Create a company for your game?

Not sure if this belongs here, but not sure where it does belong, so ima ask it here.

When I have worked on my game to a point when its publishable, is it a good idea to start a company for it? Or publish the game under your name? What pros vs. cons are there in starting a company for it?

 

Use your own name, it's a source of pride isn't it?

A company is adding stress and work for no reason. It does not impress people buying your game at this point. People are impressed by great games though. So save some trouble and get a game done. The company can be formed when you have some income.

 

I'd only start a company if I was working with others. That way, profits and reinvestment is more clearly defined. Also, there is the issue of taxes. With a formal company, the separation between person income taxes and company profits are easier to see.

A reason to not start a company would be additional overhead and costs. There is a lot of paperwork and some money that is needed to keep a company current.

 

What country are you from?

In general, you need to consult a lawyer.

In my area starting a company makes you subject to all kind of regulation and bookkeeping, and higher fines in case you mess up, so working as an individual is a safer choice.

 

Really great question. I had this one myself 2 years ago when I launched my first app and decided to try and do this for a living.

Consulting a lawyer is a nice suggestion, but they're frikkin' expensive and successful app businesses really are run on a shoestring at the start. It would probably have been my biggest expense had I consulted a lawyer, so I tend to try to avoid them like the plague - same goes for accountants, but they're a little less offensive to me. You would also be surprised at how many of these professionals are ill-equipped to deal with questions about an app business.

This is what I came up with.

Pros to starting a company:
1. Lower tax rates; easier to claim business expenses
2. Allows you to hide your home address and phone number from the public. Google and Apple will make this info public when you place your app on their store.
3. Shields your assets (your home, your car, your investments) from any litigation that may arise involving your game or game business
4. It's almost essential if you are not working alone.

I stuck #3 in bold because it's probably the big one. I'm Canadian, but most of my customers are Americans and I know Americans like lawyers and like to sue people and Canada's not far away, so it's a definite concern.

Cons to starting a company:
1. It costs a bit of money to start-up your company and then annual fees to maintain it. I think when I asked some of my consultant friends who were forced to incorporate to be able to work for US electric companies, they told me that it was 2000$ a year. That's not much of a dent in an engineers consulting salary, but it's a huge dent in a starting app developers salary.
2. More tax returns. You will have to prepare your individual tax return and another tax return for your business. I'm bolding this because I hate doing tax returns.
3. A bit more work to extract money from the business for yourself. Right now I just go to the ATM and draw what I want. If I was a business, I would have to write a check from the business to myself and then draw after the check clears....if I wanted to do things properly.

 

You shouldn't start a company for an individual game. You should start a company as a public face for your game development efforts, and work to grow the branding of that company. Each individual game you release can then bear the branding of the company.

As has been stated, forming a company isn't actually necessary. If this is just a hobby, and you aren't planning on making money from it any time soon, you don't NEED to form a company. If at any point you decide that you are interested in making money, forming a company is probably a good idea. When no money is involved, the chances of someone suing you are much, much lower. Someone might try, but once they learn that there is no actual money to be made, they can usually be convinced to back off. If your game is actually earning money, it is a good idea to legally insulate yourself from potential threats.

Forming a company varies wildly depending on the country/state you live in, and what manner of company you want to form. I can generally only speak to the standard laws in the U.S., as that is where I live. Here in the U.S., an individual or small group of people would normally form an LLC, an S-Corp, or a Partnership. Technically, an LLC or a Partnership can actually be taxed as an S-Corp, but we aren't going to go into that. All three of these options allow for a small, legal enterprise. I'll go over the basics of all three.

LLC
This is a Limited Liability Company. It generally has "managers" who are stipulated in the company's formal filing to the government. Basically, you write down the basic structure of the company, who is in charge of the company, and file those papers with the government. Each declared "manager" has a vote in how the company is run. There has to be at least one manager declared, but the number of managers is up to the discretion of whoever is forming the company. It can be one, it can be a hundred. If there is any change to the number of managers, these changes also have to be filed with the government. LLCs are a popular option for smaller businesses that want to remain as companies, and don't want to bother with the stock structure of a corporation.

Partnership
This is somewhat similar to an LLC, but with an emphasis on status regarding its members. A lot of law firms go with this type of structure. Partnerships usually start off with two or three primary "partners" who share management of the company. Anyone who becomes a partner owns an equivalent portion of the company, and gets to determine how the company is run. The managerial structure of an LLC doesn't actually convey ownership, but in a partnership ownership is implied. Being a partner makes you a co-owner of the company.

S-Corp
An S-Corp is basically a tiny corporation. It's definition is determined by how small it is. There are specific restrictions on how big it can be. If it gets too big it has to be re-filed, and will lose it's S-Corp classification. S-Corps can issue and sell stock, shares in the ownership of the company. Control and ownership of the company are determined by this stock.

LLCs and Partnerships are easier to form. You have to fill out some paperwork, and get the filing published after it has been filed with the government, but that's pretty much it. Past that its just a matter of keeping your tax filings in order. If you make no money, you don't have to update your tax information, and there are no recurring costs. You can form one of these companies for less than $100 USD, no problem, and not have to worry about paying for tax filings every year. I formed my own LLC several years ago. It was red-tape, but on the whole it was fairly easy.

An S-Corp is slightly more complex, and will require regular annual tax filings. You can actually do the paperwork for these yourself, but it takes a fair amount of time and you will have to pay a filing fee every year. So there is recurring costs. Also, the increased complexity of the initial paperwork will most likely require the hiring of a lawyer. It's the stock that adds to the complexity, as well as the fact that the stock in question is being observed and regulated by the federal government. An S-Corp is generally not publicly traded, but it can be privately traded, and the federal government likes to make sure no one gets up to shenanigans with that sort of thing.

If you have a small team, a Partnership might be the way to go. It keeps things even, with everyone having an equal voice in how the team makes decisions. If you are just one person, an LLC might be more to your liking. Both of these options keep things simple and small-scale enough to avoid too much overhead, and are a good starting point for people who are not looking to make money right away. If you are looking to launch in head-first with a more sizable effort, you could go with either of those, or with an S-Corp.

 

Well I'm always going to say start a company. In most countries, companies only get taxed on profits.

So all costs in making your game are tax deductable.

Also running a company with a separate account really helps you get a better understanding of the money, costs and income involved.

Also having an LLC can shield you personally from anything that might happen should you fall into a lawsuit or some other issue.

 

That's the case even if you don't start a company and declare it in your personal income. Your expenses are all deductible and don't appear as income. The difference is that a corporate tax rate is lower than your personal income tax rate, especially if you have a good job and are doing apps on the side.

 

Nope.

If you personally earn 100k a year, and lets say end up with 70k after tax. It doesn't matter if you spent 20k of that money on developing a game or not, you will still get taxed on 100k income.

 

Yeah, but in some areas running a company means higher responsibility, more bookkeeping and heftier fines.

That's why I said "consult a lawyer".

 

That's not true where I'm from. Any expenses towards an activity from which you draw an income are valid for tax deductions (as long as you follow the various other rules).

The catch, as far as I understand, is that you can only make deductions for expenses in that financial year. So if a game takes 3 years to make you can only make deductions for the expenses that fell in the year where it was released, because the activity wasn't drawing income prior to that. (Though I've heard of people making some minimal sales along the way specifically to get around that.)

Of course this is all going to vary from place to place. If you need to know how tax works, ask an accountant. Yes they're expensive, but if you don't understand your local tax system then they can often easily pay for themselves.

For both accounting and general business startup questions, see if there's a local business startup center or similar. They can't give the level of support that a specialist can, but they still have loads of experience. Even if you can afford specialists, they're a great way to make sure you're in contact with the right specialists.

 

Starting a company should generally be about starting a business.

Do you see your game as a business? Do you treat it like one? If so, a company might be a good idea. If no,then I'm not sure I'd worry about it.

Alas, there are complications. For instance, if you want to release an iOS game under a studio name, that studio must be a company. As someone already mentioned, some vendors make publisher addresses and contact details public, so having a company entity might be nice insulation there. There are also potential tax benefits, though your game probably has to make a fair bit of money for that to be a benefit when the various fees and other requirements are taken into account.

If there's a team involved a company can also be really useful. As mentioned by someone else, it helps to clarify ownership and stuff like that. However, it doesn't clarify all aspects of how the business will run, so there's other stuff to consider in addition. (Though, again, this stuff is different from place to place.)

 

Which is why a company is better in this case. You can claim expenses every year, game released yet or not.

 

Just for the original poster. There's a far cheaper alternative if the only objective is to have a "name" for the company. You can register a company name to use for yourself. That lets you use a name other than your own when presenting your products, but you would still be self employed and the income gets added to your own. Way cheaper than incorporating, but I think there's still a small annual fee.

Regarding app business expenses on personal income tax. I haven't had any problem thus far deducting Apple/Google commissions, Apple/Google annual fees, Unity Asset purchases, test device costs and royalty payments. I've just been sticking the net income in my returns and attaching a copy of my annual balance sheet. I haven't been doing it for 5 years though, so it is technically possible I'm doing something wrong. My tax guy/ financial advisor hasn't raised an alarm yet. I'm Canadian though; maybe it's different in the US.

 

If you were in my shoes, a company is required.. As Steve Jobs said "Often times people have to start a company because nobody would listen to them". And that was true in my case, maybe not the case for everyone, but ultimately it depends on your situation, nobody but you and a lawyer can answer these questions.

But for my case, I had too.

 

I started an LLC years ago, ended up not pursuing it, and eventually dissolved the company. If you do want to go the company route, make sure you open every letter you get sent, and follow all the instructions. I was not really paying attention, and didn't file the proper paperwork in the proper year, etc. Then, a few years later, I got a message from the government claiming I owed a huge six-figure fine. It was a mistake. I didn't really owe the money. But it took me almost a year to clear my name, and the stress of wondering what would happen if they didn't believe me. I think filing a company is actually a good idea in general. Just be sure you know what you are doing, or hire someone who does, because something as minor as not filling out a piece of paper can cost you big time.

 

Again this is probably region specific, but specifically to Apple stuff, last time I checked here Apple require you to use either your personal name or your incorporated company's name. You can legally just use a registered business name ("business" != "company") elsewhere, that was a requirement specific to Apple.