The first step in forming a production company is to create a business entity, such as a limited liability company (LLC), limited partnership (LP), or corporation. There are many advantages to setting up a business entity:
• You can divide the financial risk among several people. The members, partners, or shareholders of a business share in the company's profits and losses.
• Your company is considered a legal person, and as such can enter into contracts, bring lawsuits, and hold intellectual property rights, such as the copyright to a film.
• You can separate your personal finances from the company's finances.
• You may die someday, but your company doesn't have to. Some kinds of businesses can last forever, and ownership interests in those companies, such as shares or membership interests, can be passed down from generation to generation.
And perhaps, most importantly:
• You can avoid personal lawsuits! If your company breaches a contract or infringes a copyright it will be the company that will pay the damages, NOT the company's officers or individual members. However, this limited liability protection is only offered with certain kinds of business entities (see below).
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