Down To Business: Getting Started

As much as I love discussing and thinking about game design, world building, and all the fun stuff like that, there is a part of me that knows that if you're going to be making games as your chosen profession, you are going to have to familiarize yourself with and resign yourself towards doing the part of the job that you find boring.  The dreaded "business end" of things.



I'm not going to bore you with a whole bunch of nonsense about working out monetization strategies, quarterly reports, forward looking statements, or any of that (least not yet).  But I would be remiss if I didn't hit the high points of this aspect of game development.  Lately, it seems like a lot of people are claiming the mantle of being part of or running a game development studio without having fully thought the matter through first.  And when that happens, everybody suffers for it.

The first thing to do once you decide you're not just a guy puttering around with GameMaker, or a group of guys building maps in UnrealEd, should be some basic homework about setting up a company.  Technically, if you're a one-man show and you're building stuff, you don't necessarily need to file all the paperwork to officially start a company, but the sooner you do that, the better.  It lays the foundation for everything that happens afterwards, and gives you a little credibility.  Bearing in mind that I am not a lawyer, nor do I play one on the Internet, let's go over the most common types of businesses:

• Single Owner/Proprietor - This is what a lot of businesses will be like at the very start.  There are forms available which establish you as the owner of business.  They are commonly referred to as fictitious name certificates or D.B.A. forms ("doing business as").  These have the virtue of being very easy to set up, but you need to build a firewall between your business activities and your normal life.  You can probably make a reasonable deduction on your company's taxes for a new motherboard for your computer if it's the rig you build games with, but trying to deduct five dozen cases of soda that you would have normally bought over the year is probably going to get you audited.
• General Partnership - This is one that has some benefits and a tremendous number of liabilities.  On the upside, it's pretty simple to write one up, and there's definitely a sense of solidarity that everybody in the partnership will share the risks equally.  The downside is that means that ALL the risks are shared, and if the company goes tits-up, you and your partners are all on the hook for everything.  These can work, but this is one time where you want a good lawyer to draft a partnership agreement which makes sure everybody is as protected as they can be.
• Limited Partnership - With this arrangement, you have one person as the general partner, who is shouldering all of the risk, and multiple limited partners who share a degree of risk commensurate with what they put into the business.  This particular arrangement is definitely useful when you yourself are not bringing a lot of tangible assets or liquid cash into the company and you know somebody willing to get things started, but be warned that the general partner is usually the guy who makes all of the business decisions while the limited partners are handling other areas of the business, say like building a game.  Choose your general partner wisely.
• Limited Liability Partnership - This is a organization option which is unlikely to be used in a game development scenario.  It's usually reserved for professional groups such as a law firm or an accounting group.  It's not a bad deal, since it changes the way the taxes are paid, but it's not terribly appropriate for a game studio.
• Limited Liability Company - Probably the ideal organization method for a new game studio, it combines features of partnerships and corporations.  You can arrange to be taxed like a partnership, but operate in a similar fashion to a corporation in that you and your partners are not personally liable for debts incurred by the company.  However, while it's easier to run once the setup has been taken care of, the actual setup process can be more expensive than the typical sole proprietor or partnership, and there are some tax considerations unique to LLCs.  This is another time where having a good lawyer advising you is important, and probably an accountant as well after you've gotten things up and running.
• Corporation - Most of the big names in the games industry are corporations.  From a strictly business perspective, they're a tool for doing business on a large scale.  Shareholders and corporate officers aren't held personally liable for the company's debts, you're shielded from personal liability lawsuits, they're attractive for investors.  They're the proof that you've truly hit the big time.  While it's true that you can incorporate on a shoestring and build up from there, it's not always the best option as a startup.  The "S" corporation type is certainly more feasible that the normal "C" type corporation setup if you're trying to start up, but both are going to require a lot of paperwork to start and a lot of paperwork to maintain.  This would be another time to have a good lawyer on hand.

If you're serious about starting a business, think real hard about these options.  While there is room for flexibility and evolution within them, don't go into this thinking, "I'll deal with it later, when we start making money."  Make sure you've got a business plan ready to go alongside your design doc.