If you're setting up financing for your next film, theatre, or new media production, and you're planning to talk to potential investors, you need to know the rules. Whenever a company sells investment opportunities, in which the investors will be ‘passive', not taking any meaningful role in the management of the business, the transaction involves the offering and sale of the company's securities.
Securities Registration and Exemptions
Under the Securities Act of 1933, a company that offers or sells its securities must either: (1) register the securities with the SEC, or; (2) conduct the transaction under an exemption from the registration requirements.
Since registration is a colossally time consuming and expensive process, it is best left to larger financing projects; those in the tens- or hundreds-of millions of dollars, such as the IPO's we typically hear about and other transactions involving publicly-traded securities. Most low- and mid-budget motion pictures, plays, musicals and media productions simply can't afford the time or money involved with a registered, public securities offering. So, the exemptions become important.
The Act provides companies with a number of exemptions. The most commonly recommended by lawyers for entertainment projects arise under the SEC's Regulation D. For some of the exemptions, such as rules 505 and506 of a company may sell its securities to what are known as “accredited investors.”