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red_codec

game studio's legal business structure?

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red_codec    153

Just a simple question about the legal business structure of game studios.

 

For most game developers, they have some kind of name for themselves. Such as 'interplay', 'black isle', 'square soft' etc.

 

Obviously for the big studios they are a company / corporation. 

 

What about small indie developers? Do they simply trade mark their studio name and have no registration with the government?

 

Or do they at the least register a business under sole proprietorship / partnership?

 

I'm curious, thanks for feedback! :)

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SimonForsman    7642

If you are serious you should register a business, it is almost always beneficial(and in some countries, required) to have a registered business when you're doing business (if you're selling a product you are doing business).

 

Registration is easy and free in many countries.

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Lailokken    375

A good Accountant can probably explain the pros/cons of each type structure. If you have one you should speak with them. Might not be a bad idea to speak with an Attorney too.. just so you'll understand the responsibilities and liabilities of each.

 

Good luck with your project.

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red_codec    153

I do have knowledge about this as I studied business at one point. But I was curious as to what is the 'common' structure most studios adopt in actual practice.

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SimonForsman    7642

Hi Simon,

 

Yea but under which structure should a small indie team use? sole proprietorship?

 

That really depends on where you live, different countries have different business forms and different advantages/disadvantages for them, your local government should be able to provide you with most of the information you need. (Most governments are extremely helpful when it comes to starting businesses since they want people to create jobs and pay taxes)

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I am not a laywer - since you are about to start a business (even if just 'for fun'), you really need talk to one.

What about small indie developers? Do they simply trade mark their studio name and have no registration with the government?

You have to register trade marks, and they cost about $275+ apiece in the USA.

Also, what some indie developers do out of ignorance, and 'seem to be okay', doesn't mean it's a good thing to do.

 

Or do they at the least register a business under sole proprietorship / partnership?

You actually don't have to register sole proprietorships, as far as I know (which admittedly isn't that far), but you can optionally register them.

However, they don't offer you any protection. If your game software accidentally wipes out my harddrive, and I sue you, even if your EULA says, "No responsibility for damages caused to your PC", EULAs haven't actually been proved to be legally binding in court, so I can sue you anyway, and if you lose, I can take your house and any other possessions you own, even the ones unrelated to your business. This makes you a good target for lawyers, knowing you have money, and knowing you are vulnerable to lawsuits.

However, if you're a LLC (Limited Liability Company) or a LLP (Limited Liability Partnership), your legal losses (liabilities) are limited to only what the business owns, and not what you personally own.

 

Again: I am not a laywer.

 

I'd figure out if I am doing it for a hobby, or for extra income on the side, or as a business. That'd change how I'd approach it.

As a hobbyist, I wouldn't bother with any of it.

As extra income on the side, I'd just take some small precautions (maybe an LLC but not bothering with trademarks).

As a business, I'm personally planning on doing first an LLC, then later expanding to a Series LLC with several sub-LLCs, for segregating separate parts of my business once things get underway. But I plan to talk to a lawyer once I get closer to release.

Edited by Servant of the Lord

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Tom Sloper    16040

I do have knowledge about this as I studied business at one point. But I was curious as to what is the 'common' structure most studios adopt in actual practice

 

It depends.

It depends on company size, company type, country, business model... 

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red_codec    153

Hi everyone, 

 

Thanks for the feedback but I think I've found my answer.

 

I think LLC is the way to go, not sure if its the same in other countries but LLC over here has many advantages, including:

 

1. limited liability

2. certain tax exemptions

 

and many more goodies!

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Hodgman    51234

You have to register trade marks, and they cost about $275+ apiece in the USA.

If you trade using an kind of name or logo (a mark) it also becomes an implicit trademark. You can optionally use the (tm) logo to show that you're explicitly stating that you claim something as your own mark, even without registering that fact.

At one big international corporation I worked for, we stopped using the (tm) mark altogether, because our lawyers decided that it implied that only the marks that we explicitly (tm)ed were protected, and a nearby mark without a (tm) would be interpreted as having no claim. Their logic was that if we (tm)ed nothing, then the trademark claims were vague, and we could sue anyone for copying any of our imagery.

 

What country are you in, Red?

 

Here in Australia:

I have a sole-proprietorship, which I was required to register in order to work as a software contractor - this registration was free via the tax office website. This just lets other businesses treat me as a business, and pay money into my personal account.

My indie games company is an LLC with 3 owners - there are fees involved in administering this with the government corporations agency. The limited-liability is kind of important, because it allows your business to fail, without causing you to personally go bankrupt along with it.

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In the USA, there are pros and cons to many different forms of businesses. If there was one 'best' answer, then none of the others would exist.

You actually pay less taxes as a LLC until you reach a certain amount of profits.
Corporations pay a flat 35% in taxes, while LLCs pay from 15% to 35%, in gradually increasing tiers based on profits. Plus, taxes from LLCs (if owned by a single person) can be taxed as-if it were a Sole Proprietorship (while still retaining the benefits of limited liability), so it is (optionally) taxed as if it's your personal profits.

UnitedStates-based Corporations are taxed like corporations: 35%. Then, ofcourse, if you pay yourself a salary as CEO, your salary is taxed as an individual. This is called double-taxation. You get taxed twice as the owner of a corporation (first the corporation's profits, and then your individual salary), while just once as the owner of a LLC. Further, you get taxed less as a LLC in the first place, if you're making less profit than certain thresholds. Further still, you'll have to file two tax reports with corporations, while with an LLC (owned by a single-person - even if you have employees) you can combine it into one to simplify your work.

Again, not a lawyer, this is just what I've read; and this might be changed in the future by the US government.

Overall, from my limited understanding and limited research, I've come to the conclusion that (since I live in the USA) I want to run my own videogame company as an LLC, at least for the first few years and at least for the first few employees. In the US, you can change what form your business is later on, to suit your shifting needs.

Talk to a local lawyer and they can give much better advice, that is much better suited to your country. Edited by Servant of the Lord

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SubZeroGaming    138

From personal experience, if you own the business 100% as in the company. Go for an Scorp. Incorporating is a much smarter idea than LLC. 

With incorporation, you have Dividends. you can pay yourself with dividends, not to mention depending on which state you live in, major tax benefits. I know someone mentioned about the 30% tax rate, that's not true at all. There are numerous ways to avoid this. I suggest getting with an account. In my situation because I own the company 100% it was best to get an Incorporation over an LLC

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alh420    5995

Then, ofcourse, if you pay yourself a salary as CEO, your salary is taxed as an individual. This is called double-taxation. You get taxed twice as the owner of a corporation (first the corporation's profits, and then your individual salary)

 

I don't know the proper terms in english, but wouldn't your salary be a cost for the company? 

At least here, there is no difference between employees who are also owners, so any salary is a cost of doing business, and not counted as a "profit".

Of course, as an owner, you also has an option to pay out the profits to the owners (yourself), and then this is taxed again. But the combined tax is approximately what it would be if you took it as salary. (actually a bit less in many cases, specially with higher salaries, and many employees, which makes this an attractive option here)

This is not "salary" though, but "dividend" (or some such..)

 

In any case, kind of useless to ask for advice on this in an international forum, since local laws vary so much. I don't even think we have the equivalent of an LLC here... Either you go sole proprietor, or you get an "aktiebolag" with all the bells and wistles. There are some other types too, but mostly cumbersome, and without limited liability...

 

I'm also surprised to see how much Sweden has fallen in the "worlds highest taxes" legue...  Company tax here is 22% now.

Edited by Olof Hedman

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Then, ofcourse, if you pay yourself a salary as CEO, your salary is taxed as an individual. This is called double-taxation. You get taxed twice as the owner of a corporation (first the corporation's profits, and then your individual salary)

 

I don't know the proper terms in english, but wouldn't your salary be a cost for the company? 

At least here, there is no difference between employees who are also owners, so any salary is a cost of doing business, and not counted as a "profit".

Of course, as an owner, you also has an option to pay out the profits to the owners (yourself), and then this is taxed again. But the combined tax is approximately what it would be if you took it as salary. (actually a bit less in many cases, specially with higher salaries, and many employees, which makes this an attractive option here)

This is not "salary" though, but "dividend" (or some such..)

 

I think you're right - employee salaries probably count as an expense. Whether the owner of an LLC counts as his own employee for tax purposes, I don't know.

But, the profits of the company are taxed, then when those profits are passed on to shareholders (as dividends, as you mentioned), the shareholders are taxed on it.

If a CEO owns shares, his salary is taxed (as income), but his profit from the shares is double-taxed (first as the company profits, and then as the shareholder's income).

 

This may have changed in 2013, I'm not sure. I don't fully understand it, and is something I'll want to talk with a lawyer about when setting up my business before I release my own game.

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