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Starting a Company, Part 2

Yesterday we looked briefly at how why names are important, and a few ways to check whether the name you want to use is already taken.

Now you have a name. No one else has a real claim on using it, or preventing you from using it in connection with your business, and you know what you want to do with the company. Now what?

The next step is usually to talk to a CPA or attorney to determine under which type of legal entity you should do business. Even before beginning the creative process, or having friends design websites, or getting other people to create something for your future company. Why? Because your company doesn’t exist yet, and doesn’t have a set structure, so any of this creativity is going to be owned by the people who create it, and not necessarily the “company” that requested it.

Copyright law states that authors own their creative works, unless it is made under a work made for hire agreement, or as a part of their regular employment. Such a pre-creation transfer of ownership requires that the paperwork be filled out BEFORE the thing is made, or the company (or the company’s lawyer) has to run around doing licensing catch-up, getting people to sign away their rights and interest to works for which they were already paid. Unless they are very good friends, the artists are probably going to want more money to assign their rights to the company, so why not clarify things by taking care of this step before having anything get going?

An attorney or CPA can discuss what type of business would work best, whether more employees are planned or needed, and whether a transfer of ownership is expected. If you just want to make one game out of your garage and then go into another line of work, the paperwork trail is fairly simple. You can set up as a sole-proprietor and may not even need to get a business license in your state. If you plan to work with several friends, and drop in and out of production as you create several games, then creating a Limited Liability Company or LLC, or a full-fledged S-Corporation might be a better idea. You have to fill out more paperwork with the state, and keep clean books for the business, separate from your own personal accounts, but there are more tax benefits granted to a totally separate business, and legal liability may be lessened, as well.

Partnerships may work if you intend to keep working with the same few people, but corporate law requires each partnership to dissolve once any member dies or wants out, so starting over with a new entity might not be easy in a few years. Also, depending on where you live, your state might consider marital property in establishing what type of loan can be granted to your business, and what liability extends beyond the corporate structure.

Tomorrow: Filing and Having People Sign Paperwork

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Posted in Wednesday: Current Issues.