Independent Film Finance Group (IFFG)

Definition - "Passive Investor"

A "passive Investor" is a person or company that invests money into a film, television, or music project, but who does not take an active role in the production process. A passive investment structure is often referred to as a "PPM," "Private Placement Memorandum," "Private Placement," "Limited Offering," "Small Securities Offering," "Unregistered Securities Offering," or "Exempt Securities Offering."

Each of these terms refers to the same set of legal documentation involving passive investors.

Although the subject of securities law is a vast subject, with enough complexity to fill a whole library of books, the basic concept of a passive investment is that an investor is being asked to invest money into a film, television, or music project, will not be actively involved in the project, and will receive part of the profits from the project if it is successful.

Contrary to popular misconceptions, neither the amount of money being raised nor the number of investors are critical issues. Even 2 or 3 passive investors would be enough to require a passive investment structure, and raising as little as $5,000.00 or $10,000.00 could require the help of a licensed entertainment securities lawyer if raised from passive investors.

Continue your research into the term "active investor."

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ABOUT IFFG FINANCE PRODUCTS

Like all Internet based legal products, IFFG Finance Products are designed for the "Active Investor" scenario. Why? Because of the following important points to keep in mind:

SEC Filings: The Securities and Exchange Commission (SEC) requires that all passive investments be filed with the government. These filings carry with them substantial criminal and civil penalties if prepared incorrectly or in a misleading way. Only a licensed entertainment securities lawyer can assist a client with these filings.
State Securities Filings: Similarly, each State in the United States has its own version of the SEC, and requires its own filings. Once again, these carry substantial criminal and civil penalties if prepared incorrectly or in a misleading way.
Complex Materials: Passive investment materials require more than 100 pages of documentation and filings.
Tax Guidance: A passive investment requires a licensed entertainment securities lawyer to certify that the investment qualifies for various tax provisions and incentives. This requires a licensed entertainment securities lawyer with extensive experience with tax law.

SECURITIES LAWYERS

The Independent Film Finance Group has prepared the best, most comprehensive entertainment finance products available on the Internet. However, if you are working with a passive investment structure, we encourage you to contact an experienced, licensed entertainment securities lawyer from our Resources Page.

Pros and Cons of hiring a licensed entertainment securities lawyer:

Pros:

Creative freedom: A passive investor structure can ensure that your investors do not interfere in the creative process. Many producers find the creative freedom of a passive investor structure out weighs the costs.
Peace-of-mind: A licensed entertainment securities lawyer can give you the peace-of-mind that everything has been completed correctly, and can answer your questions about how to run and finance a passive investment.
Tax advantages: Multiple tax advantages can be seen both for the investors as well as the producer from a passive investment. Often tax advantages alone can sell the investment to potential passive investors.

Cons:

Cost: A typical passive investment structure prepared by a licensed entertainment securities lawyer typically costs $10,000.00 or more, meaning that some smaller productions may not be able fit this quality of service into their budgets.