The various laws related to securities not only determine the exemption and registration of securities, but also whom you may approach and the manner in which you do it. In addition, the amount of information that you are required to disclose is established by the investor being accredited or non-credited. A person or institution that possesses a large sum of money, or the officer of a company issuing securities, is designated as being accredited. All other entities are regarded as being non-accredited investors.
To be recognized as an accredited individual, singly or with a spouse, net worth at the time of purchase should be in excess of $1 million. Alternatively, an individual who has in the previous two years achieved an income in excess of $200,000 in each of those years could be recognized as accredited. A joint income for each of those two years with a spouse should be more than $300,000, with the reasonable expectation that it will be sustained for the current year. Persons determined to be accredited investors under the laws relating to securities are presumed to have adequate knowledge that enables them to determine the various aspects and factors related to a transaction.
Some advice to filmmakers venturing onto the investor trail: you can either limit your approaches to accredited investors or, in the case of approaching non-accredited entities, seek the advice of an attorney. However, ensure that the attorney is experienced in this type of financing!
Production Companies and Securities
If you intend to raise finances for your film from equity-related investors, be sure to consult an attorney who is competent in private placement law, securities, and especially film offerings, before making any approaches whatsoever. It should be regarded as one area in which you do not attempt to negotiate on your own behalf.
Register investor securities or apply for exemption, and be sure to comply with state securities laws, generally known as the “Blue Sky” laws when offering securities.
All securities offerings, even those exempt under certain regulations, are subject to anti-fraud provisions of the laws governing securities. Therefore, any fraudulent or misleading statements made relating to the securities offered are subject to criminal and civil penalties, by law.