Mark Edwards – Edwards Creative Law

Corporate Law: Why, When & How to Incorporate Your Entertainment Business

Mark Edwards — Mon, 21 Nov 2022 15:39:58 +0000

Can an Entertainment Business Incorporate?

Do you ever wonder how to incorporate your entertainment business? Most businesses reach a point when they consider whether to incorporate. This decision on whether or not to incorporate is no different in the entertainment industry. Film producers, music labels, talent agencies, and video game developers are just a few examples of entertainment industry businesses that may eventually decide to contact a corporate lawyer to help them incorporate.

This blog will discuss relevant legal considerations regarding when and how to incorporate your entertainment business.

What are the Reasons to Incorporate your Company

The following are a few advantages of incorporating.

Limited Liability

Corporations are legal entities separate from their owners. As a result, a corporation is responsible for its own debts and other obligations. The liability of the shareholders, directors, officers, and employees of the corporation is limited – with a few exceptions, these individuals cannot be held personally responsible for the debts of the corporation.

Corporate Grants

There are certain industry grants that are only available to incorporated businesses.

Corporate Tax Credits

If you want to access Canadian cultural tax credits, such as are available for films, television series or interactive digital media, the applicant must be incorporated.

Investors

Shares are a convenient and attractive solutions for investors (the shareholder) financing your entertainment business.

Continuous Existence

Private and public corporations live on until they are wound up or dissolved. Other business structures, like a sole proprietorship or partnership of individuals (ie: LLP), are more difficult to continue when the individual owner or partner dies.

Tax Implications

There are a variety of financial tax advantages for corporations. We recommend getting in touch with an accountant for further financial advice on this point.

When is the Best Time to Incorporate your Business?

When is the right time to incorporate your business? Unfortunately, there isn’t a single answer to that question. It will depend on the particular circumstances of your business. For example, for film or television production companies, if you want to access available tax credit programs or other grants, you will want to ensure that you incorporate early in the pre-production stage.

If your business is not required to be incorporated, the decision of when to incorporate is less obvious. As your business grows, a number of things change: risk increases (when to incorporate, to manage and minimize that risk, will depend on your tolerance for that risk): the need for investment capital increases (when to incorporate, to provide a structure for investment, will depend on the capital intensity of your particular business and the availability of other sources such as profit and your own resources); taxation increases (when to incorporate, to minimize tax, will depend on whether you are retaining income in the corporation or paying all of it out to yourself as soon as it’s received).

In addition, incorporating can help to impose structure onto your business – through designated roles and corporate governance (practices and procedures that standardize the decision-making process.

The Process of Incorporating your Business

If you do decide to incorporate, the first question you need to ask is whether you are going to incorporate provincially or federally. One of the main distinctions between the two jurisdictions is that if you incorporate at the provincial level, the registered office of the corporation must be within that province.

A federally incorporated company can have its registered office in any of the provinces or territories. From a corporate governance standpoint, if you choose to incorporate federally, at least 25% of your directors must be Canadian residents. Ontario does not have a similar restriction.

Both Canadian and provincial corporations can be incorporated online without a law firm’s assistance, but a corporate lawyer can add significant value – prior to incorporation, by advising on the choice and availability of the corporate name, and on the use of multiple share classes and their attributes; and after incorporation, by issuing shares, electing directors, appointing officers, passing general and specific operational by-laws and other opening resolutions, setting up the corporate minute book and completing both mandatory and optional filings.

Ontario Incorporation

More information on incorporating within Ontario, can be found here. The basic government fee for registering an Ontario corporation is $300.00 CAD.

Federal Incorporation

More information on incorporating federally, can be found here. The basic government fee for registering a federal corporation is $200.00 CAD.

Who Can Help you With Incorporating your Company?

If you are a business owner and have questions about incorporating your company, we encourage you to speak with Edwards Creative Law or another entertainment lawyer. Our law firm is happy to answer your questions about incorporating and to assist you with the incorporation and post-incorporation processes necessary to incorporate and to transfer your existing business into the new corporation. Read our post about The Meaning and Importance of Shareholders’ Agreements in Canada.

Updated to November 21, 2022

Edwards Creative Law is Canada’s Entertainment Law Boutique, providing legal services to Canadians, and international clients who partner with Canadians, in the Music, Film & Television, Animation, Interactive Digital Media, Game, Publishing and Software industries.

For more information or to set up a minute Discovery Call with one of our entertainment lawyers please feel free to Contact Us.

* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.

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Canadian Film or Video Production Tax Credit (CPTC) – What Do You Need To Know?

Mark Edwards — Wed, 25 Nov 2015 01:06:34 +0000

Canadian Film or Video Production Tax Credit – What is it and Should You Apply?

Funding the production of your Canadian television program or movie will likely include tax credits. In Canada, there are two general categories of film and television tax credits — Canadian content and production services tax credits.

Both are intended to develop the Canadian production community however the content credit, has additional requirements designed to encourage the creation of Canadian programming, requiring that the production be “Canadian content” and to be exploited for the benefit of Canadians.

Both tax credits play an important role in the creation of programming made by Canadians. Two key points about the tax credits is that they are “refundable” (paid to the producer as opposed to simply reducing the producer’s tax payable) and they are calculated as a percentage of eligible production labour costs.

Tax credits are both provincial/territorial (except PEI and the NWT) and federal. Generally speaking, a production will seek to access both federal and provincial/territorial tax credits, though any amount of provincial/territorial tax credit received will reduce the amount of the federal tax credit.

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The following are some FAQ about the federal content tax credit — the Canadian Film or Video Production Tax Credit (CPTC).

How much is the CPTC worth?

Tax credits are calculated based on a production’s eligible cost of production and its net labour expenditures. The CPTC is 25% of the qualified labour expenditures for an eligible production.

The qualified labour expenditures may not exceed 60% of the cost of production minus assistance. So, the CPTC cannot exceed 15% of the total cost of the production after the deduction of any assistance.

What Does “Assistance” Mean?

Assistance is defined in section 125.4 of the Income Tax Act. It includes for example: government equity, government grants, private grants, and provincial tax credits. It does not include CMF Licence Fee Top-Up, private equity from broadcasters or private film funds

Example. In a typical scenario in which an Ontario producer claims both the provincial and the federal content tax credits, if your production costs are $1,000,000 and your qualified labour expenditures are $600,000, assuming a 35% provincial tax credit rate, your provincial tax credit would be roughly $200,000. Your cost of production net of assistance is therefore $800,000.

The maximum eligible production cost for the federal tax credit is 60% of that amount, $480,000 (even though the labour expenditure is still $600,000). Multiplying the lesser of the two ($480,000) by the federal content tax credit rate of 25% gives a federal tax credit of $120,000. That means your total combined provincial and federal tax credit is roughly $320,000, which represents 32% of your total production costs.

What does CAVCO require to certify a production as an eligible production?

Some of the key eligibility criteria are:

· The production company must be a prescribed taxable Canadian corporation;

· The production must achieve a minimum of 6 key creative points on the Canadian Content Point System, the director or screenwriter must be Canadian and one of the two lead performers must be Canadian (points are different for animated productions);

· The producer or producers must be Canadian and meet CAVCO’s production control guidelines;

· There must be an agreement with a Canadian broadcaster or Canadian distributor to show the production in Canada within two years;

· The production must not be one of the ineligible genres (news, talk show, reality television, sports event, advertising, etc.);

· The Canadian producer must retain exclusive worldwide copyright ownership in the production;

· A Canadian producer must control development of the project from the time the producer acquires rights in it; and

· 75% of all production and post-production service costs must be paid to Canadians and 75% of the post-production must take place in Canada.

What Does the CPTC Application Process Look Like?

The CPTC is jointly administered by the Canadian Audio-Visual Certification Office (CAVCO) and the Canada Revenue Agency (CRA). CAVCO will issue a certificate of production (Part A) confirming that the production is a Canadian film or video production and estimating the production’s qualified labour expenditures. A Part A certificate can be issued before or during production.

Once the production is complete, CAVCO will issue a certificate of completion (Part B) confirming that the production continues to meet the requirements. The producer submits a tax credit claim to CRA as part of its corporate Income Tax return to receive the tax credit, based on either a Part A or a Part B certificate.

How Can I Get Paid Sooner?

If the anticipated value of the tax credits is needed to fund the costs of production, a bank or other lender might finance them (typically to 90% of the estimated full value of the tax credits. The producer receives a loan from the bank with the tax credits as the source of repayment.

This blog provides only a general overview of the CPTC. Before proceeding with preparing a financing plan, be sure to read the CPTC Program Guidelines and speak with an experienced advisor or CAVCO.

Future blogs will cover Ontario’s content tax credit — the Ontario Film or Television Tax Credit (OFTTC). In the meantime, you can review the OFTTC Program Guidelines.

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Edwards Creative Law is Canada’s Entertainment Law Boutique, providing legal services to Canadians, and international clients who partner with Canadians, in the Film & Television, Music, Video Games and Apps, Publishing and Literary industries.

For more information or to set up a minute Discovery Call with one of our entertainment lawyers please feel free to Contact Us.

Check out our popular blog posts:

Film and Television Law
Music Law
Video Game and App Law
Publishing and Literary Law
Employment Law
Dispute Resolution and Litigation Law
Corporate Law
International Services