My writing partner and I have sold a few projects, with, hopefully, a few more to come. The question is, at what point should we incorporate into a film company? Before we’ve sold the next project or after? Once we’re more established as a team? When we start making greater than a certain amount of money per year? What are the perks and drawbacks to making such a move?
Most screenwriters who find themselves making a living at the craft end up incorporating at some point — as do actors, directors, and other relatively well-paid professions in the film industry. I became a corporation shortly after Go.
The idea is that the studios don’t hire you directly. Rather, the studio makes a deal to “borrow” your services from a corporation that you’ve created. These one-person corporations are called “loan-outs,” because loaning out your time and talent is all they really do.
What’s the point? Well, there are two main advantages.
The first is financial. Because the studio is paying you as a corporation, rather than as an individual, it’s easier to deduct business expenses, such as office space, assistants and computers. Your corporation can set up a pension plan for its sole employee: you. You can also avoid paying personal income tax on the money for a longer period of time. (Though you do eventually have to pay it.)
The second advantage is liability. Let me first invoke my I’m Not a Lawyer Disclaimer — so don’t bank on what I’m saying. But the corporation can help shield your personal assets (your house, your car, your toothbrush) from lawsuits that might come up relating to your screenwriting career. If I’m a bit fuzzy on the details, it’s because I never, ever want to be sued.
The only real drawbacks of incorporating is the expense and the additional paperwork — quarterly statements and such. Although some writers manage to keep up with it themselves, I couldn’t imagine doing it without a business manager and an accountant. (Which are not-insignificant expenses.)
As for what point it makes sense to incorporate, the rule of thumb I heard was when your annual income consistently exceeds $200,000 per year, it’s time to form a loan-out. But that was 1999, so who knows what the current figure is.
My suggestion would be to talk with your attorney, and get his advice. He’s the one who would actually be filing the paperwork with the state to get it all set up.
Also, if you’re living outside the U.S., all bets are off. You’ll need to find someone familiar with the specific rules of your country. For instance, Ireland has amazing tax breaks for writers. I suspect becoming a corporation there would be a terrible idea — but you’d need an expert to tell you.