fundraising legal question at DVinfo.net

Peter John Ross · July 18th, 2004, 01:46 PM

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?

Law Tyler · July 18th, 2004, 06:21 PM

From what I heard, for-profit enterprize is not allowed to take donations, only non-profit can.

Peter John Ross · July 18th, 2004, 06:40 PM

thanks, but "where" did you hear this. I'd like to know if this a fact or just a guess.

Richard Alvarez · July 18th, 2004, 08:40 PM

You are dealing with two different animals here. A film made by investors is designed to pay them a return on their investment. WHy on earth would someone want to donate money to a film, when everyone else is making money with their investments?

A film being made (or sponsored by) a non profit, has the benefit of providing a tax deduction to those donating. This is the "return" on the donation that is NOT available to someone who would "donate" to a for profit enterprise.

Law Tyler · July 18th, 2004, 09:53 PM

<<<-- Originally posted by Peter John Ross : thanks, but "where" did you hear this. I'd like to know if this a fact or just a guess. -->>>

I guess Richard already said why. Per my original statement, I actually read it in some film-making book, about fundraising. :-)

Peter John Ross · July 18th, 2004, 10:23 PM

Some yahoo wants me to make available PAYPAL for donations, not investments on my For Profit movie.

Don't ask me "why"... The thought never occurred to me to even make it possible to give money to the production without being considered an investor.

Keith Loh · July 18th, 2004, 10:45 PM

You cannot ask for investment without a reasonable expectation of return. Period. And you cannot solicit for donations without yourself being a non-profit entity.

There is a third possibility, that you are asking for a private loan but with the terms so open that it constitutes free money.

In all these cases *someone* or some company is getting income and so it must be reported.

Isaac Anderson · July 19th, 2004, 11:45 AM

You can ask for all the money in the world, even if you are not a non-profit.
The downside to your potential donors is that they will not receive any tax benefits for their donations. I would suggest, if you have anyone who’s willing to throw cash your way with no strings attached, that you make up a brief contract that states clearly no return on investment to the donor….but by all means, feel free to ask as many people as you want for money…there’s no law that I'm aware of against asking and no law against giving.

If you do a public offering to investors, that’s a different story, and then you need to check with your state as to local and federal laws so as to meet the requirements and to protect yourself from future headaches/legal trouble.

Good luck!

Your fellow documentarian

Peter John Ross · July 19th, 2004, 11:52 AM

Again, I did not ask for money, someone asked me if I would add a PAYPAL "donate" button on my site because he & his friends wanted to donate some $$$ to the movie.

The thought never occurred to me to have "donations" without a return. I am in no way soliciting people for donations for free.

I thought it was odd, so I wanted to find out the legalities before accepting any money from this guy or his friends.

So far, I have no clear answer whatseoever because I think I did not make my purpose clear.

Can I accept donations from this guy or anyone else while I am also using real investors who are entitled to money in return?

Jeff Donald · July 19th, 2004, 11:54 AM

Consult an attorney. No one on the internet can substitute for good legal advice from an attorney.

Isaac Anderson · July 19th, 2004, 12:33 PM

As far as accepting money from one potential donor, as well as from investors; no one can stop you from doing this, you just want to have legal documentations that clearly states that the donation has no binding financial incentive for the donor. It’s no different than if your mom gave you $50,000 for your film…it’s just that you trust her more than the average Joe, so you most likely wouldn’t have a signed and notarized agreement with her.

It never hurts to get qualified legal advice, but a donate button with a verbiage clearly indicating that the donation has no tax benefit is fairly safe…you see these all over the web from freeware to shareware sites, and even on filmmaker’s sites. It’s nothing new, and not typically the most fruitful idea, but it doesn’t hurt to ask.

If your project lends itself to qualifying for an educational or religious grant, you may want to consider this avenue for funding as well as creating non-profit status under one of these categories. You can find non-profit umbrellas that would allow you to quickly set up non-profit status for very little money, and possibly even for free. This would allow you to put donate up on your site and actually offer tax benefits to potential philanthropists. One such organization that makes this possible is the National Heritage Foundation (http://www.nhf.org/) – I almost set up my company with NHF, but decided to keep things a bit simpler for the time being.
I know this is a bit more than what you were originally asking for in your initial post, but this may be a more effective way for you to raise money than through a simple donate button.

(What’s your film about?)

Good luck!

Law Tyler · July 19th, 2004, 04:24 PM

<<<-- Originally posted by Isaac Anderson : As far as accepting money from one potential donor, as well as from investors; no one can stop you from doing this, you just want to have legal documentations that clearly states that the donation has no binding financial incentive for the donor. It’s no different than if your mom gave you $50,000 for your film…it’s just that you trust her more than the average Joe, so you most likely wouldn’t have a signed and notarized agreement with her.
-->>>

$50,000? Wow. Isn't there a IRS gift tax above $10,000? But then again I think it is on the giver, not the taker.

Jeff Donald · July 19th, 2004, 05:06 PM

If you receive financial gain, you'll probably owe taxes, consult a CPA.

Isaac Anderson · July 20th, 2004, 01:25 PM

The gift tax is to be paid by the person on the receiving end of the money, but in this case, if you had someone give you $50,000 as a donation, as long as you kept all of your receipts, assuming the money was for hard costs and not your personal salary, you would not have to pay taxes on the money due to it being used for business expenses: tape/film, rentals, craft services, crew, etc…If you decided you’d rather take the $50k as salary rather than for business expenses, then it would just be added to your income tax.
This is why it’s better to keep your salary low and business expenses high rather than the other way around.

Dennis Vogel · July 21st, 2004, 04:02 PM

<<<-- Originally posted by Peter John Ross : The thought never occurred to me to have "donations" without a return. I am in no way soliciting people for donations for free. -->>>

The act of placing the button could be construed as soliciting for donations.

Talk to an attorney or, better yet, just forget about it. I'd venture you have more things to do with your time than investigate and manage this.

Dennis Vogel

July 18th, 2004, 01:46 PM	#1
Peter John Ross Join Date: Jan 2004 Location: Hollywood, OHIO Posts: 149	fundraising legal question 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?

July 18th, 2004, 10:45 PM	#7
Keith Loh Air China Pilot Join Date: May 2002 Location: Vancouver, B.C. Posts: 2,389	You cannot ask for investment without a reasonable expectation of return. Period. And you cannot solicit for donations without yourself being a non-profit entity. There is a third possibility, that you are asking for a private loan but with the terms so open that it constitutes free money. In all these cases someone or some company is getting income and so it must be reported. __________________ -- Visit http://www.KeithLoh.com \| stuff about living in Vancouver \| My Flickr photo gallery

July 19th, 2004, 11:45 AM	#8
Isaac Anderson New Boot Join Date: Apr 2004 Posts: 17	Ask away... You can ask for all the money in the world, even if you are not a non-profit. The downside to your potential donors is that they will not receive any tax benefits for their donations. I would suggest, if you have anyone who’s willing to throw cash your way with no strings attached, that you make up a brief contract that states clearly no return on investment to the donor….but by all means, feel free to ask as many people as you want for money…there’s no law that I'm aware of against asking and no law against giving. If you do a public offering to investors, that’s a different story, and then you need to check with your state as to local and federal laws so as to meet the requirements and to protect yourself from future headaches/legal trouble. Good luck! Your fellow documentarian

July 19th, 2004, 11:54 AM	#10
Jeff Donald Warden Join Date: Mar 2002 Location: Clearwater, FL Posts: 8,287	Consult an attorney. No one on the internet can substitute for good legal advice from an attorney. __________________ Jeff Donald Carpe Diem Search DVinfo.net for quick answers \| Where to Buy? From the best in the business: DVinfo.net sponsors

July 19th, 2004, 05:06 PM	#13
Jeff Donald Warden Join Date: Mar 2002 Location: Clearwater, FL Posts: 8,287	If you receive financial gain, you'll probably owe taxes, consult a CPA. __________________ Jeff Donald Carpe Diem Search DVinfo.net for quick answers \| Where to Buy? From the best in the business: DVinfo.net sponsors

July 18th, 2004, 06:21 PM	#2
Law Tyler Major Player Join Date: Dec 2003 Location: Plano, TX Posts: 204	From what I heard, for-profit enterprize is not allowed to take donations, only non-profit can.

July 18th, 2004, 06:40 PM	#3
Peter John Ross Join Date: Jan 2004 Location: Hollywood, OHIO Posts: 149	thanks, but "where" did you hear this. I'd like to know if this a fact or just a guess.

July 18th, 2004, 08:40 PM	#4
Richard Alvarez Inner Circle Join Date: Sep 2002 Location: San Mateo, CA Posts: 3,840	You are dealing with two different animals here. A film made by investors is designed to pay them a return on their investment. WHy on earth would someone want to donate money to a film, when everyone else is making money with their investments? A film being made (or sponsored by) a non profit, has the benefit of providing a tax deduction to those donating. This is the "return" on the donation that is NOT available to someone who would "donate" to a for profit enterprise.

July 18th, 2004, 09:53 PM	#5
Law Tyler Major Player Join Date: Dec 2003 Location: Plano, TX Posts: 204	<<<-- Originally posted by Peter John Ross : thanks, but "where" did you hear this. I'd like to know if this a fact or just a guess. -->>> I guess Richard already said why. Per my original statement, I actually read it in some film-making book, about fundraising. :-)

July 18th, 2004, 10:23 PM	#6
Peter John Ross Join Date: Jan 2004 Location: Hollywood, OHIO Posts: 149	Some yahoo wants me to make available PAYPAL for donations, not investments on my For Profit movie. Don't ask me "why"... The thought never occurred to me to even make it possible to give money to the production without being considered an investor.

July 19th, 2004, 11:52 AM	#9
Peter John Ross Join Date: Jan 2004 Location: Hollywood, OHIO Posts: 149	Again, I did not ask for money, someone asked me if I would add a PAYPAL "donate" button on my site because he & his friends wanted to donate some $$$ to the movie. The thought never occurred to me to have "donations" without a return. I am in no way soliciting people for donations for free. I thought it was odd, so I wanted to find out the legalities before accepting any money from this guy or his friends. So far, I have no clear answer whatseoever because I think I did not make my purpose clear. Can I accept donations from this guy or anyone else while I am also using real investors who are entitled to money in return?

July 19th, 2004, 12:33 PM	#11
Isaac Anderson New Boot Join Date: Apr 2004 Posts: 17	As far as accepting money from one potential donor, as well as from investors; no one can stop you from doing this, you just want to have legal documentations that clearly states that the donation has no binding financial incentive for the donor. It’s no different than if your mom gave you $50,000 for your film…it’s just that you trust her more than the average Joe, so you most likely wouldn’t have a signed and notarized agreement with her. It never hurts to get qualified legal advice, but a donate button with a verbiage clearly indicating that the donation has no tax benefit is fairly safe…you see these all over the web from freeware to shareware sites, and even on filmmaker’s sites. It’s nothing new, and not typically the most fruitful idea, but it doesn’t hurt to ask. If your project lends itself to qualifying for an educational or religious grant, you may want to consider this avenue for funding as well as creating non-profit status under one of these categories. You can find non-profit umbrellas that would allow you to quickly set up non-profit status for very little money, and possibly even for free. This would allow you to put donate up on your site and actually offer tax benefits to potential philanthropists. One such organization that makes this possible is the National Heritage Foundation (http://www.nhf.org/) – I almost set up my company with NHF, but decided to keep things a bit simpler for the time being. I know this is a bit more than what you were originally asking for in your initial post, but this may be a more effective way for you to raise money than through a simple donate button. (What’s your film about?) Good luck!

July 19th, 2004, 04:24 PM	#12
Law Tyler Major Player Join Date: Dec 2003 Location: Plano, TX Posts: 204	<<<-- Originally posted by Isaac Anderson : As far as accepting money from one potential donor, as well as from investors; no one can stop you from doing this, you just want to have legal documentations that clearly states that the donation has no binding financial incentive for the donor. It’s no different than if your mom gave you $50,000 for your film…it’s just that you trust her more than the average Joe, so you most likely wouldn’t have a signed and notarized agreement with her. -->>> $50,000? Wow. Isn't there a IRS gift tax above $10,000? But then again I think it is on the giver, not the taker.

July 20th, 2004, 01:25 PM	#14
Isaac Anderson New Boot Join Date: Apr 2004 Posts: 17	The gift tax is to be paid by the person on the receiving end of the money, but in this case, if you had someone give you $50,000 as a donation, as long as you kept all of your receipts, assuming the money was for hard costs and not your personal salary, you would not have to pay taxes on the money due to it being used for business expenses: tape/film, rentals, craft services, crew, etc…If you decided you’d rather take the $50k as salary rather than for business expenses, then it would just be added to your income tax. This is why it’s better to keep your salary low and business expenses high rather than the other way around.

July 21st, 2004, 04:02 PM	#15
Dennis Vogel Major Player Join Date: Mar 2004 Location: Hillsborough, NC Posts: 409	<<<-- Originally posted by Peter John Ross : The thought never occurred to me to have "donations" without a return. I am in no way soliciting people for donations for free. -->>> The act of placing the button could be construed as soliciting for donations. Talk to an attorney or, better yet, just forget about it. I'd venture you have more things to do with your time than investigate and manage this. Dennis Vogel