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hpdvs2

Team with new income, who gets the money?

15 posts in this topic

I'm looking forward to comments from those who have been through this, but interested to hear any one's opinions on it.

 

An Indie team builds a game.

They had no real discussions on money..

At some point, they decide to release, and suddenly money comes pouring in, however unlikely.

 

How does the team settle where the money goes?

What I've seen, is that everything is split evenly, with the company itself usually being one of the splits (I.e. purchasing servers, licenses etc..)

 

But that doesn't always seem like a good idea.  For instance lets take a random 7 person team.  4 of them are doing a relatively stable amount of work.  2 are clearly exceeding the others, and one was barely available, but still got some work in.  How do you approach those things?

 

Thanks.

 

Or, how do you approach it early, if its not just split evenly?

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You approach before you start the project and setup up some % for each.

Or you will have to distribue the money equily, even if the work was not done equily, in luck of this kind of discussion.

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You are going to need a good lawyer in contract law for this one!  Serious!

 

 

I feel strongly that anytime money is gained by sales or investment, everybody who worked should get paid something .  The ideal is that everyone be paid as they go, though it might not be practical, so you should try to allow for some earnings with any funds which arrive.  Everyone's time is very valuable in terms of money.

 

That being said...

 

With unequal work accomplished, especially very unequal in this case, then I say NO WAY on equal payment long term.  However, a contract can stipulate a small amount short term for everybody split evenly on the first payment.  The remainder should also be negotiated.

 

 Each person should have kept track of their own hours spent on the project (as I always do) by items, including the leader. This should have been verified every week.   With lack of such foresight, I recommend that everyone estimate their time spent and also what percentage they feel was contributed.  Have a conference to discuss it.  Vote on each person's contribution.  You might have it very tough to come to a consensus, but the lack of strategic foresight on the part of the leadership caused all this or lack of strong leadership.  Work hard and be sensitive to resolve these issues and do so contractually, making clear that each person consents to the payment amount.   

 

A contract should express what each team member agreed as a future payment plan.  Here is going to be a lot of discussion.

 

Once everybody agrees to a payment plan, then get it contracted, signed, and notarized as soon as possible.

 

Now that this has all come to light, strong leadership is more important than ever and the survival of the organization is in the negotiations.  This is a critical time to resolve past unpaid work and create a plan for fair future payment.

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As above, you're talking about a business, and running a business by the seat of your pants is not wise. Besides all the problems with the team/money/etc, you really don't want to be negligent of business or taxation laws and end up in court...

The income from selling a game goes to the company selling it. After that, the company can decide how to spend it. If the team members are shareholders then they can all have influence on these decisions. Any payments from the company to team members will have to be done in accordance with staffing/contracting laws of your country.
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I'm thinking on the lines of, splitting the first amount of money that comes in equally and then actually having a discussion about further payments (ie, fire the guy that did nothing, stablish % for each member and such).

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 I think under common law in the US each contributor would be considered a partner in a defacto partnership and they would have to split things evenly regardless how much work each person does.  Each would be on the hook I think for taxes too as a partners in a defacto partnership are jointly liable.   Partners also implied duties to each other regards to the business/partnership.    

 

So it could be messy as indicated above. 

 

(I am not providing legal advice) 

Edited by tboxx
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I can hardly imagine such a situation. Even if you didn't have a clear agreement initially, releasing the game to the market commercially should cause at least one of these 7 guys to think "ok, but who will get the profit?".

 

Still, if something like that happens, then in my opinion - you work as a team, you release it as a team, you split on even terms. If someone was underachieving, you could have kicked him out before. You didn't? Seems you needed him after all. Evaluation of everyone's contribution into the project will be a pain in the ass and you will probably regret getting into this long before it is settled.

 

Also, if a team achieves a success, it is probably wise to keep it together instead of arguing over some cash. The team should think ahead. If this game gave them a lot of money, the next game might work out as well, meaning more money. This time, maybe with some initial agreement of profit splitting.

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Well, my 2 cents.

 

First, you will have to pay taxes first... I don't know how it work in the US but if it is not done yet, you should declare your activity (as a bunch of freelancer ? a limited ?) and the income (in France we also have to pay social taxes and other taxes).

 

Then, if their is money left, refunds each one for the expenses directly related to your project (you talk about licences, server etc, so you must have kept the receipt -maybe the bank report will do this time ?-)

 

Then, if their is still money left, divide equally. You didn't talked about how to split, too bad, but for the next project you will settle an agreement about that.

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First, you will have to pay taxes first... I don't know how it work in the US but if it is not done yet, you should declare your activity (as a bunch of freelancer ? a limited ?) and the income (in France we also have to pay social taxes and other taxes).
 
Then, if their is money left, refunds each one for the expenses directly related to your project (you talk about licences, server etc, so you must have kept the receipt -maybe the bank report will do this time ?-)

 

This is actually a very good point.  I hadn't discussed taxes with any of my students.  I mean no disrespect to them, but I didn't expect any to get over the minimum income requirements for taxation in the US for one of their first games.  According to Efile.com, thats 5,800$ per dependant individual in the US.  (2,000$ annual dependent individual for Wisconsin)  (Adults are typically in ranges closer to 9,750 and up.)

 

However, as a clarification for the US order on this.

 

1) Clarify if you made enough to require filing taxes (per individual, presuming the company is not real and everyone is counting it as personal income) 

 - This may cause you to distribute the funds differently on Dec 31st, so that no one has to pay taxes.  I.e.  I'd rather make 9,749.00 and pay no taxes than make 10,500.00 and pay 10-50% on taxes.  (non-W2'd income can be up to 50% taxed, as no corp is covering part of it)  If you agree to divvy up funds at the end of the year, then there shouldn't be any issue here, i.e. no exchanging funds.

 2) Cover Operating costs.  for personal expenses made, pay those out now.  Individuals if taxed, will need to report the expenses, which will be deducatable, and this payback money essentially doesn't get taxed.

 3) Now split the pay out to each individual how ever you agreed to divvy it up.  

 4) Now individuals should worry about taxes if need be.

 

To keep things lower level, (I.e. no corporate taxes, etc) I recommend not having an official treasury, but that each of the key members/agreed owners of the product, decide to set aside a specific amount of funds each, and equally pay for any "project expenses", like licensing and servers.

 

And of course, keep good financial records, so if you need to do taxes, or incorporate, you have solid records.

 

Of course incorporation adds a layer of legal protection for the individuals.  If your game allows a hacker to gain access to a server farm and steal hundred of ID's/credit cards, the lawsuit would target the individuals unless they are incorporated.

 

*I welcome any corrections on what I just said here.  I'm pretty well certain everything I said is true, but I would hate someone to depend on this only to find out I was wrong about some crucial issue.

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If you do it a certain way, in the USA each person could pay personal income taxes, perhaps as agents working for a Limited Liability Corporation, however the company still has to pay taxes.

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And Tax Fees.  Fees like getting TurboTax Business, H & R Block, or another tax service.    If everything the company makes goes out to fees to pay contractors, then they don't have any taxes to pay.  

 

The first year I was running my school, I took a $20,000 hit on expenses and made less than 1000 back.  I ended up with a nice tax return though, as the taxes work both directions.

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Dan,

I'm afraid you have a couple of errors in your 10:49am post...

 

This may cause you to distribute the funds differently on Dec 31st, so that no one has to pay taxes

The income is based on when the money is earned/collected, not when it 'distributed'-- i.e. if someone buys your game on Dec 1 2012, and you get the money on Dec 1 2012, you have to declare the income in the tax year 2012.  (Note: yes, there is something called 'accrual' accounting that would have things work differently, but i very much doubt you'd be doing that).

{edit for clarification}.  

Someone has to have provided their SS number to Steam/Apple, etc in order to get paid from end customers.  That person has to declare the income in the year it comes in.  If that person then pays others after Dec 31, those other people would declare the income when they receive their checks.

 

I'd rather make 9,749.00 and pay no taxes than make 10,500.00 and pay 10-50% on taxes.

 

Although 9,750 is indeed the cutoff for being required to file a Tax return (5,800 for dependents) on normal income, there is a big exception to that.  If someone has self-employment income of more than only $400, they are required to file.  Since game-related income is self-employment income, if someone made more than $400, they would need to file.  If you look back at your e-file link, read the part under "Special cases that require you to file a return"

 

Also, if any of your students wanted to file a tax return (even if the game made less than the minimum), they would need to know how to properly report any income from the game.  (FYI, one reason they might want to file a tax return is if they have a part time job elsewhere and want to file to get any refund that is due)

 

To keep things lower level, (I.e. no corporate taxes, etc) I recommend not having an official treasury,

 

I'm not sure what you mean by 'official treasury', but by all means you very much should have a separate bank account for the game and its expenses.  I.e. all money the game makes goes into it, and any payments for all costs (equipment, servers, people, etc.) get paid from that account.  Whether or not you have a separate account makes no difference at all as far as taxes are concerned.  But it makes it massively easier to manage what the costs are, and to deal with taxes when the time comes.

 

Although taxes may not be very interesting smile.png, it can be a very good way to introduce students to the importance of record-keeping and the basics of income/expenses.

 

One final note on taxes: it may be that, if the primary goal of your game is not to make money, it could be considered a hobby and not a business.  You'd really need to talk to an accountant for that.

 

Back to your original question:

They had no real discussions on money..

At some point, they decide to release, and suddenly money comes pouring in, however unlikely.

How does the team settle where the money goes?

 

2 things can happen.  The team comes up with something 'fair' among themselves, or (if they are unable to do that), a 3rd party decides it for them (a judge or an arbitrator).

Since I get the feeling from your posts that this is student-related, I'd suggest that an even n-way split would be 'fair.'  Then for the next game, they may want to discuss whether that actually was fair or not.  I.e. if some team members worked much harder than others, or just had different jobs (eg programmer vs composer) should that require different pay percentages?

 

FYI, the way a judge would probably decide would NOT be an even n-way split.  What typically happens is that the judge would look at the different roles, what those roles typically get along with effort/hours put in etc, and assign percentages based on his/her best judgement.

Edited by bschmidt1962
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@bschmidt1962  +1, thanks for the clarifications.   Particularly with the 9,750 down to 400 correction.  That was also a good point on the receiving of funds.  That most any store is going to require someones records to be hooked up to the income.

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I want to continue this discussion, but geared more towards how to discuss the distribution of funds.  Primarily, I'm considering this as an initial plan, but I'm open to hearing about any uniqueness for a team who is already receiving funds.  

 

Since its a slightly different topic, I've posted it on another thread: http://www.gamedev.net/topic/639339-how-to-split-the-money/

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