Succeeding in Your Business: Here are some hints for getting started in off-Broadway theater

“I’ve been a struggling actor in New York for several years, but right now I’ve got the chance of a lifetime. I have written, directed and produced a satirical off-Broadway play based on the life of a famous former politician. I have a couple of investors — really all the money I need — but I’m not sure what, if anything, I need to do legally to get this show off the ground. Where should I start?”

Ah, Broadway, the “street of broken dreams.” (Or is that Wall Street?) Sadly, the vast majority of these dreams never come to fruition. Most investors in Broadway-type theatrical productions — known colloquially as “angels” — view their investments as charitable contributions with only a microscopically small chance of realizing a decent return.

First of all, look carefully at the amount of money these investors are putting in. While a couple of hundred thousand dollars should be sufficient to launch a non-musical off-Broadway play in a 30-seat theater, it will be far from enough to bring the show to Broadway if it becomes popular. You will need additional deep-pocket investors at that point, and whatever legal structure you adopt will have to be flexible enough to admit those new investors. In plain English, you need to make sure your current investors are prepared to be “diluted” if the show becomes a hit. If they are not sophisticated Broadway players, they will need to understand that a 1 percent interest in “Phantom of the Opera” is worth more than 100 percent of a show that closes six weeks after it opens.

Next, you should talk to an accountant or lawyer about setting up a manager-managed limited liability company (LLC) for this production. You, as the producer of the show, would be the manager, while you and your investors would own all the equity, or membership interests. Structuring the LLC this way means that your investors will not have the ability to tell you how to run the show.

There’s a small catch, however. Because you are operating in New York City, you will have to publish a legal notice in two newspapers in Manhattan (one daily and one weekly) for six consecutive weeks when you form your LLC. This is a “gotcha” in New York law not many people are aware about, as the cost of publishing this notice in Manhattan may cost as much as several thousand dollars.

To avoid having to publish the legal notice, you may have to set up a Subchapter S corporation for your show, but this will involve significantly higher legal and accounting fees than forming an LLC. Also, New York City does not recognize the Subchapter S election for its general corporate tax.

You will need a good accountant to sort through the costs and benefits of forming an S corporation versus forming an LLC.

Once you have formed your legal entity, you have to consider the federal and state securities laws. New York state’s Theatrical Syndication Financing Act (Article 23 of the New York Arts and Cultural Affairs Law) requires certain securities-type disclosures to investors in New York-based theatrical productions unless an exemption is available. An exemption is available for “syndications” involving fewer than 36 investors, but it’s not automatic — you will need to apply for an exemption from the New York Department of Law (aka the attorney general’s office).

To qualify for the exemption, your investors will need to be accredited under the federal securities laws. Accredited investors, as defined in the federal securities regulations, are investors of significant net worth — in the case of individuals, an individual with a net worth over $1 million or who has earned income in excess of $200,000 per year in both of the last two years (or $300,000 with spouse), with a reasonable expectation of reaching that amount in the current year.

Failing to comply with these laws gives your investors the right to sue and force you to give them their money back if the show flops.

You might want to consider crowdfunding your production. A number of crowdfunding portals have helped launch successful theatrical offerings that don’t have to comply with New York laws, although almost all of these involve recognized brands with a strong social media presence. If you’ve already got an online fan base, crowdfunding works. If you’re just starting to build that base, it probably won’t.

Finally, since you are basing your satirical off-Broadway play on the life of a former politician, you might want to ask your attorney whether there’s any risk the politician (or his family, if he’s deceased) could sue you for defamation or invasion of privacy. While sitting politicians are considered public figures who will have a tough time suing people who make fun of them, the rules are more complicated for retired politicians and other people who were once celebrities but are no longer in the public eye.

To find a good entertainment, go to www.avvo.com, and type “entertainment” and “your city, your state” into the search box. There are an awful lot of them — just as there is a broken heart for every light on Broadway.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.” 

COPYRIGHT 2019 CLIFFORD R. ENNICO 
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