements are met, then under Reg A, issuers are allowed to do a few things. One of these activities is raising funds through a crowdfunding website, but several others are allowed with the SEC’s new regulation. The issuer will be allowed to advertise the offering in a variety of ways, such as through social media.

The issuing company will also be allowed to “test the waters,” with marketing material, but cannot accept any investors before delivering the SEC-approved form. The issuer will also be allowed to accept investments from any investor, not just those accredited through certain net worth requirements. The number of investors a company can accept is unlimited.

These new registration rules and advertising allowances have the potential to completely change the way that filmmakers finance their projects. Previously, it had been difficult to offer crowdfunding investors any sort of equity for their donations because of securities regulations. Reg A will give people the opportunity to invest in movie projects with some potential for returns, as well as the typical risk, offering studios and independent filmmakers a transformative new way to fund their projects. As a filmmaker looking for investors, consulting an attorney to ensure the process is done correctly is advised.