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I'm the leader of a group of 4 of us that are contributing to a game and it has come to my attention that we will eventually need some kind of official title or something along those lines. We've agreed on a name, and we've already got a domain name and several back-end resources that I've set up under the brand as well.

I'm curious as to the steps needed to be taken to make it "official" and protect my assets. Is this something I'm best off worrying about closer to release?

I've looked at this post, and I was also taking a look at this page. However, I want some straight answers from people who may have been down similar roads in the past.

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You had a lot of questions, some of which were subjective and I removed so that this question focuses entirely on the issue of the type of legal entity you want. –  Josh Petrie Apr 24 '13 at 15:18
    
When i started my answer, those subjective questions were still there. So part of it answers them. –  Jay Soyer Apr 24 '13 at 15:39

2 Answers 2

up vote 3 down vote accepted

This is something you probably want to talk to lawyer about. That sounds like it will cost money, but it will probably not be as much as you think and many lawyers can give you a consultation up-front (at no or a minimum fee) to give you a better idea of what the net cost to you would be. Additionally, it costs money to make money, and you're almost certainly better off spending the money up-front on a lawyer than spending the money later on when things get pear-shaped and you're not properly covered.

For context, the three of us who worked on SlimDX, an open-source "spare time" kind of project, formed a legal entity to act as the container for all the work.

You probably have a few reasonable options (all of these are US-specific, which should be fine as that appears to be where you are located):

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)

There are additional business structures available in the US (such as S and C corporations), but they are probably too heavyweight for your needs. The IRS has a nice page breaking down all the business entities and what the implications are for ownership, taxes, et cetera. I feel like I see a lot of indie developers form LLCs, but that's purely my own opinion and should not be considered legal advice.

You should settle the issue of business organization and legal issues surrounding ownership of the intellectual and physical property as soon as possible, ideally before you develop anything significant. You want to be able to answer questions such as "who owns what if this whole things collapses, what if one of the members leaves, how is our profit split up?" and more, and the sooner you do that the less complicated things will be later. Talk to a lawyer.

A lawyer friend of mine wrote this article on "The Business and Legal Issues Surrounding Game Development Team-Building" and also this chapter concerning legal challenges in a book. I'd recommend reading them.

Here's another article on a "legal crash course for indie developers" you may want to check out. Note that I can't vouch for this author in any way, I just stumbled across it while researching for this answer.

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For the core of what I had asked, this definitely gives me a good overview and several references that answer my originally subjective questions. Thanks! –  Radai Apr 24 '13 at 21:01

Great questions! Here's my two cents.

Starting the Company
Seeing that you've already secured a domain name and necessary assets, I would suggest starting the process of creating your company. Depending on your state, it could take a few months for the paper work to finalize. Different states have different forms, regulations, fees etc. I find the easiest process is to hire a legal service to handle everything for you. It ups the costs a little but avoids all the hassle. For instance, many states require an official Operating Agreement form. Also, the legal service can act as your Registered Agent then. I believe that's a must for most states.

There are many online legal services to pick from. I suggest one of following:
InCorp Services
LegalZoom

What Kind of Company
There are certainly a lot of choices here but for sure you want to start an LLC. It's great for tiny start ups and handling taxes is a breeze...relatively speaking. As an LLC your team can all be considered "members" of the company. You can think of members as part owners. If you want to be the sole owner/member, that's fine but then you'll need to start worrying about paying employee wages which adds further complexity.

Further Reading:
Company Type Differences

Handling Taxes
The big benefit of an LLC comes with taxes. All company profits are distributed directly to it's members. This is called pass thru taxation. That means the company itself doesn't pay any taxes, only it's members. Members still file a standard 1040 tax form but ensure to claim the income received from the LLC.

The only difference then comes with paying quarterly estimated taxes. This is standard for any company, sole proprietary, or even for independent contractors. Basically, 4 times a year you must pay taxes on your estimated profits for that year. Then when you do your final "normal" taxes you determine if you over/under payed. Trust me, you want to over pay. Here's a great link that talks you through estimated payments: Estimated Taxes. Remember, that's only for the feds. You have to do this also for state and local.

Estimated taxes brings one important lesson to the table. Setting aside a chunk of your revenue for taxes. If your game pulls in $1000 dollars in one month, you NEED to set aside a percentage of that to give to the government. Personally, I have to set aside 40%! And no I'm not even making close to 6 figures.

Tracking Income/Taxes
I'm sure there are great resources for doing this, however I do all my estimated payments by hand. Trust me, it's far easier then doing normal income taxes. When you are tiny, this is trivial. Larger companies will be different. Hiring a tax service is a viable option but (in this case) the hassle is not worth the cost.

Since I'm only one person, there isn't much to track. I'd imagine the same would be for you and your team so I would just use a simple spreadsheet. Any purchase or expense for the LLC is recorded there and later used to determine your actual profits. Of course, you can just get a company credit card and always use that to track expenses instead. Just make sure the CC company maintains a billing history for over a year.

Otherwise you can use whatever tax service for handling the end of the year taxes. Such as H&R Block or TurboTax.

Final Thoughts
This probably sounds very overwhelming. Especially when it comes to taxes. It'll probably be rough in the beginning. The initial learning curve is somewhat high but once you get a handle on things, it's not too bad and becomes second nature eventually. When I went through all this, the most significant thing I learned was just how much the government taxes add up. As an employee, you don't see all the additional taxes a business must pay on your behalf.

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For the tax issues that I originally brought up, this certainly sums all of it up in great, great detail. I appreciate that, I wish I could combine both the accepted one and this one and accept that answer! –  Radai Apr 24 '13 at 21:00
    
Haha. No worries. Just glad it was still helpful. –  Jay Soyer Apr 25 '13 at 1:03

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