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jfreedan

Best State to Form Company In

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jfreedan    122
I'm sorry if this is answered somewhere else...I've looked here and elsewhere on the net, and I cant find out which State(s) are the best to form a video game company in the USA? More specifically, the best to form a game developer whose product is a MMORPG game. I know Washington and California is popular for software...but I cant find the information on why that is either (maybe I'm looking the wrong places, I dunno). Can anyone with any experience help me out here please?

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chollida1    532
What are you looking for exactly?? Do you mean best state for labour laws?? Best state for taxitation?? Best state for talent?? Best state for cost of living?? Best state for weather??

Cheers
Chris

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Tom Sloper    16062
You should form your company near where your people already live, so they don't have to move!

If you're in Vancouver, and the people who'll be working at your company (you already know them because you've come to trust their skills through your having worked together, right?) are also in Vancouver, then Vancouver is a perfectly good place to form your company.

Why would you want to start the company somewhere else?

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Guest Anonymous Poster   
Guest Anonymous Poster
You could incorporate in Delaware (http://www.delawareintercorp.com/).

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frob    44971
There are some people who say "incorporate in state X because of taxes" or "incorporate in state Y because of labor laws".

The best answer to this and all other law-related questions is simple -- Go talk to a real lawyer.




Since you will be doing business in your state, you will still have to register with your state. You'll still have to get a business license in your state. You'll still have to pay taxes in your state. You'll have to follow the laws of another state in addition to your own. You might end up with a law suit in the other state rather than your own. You might end up needing to travel to that state multiple times to handle various legal matters relating to a business. And so on.


Just do it all locally, it's the only sane way to go.

The only real exception to this rule is living in Kansas City (MO/KS), St. Louis (MO/IL), Memphis (TN/AR) or some other major city that spans borders. ... [oh]

But since you're in Vancouver, I suppose you know all about spanning borders with the USA/Canada thing. [grin]

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jfreedan    122
Our development team operates in a 'virtual enviroment'; we do not all live in the same State currently (Washington, California and New Jersey).

And my question related to taxation and/or other unique legal protections.

I sent some inquiries of this same question out to some local law firms but havent heard anything back in over a week, which is why I've gotten to the point I'm asking on a forum.....

I'm leaning toward forming a LLC; the question is what State is best for it in the videogame development field?

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frob    44971
Quote:
Original post by jfreedan
I sent some inquiries of this same question out to some local law firms but havent heard anything back in over a week, which is why I've gotten to the point I'm asking on a forum.....


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Obscure    175
Quote:
Original post by jfreedan
I sent some inquiries of this same question out to some local law firms but havent heard anything back in over a week.....
As Frob so eloquently put it - you don't "send" enquiries of this nature you phone them.

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_winterdyne_    530
If it's any help, my accountant advised the following (and a local firm of lawyers agreed):

1) Because our turnover is expected initially to not be enough to support the team we do not employ them. Instead we use a consultancy agreement which leaves the people on our team as effectively self-employed. This takes the onus from us of dealing with THEIR taxes (if there's such a thing as PAYE (pay as you earn) where you are). It also allows you to contract for a rate of pay per hour, but not be obliged to monitor working hours or conditions, since your staff are effectively working for themselves. This can present problems (for them) if they can be proven to be working for only one firm (a master-slave relationship) in which case your tax authority may insist that they should be treated as fully employed. In the case of a distributed team, I'm not sure how this would be enforced though.

2) Draft and check any specialised contract clauses BEFORE passing them to a lawyer. If you have a clear idea of what you want (a 'dummy' contract) and everybody's agreeing to it, it's less likely to take lawyer time (and therefore money) renegotiating the contracts later. Plus it gives you a really good chance to get your head around what everybody expects in place to protect their rights. Do compare and contrast to real contracts to make sure you're not doing anything silly.

3) Form the company early and if possible leave it under a certificate of non-trading (allows you to do set-up stuff like bank accounts, putting in start up capital) until you're ready to trade (which means paying money out), or pay for the contracts etc. This step has taken a lot longer than I expected it to - E3 slowed things down a bit, as did my general tardiness over approaching lawyers and chasing them up. Over here, non-trading companies basically don't cost you anything - it's only when you start to shuffle money through it that you're liable for taxes etc. etc, so delays aren't crippling to the company at this point (providing you're not relying on it for income).

I know these points aren't what you were originally asking about - but they're definitely helping my firm get on its feet, and has allowed a more formalised profit sharing arrangement, which means we can throw money at advertising and upkeep rather than the team at first to stand a chance at gaining customers. Useful, when you don't have a pet millionaire handy. Edit: Yes, the specialised contracts do cost more to set up, but if they give you more stretch in your company budgets early on, they're worth the investment in my opinion.

In terms of location though (especially for an MMO) it doesn't matter. Your product is globally accessible. Any license agreement has to be applicable and binding whereever you market your game. You can theoretically expect lawsuits from anywhere you market your game. Similarly, any contracts you make with your team have to be applicable and binding to the locations of your team members. Typically either UK or California state laws are used (according to my lawyers) and either are considered usuable in a worldwide setting (typically EULAs include a clause agreeing to be bound by a set of laws for the purposes of the agreement).

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ellis1138    234
Quote:
Original post by jfreedan
Our development team operates in a 'virtual enviroment'; we do not all live in the same State currently (Washington, California and New Jersey).

And my question related to taxation and/or other unique legal protections.

I sent some inquiries of this same question out to some local law firms but havent heard anything back in over a week, which is why I've gotten to the point I'm asking on a forum.....

I'm leaning toward forming a LLC; the question is what State is best for it in the videogame development field?


Definitely get a lawyer. I know it costs money, but will cost less than screwing up. Not sure why yours aren't answering inquiries. I've had very good service from Chris Hoyt and Thomas Buscaglia, as far as answering light inquiry. but as far as picking the lawyer, don't pick any who don't get back to you, since that's a sign of things to come.

There's no "best state" for videogame companies, unless you're planning to move everyone to a single state and have an office. (Colorado is nice and cheap). Now, I have to register my company in NJ, because I live there and we're forming as an S-Corp, and NJ considers that if you are an S-Corp, the owners are employees, and even if you only have 1 employee in NJ, you are doing business in NJ. LLC is different, and NJ doesn't consider the company owners employees, but if you have a non-owner employee in NJ, you are doing business in NJ. So, NJ's going after its cut, one way or another. :)
But we're in a similar boat. No physical office; entirely virtual. Make sure to do everything so that each person working for you signs a contract and an NDA and so they absolutely count as an Independent Contractor, and not an employee. The lawyer will need to guide you.

Now, as far as registering in a state like Nevada or Delaware, it's not as simple as just saying you're there. You need the registered agent and that state takes its cut, as well.

Good luck!

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monkeygrrl18    198
Quote:
Original post by tsloper
You should form your company near where your people already live, so they don't have to move!

Why would you want to start the company somewhere else?


This is not necessary. You can incorporate your company anywhere you want. Living in the state is not a prerequisite to incorporation in a state. One thing you do need to consider though is that if you do business in states other than the one in which you are incorporated, you may have extra taxes or liabilities. Although this was not listed as one of your main concerns, you may also want to see which states are more favorable to you in terms of labor laws. Deleware favors businesses over their employees while California is the opposite - employees usually are favored over mangement.

I am not a tax lawyer so I am not even going to attempt to answer your tax questions. Go see an attorney who specializes in business or tax law as they will be more familiar with your issues. It may be expensive but if the attorney can answer your questions and explain the best solution, then that is money well spent.

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frob    44971
Quote:
Original post by monkeygrrl18
Living in the state is not a prerequisite to incorporation in a state.

Most (all?) states have a requirement for a resident agent or resident office. In other words, you have to have a person or office with a permanent address within that state that they can contact you. This is the address where important legal documents will be delivered in person.

You are right that you don't have to be the one actually living in the state. There are businesses out there that for a fee will act as your legal registered agent within the state.

But if the OP doesn't want to bother with actually calling a lawyer and would rather email them and post on the forum instead, spending a few hundred bucks per year on a resident agent service is probably not an option.

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jfreedan    122
Quote:
Original post by frob
But if the OP doesn't want to bother with actually calling a lawyer and would rather email them and post on the forum instead, spending a few hundred bucks per year on a resident agent service is probably not an option.


#1. It just so happens to be this is the year 2006 and when a law firm says either call and leave a message on a voice machine or send an email, I'm gonna go with the email. I want to be able to say precisely what I want to say and not get fast-talked into something when I'm still trying to check out if what the lawyer says is right for us, or right for the lawyer.

You act as if I've never spoken to a lawyer before about other issues.

I dont entirely trust lawyers and I want to be able to check out what they say before I come into the office and get the whole "pay me 2 thousand dollars for retainer now cause I'm not talking anymore until you do" even though they havent said what the full fee is going to be-- expecially when they mention the full fee will end up going over 2 thousand dollars, but they "arent sure" how much it will be in the future.

I dont want to waste my time on that. I want them to answer specific questions without trying to deviate into the 'la-la land' of speculation.

However, maybe once I have some feedback from other people who have already did the song and dance of researching, dealing with a lawyer and forming a company, then I'll be able to cut through the fat that I am perfectly aware a lawyer is going to show me; and I'll be able to walk over that junk because I'll be able to recognize it.

#2. Whats wrong with asking a question to people who have some experience in the topic? Are you suggesting people should go into business never checking into how others in the field operate, and that we should rely entirely on what we are told by someone who makes money off every thing they do for you? :p

PS: Thanks for the information everyone who has contributed.

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frob    44971
I am saddened to hear that you are so distrustful of lawyers. It is a profession just like any other, and I assume it has roughly the same ratio of good and bad people as all other professions out there.


I also am sorry if my earlier comment came across as negative, and I want to be clear on this: Doing your homework in advance and understanding the legal aspects behind doing business will save you time and money, and I hope that I never suggested otherwise.



I have worked with several lawyers over the course of the past decade, and all of them have been friendly and honest. Once when I mentioned that money was tight, the guy was willing to drop his rates for that visit. I don't have to see a lawyer often, but when I do, it's nice to do repeat visits with somebody I have worked with a bit in the past.

Pehaps I have been unnatrually lucky, although I doubt it. Other people on the forum are in positions to work with their client's lawyers frequently, and based on comments they have made, I assume they have had generally positive experiences as well.


About calling or emailing: Generally business relationships should be established over the phone or otherwise in person. Sure they might love getting email, but it should not be your first contact. Even if everything you do afterword is done through email, your initial contact should be over the phone.

If all you are looking for is a paper trail, it is fine to send an email as verification after the phone call.


The question about forming a company is not like talking to a lawyer about a law suit. It is talking with a business lawyer to help get through the government red tape and establish a business.

Law suits are completely different. When a lawers says "pay me $2000 up front and possibly more later" it would be for lawsuits. Nobody can be sure how much work it will end up being. Lawsuits (being either the plantiff or defendant) can get very expensive, and nobody can tell up front if things will settle down quickly or if they will balloon up to a big trial requireing a lot of research.

It is much like you as a programmer agreeing to take on a contract job. You know it will take a week minimum but it could end up taking several, so you give a minimum rate plus an additional pay range.



This type of work is fairly standard, and shouldn't take more than a few hours if the lawyer routinely handles business incorporation. For most business lawyers, the phone call should go about like this:

** ring **
** ring **

Them> Thank you for calling the law offices of Acne and Wartz. How can I help you?

You> Hi. I am interested in setting up a business and need a lawyer to help with that. How much do you charge per hour, and how long does the process take?

Them> We have five lawyers who handle that type of work. It can take anywhere from one to five hours, depending on how well prepared you are and the complexity of the business. For that type of work we charge $145 per hour.

You> Okay, thanks.

** click. **


For a programming business you will probably spend more money on local business licenses and business registration than you will spend on getting legal advice. The total cost for setting up a business will run anywhere from several hundred dollars to a few thousand depending on where you live and other factors. I know of one area where the combined city, county, and state fees are over $1200 the first year and about $800 per year after that.

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monkeygrrl18    198
Quote:
Original post by jfreedan
I dont entirely trust lawyers and I want to be able to check out what they say before I come into the office and get the whole "pay me 2 thousand dollars for retainer now cause I'm not talking anymore until you do" even though they havent said what the full fee is going to be-- expecially when they mention the full fee will end up going over 2 thousand dollars, but they "arent sure" how much it will be in the future.

I dont want to waste my time on that. I want them to answer specific questions without trying to deviate into the 'la-la land' of speculation.


First of all, lawyers earn their living by giving legal advice. It will be highly unlikely that you will find one who will answer all of your questions free of charge. I mean...as a programmer who earns a living writing programs, would you write a program for someone and just give it away to them because they asked you to?

Second of all, retainers are used by both civil and criminal attorneys. It is a way for us to covor some of our costs of doing initial research or some work without having to send the client a bill every few days. Legal advice is expensive because it takes time. If everyone could do it (and do it according to the law) then there would not be any lawyers but that's not how it works. A retainer is a good thing. By giving the attorney the money up front, they are able to do the work without fear that the client will later come back and say they don't want it or don't want to pay for it. Of course, if you really do think that the attorney screwed you out of your money or didn't earn it, it can be put into an escrow account until the matter is resolved.

Third, sometimes the retainer is not enough to cover all of the costs. If you are doing something simple like setting up a simple LLC then it shouldn't cost very much. However, if you are requesting something that will take a lot of time to research and document, as well as seeking the advice of a specialist attorney, you will have higher expenses. An attorney should be able to give you a ball park figure of what the expenses should be but sometimes it just takes more time. Again, as a programmer, if you told someone that you could create their program in 2 hours but once you get into it and find that they want functions that will take more time to code, wouldn't you want to charge them for your extra time?

Talk to attorney and just explain what you are looking for. Explain that you would like to have an estimate of what it will cost. If you really are afraid of them charging way to much, say that you want a non-renewable retainer. This means that you will give them $X up front and when they run out of that money you set up a new retainer agreement or have them bill you for every other thing they do or find a new attorney.

If you want to see the difference between different kinds of legal entities, look here. Like Frob has said, you do have to think carefully about what you want to do because some entities will require you to pay hundreds of dollars in taxes even if you don't make any money (in CA an LLC may cost at a minimum $800 per year in taxes).

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jfreedan    122
I had a lawyer try to charge me a 2 thousand dollar retainer fee for patenting the name of a comic book character.

And that didnt include the whole "international patent t-shirt" crap he was trying to tackle on.

I know lawyers dont work for free, but I like to know enough to know when someone is trying to take advantage of me. I dont like being ignorant.

Also, I expect a professional who has been doing their job for awhile to have a very good idea of how much of their time it will take to do their job and what their fee structure is. And if they dont have enough business sense to be able to know that, then I sure as hell dont want to pay them to give me business advice.

Even if I had tons of money to throw around, I'll never have so much money that I can play guessing games with it, rather than making educated decisions with how I spend it.

Anyway, thank you for the information you have given me; it has been educational.

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monkeygrrl18    198
Quote:
Original post by jfreedan
I had a lawyer try to charge me a 2 thousand dollar retainer fee for patenting the name of a comic book character.


A patent is expensive because the attorney must do extensive research to make sure the patent is not already registered or in the process of being registered. It is not as simple as Googling a name and seeing if it comes up.

I agree that someone should be able to give you a ball park amount of hours but sometimes things happen...that is the nature of the beast.

I hope that you find an attorney who you trust and who you think will treat you fairly. Contrary to the stereotype, there are some nice honest lawyers out there! [smile]

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__ODIN__    479
I'd be a little worried if he attempted to 'patent' the NAME of a character from a comic-book. While I'm not a lawyer, I'm pretty certain that's not an invention.
Wikipedia on Patents

Allan

[Edited by - __ODIN__ on May 20, 2006 2:12:25 AM]

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ellis1138    234
Trademarks and patents are expensive. I'd looked into the possibility of doing that myself, but at about $800 (multinational), and the amount of time it would take me, combined with the fear that if I mess up, it will cost way more down the line..

The laywer I found understands the initial low-budget stuff, was willing to talk over the phone for an extensive time without charging, and yes, he does want $2000 for a retainer, which should cover the trademark searches, corporation setup and bylaws. However, he gave an exact hourly price and then a list of how many hours each thing I would need would take. He agreed to keep expenses down and to firnish itemized bills. So, keep looking until you get a lawyer who will do that.

You shouldn't need any patents, unless you're inventing something new. Just some light trademarking for the company name (not even a logo one at the early point).

Even in my previous business (video), we would get a 10% deposit on services, and then 50% the day of the shoot and the remainder at completion.

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jfreedan    122
Quote:
Original post by __ODIN__
I'd be a little worried if he attempted to 'patent' the NAME of a character from a comic-book. While I'm not a lawyer, I'm pretty certain that's not an invention.
Wikipedia on Patents

Allan


You're right; I meant trademark.

I'm not sure why I wrote patent...I must of been more tired than I thought I was when I posted that, cause I thought I re-checked to make sure I typed 'trademark' and not 'patent'.

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