When game producers go too far...

#21 So your new company requires that you have an NDA signed with someone else?

That doesn't seem to make much sense, as an NDA is designed to protect the entitiy with whom the NDA was entered into agreement with. I could understand them wishing you to have an NDA signed with them as to content, code, art, IP, trade secrets that you may come into contact with while working for them.

I could understand a non-compete clause in your contract, but basically telling you that you MUST sign an NDA with another "company" regardless of that companies requirements for an NDA or any other contract requirement does not make sense as an NDA between you and someone else would only protect the third-party and give them a legal recourse to sue you if you passed on confidential information.

Just really confused as to what practical purpose that NDA would have served.

#22 Just a question..when the poster mentioned that the indie company wasn't legalized as one..what did he mean? I also heard that companies should register themselves, etc. I'm afraid I might not have missed received that memo...what they talkin' bout willis? And how do I make sure I'm not a "make believe company"..because the stuff he said sounds somewhat familiar (even though I will have a written contract that explains rights and privelages of the members and the company), and I wanna make sure no one on the team feel that they are getting screwed down the line (myself included).

Also, would it be possible for someone who has experience in all this to look at my contract from an unbiased, and objectional viewpoint? I wanna make sure that neither the talent, nor myself get screwed on this whole thing...

#23 If I were a PM, I would look into gen'ing a contract / NDA between myself and the other party(ies). Keep it out of the company realm, especialy as an indie when you have no clue what will happen with your psudo company next year.

#24 It's pretty easy to google up standard legal agreements, like NDAs. There is never a good reason to avoid contractual understanding, because it leads to the situation demonstrated here.

Good contracts == good business == good relationships.

Any time you see "we're all friends here, we don't need contracts", you are virtually guaranteed that friendships will not result from that arrangement.

Even with contracts, there are (at least) three problems here (at least in countries that derive Tort Law from English Common Law, such as Canada, US, and Australia):

Jurisdiction. A common problem on the Internet, you'll at least want to add a clause detailing which jurisdiction will have authority. And a disclaimer about parties outside that jurisdiction being responsible for understanding and complying with local laws.

Pragmatic. Really, would either of these parties have the resources to litigate? Would a settlement be enforceable? Especially if the parties are citizens and/or residents of different countries?

Consideration. Contracts require real compensation to both parties -- something of value must change hands (there are exceptions that don't apply here). If you are contributing work freely to a project, a contract probably will not be enforceable. The courts do not care whether the compensation is fair or reasonable, but it must exist. Many standard contracts assume either an employee or contractor relationship or stipulate compensation. Probably promise of future share of royalties is sufficient.

Disclaimer: I am not a lawyer. This is not legal advice, just my private observations.

Additional disclaimer: Really, I'm not a lawyer. Did you read the last disclaimer? Seek real legal advice if you need it.

#25 Pretty sure that for a company to really be a company, it has to be a registered business.

#26 which also incurs tax penalties etc correct? that is X% of all profits are taxed or some googly gump like that. For a indie, I am not sure it is profitable at first to register. Then again, what do I know :) never been down that road, maybe someone from 21-6 or BraveTree can speak upon this? what are they doing to short circuit things like this?

#27 You can only be taxed if you have income. If you form a company and don't make any money for a couple of years, how can they tax you? :)

#28 Some states (Like New York) do have a minimum corporate tax.

#29 So if I don't register, and do make profits, divide the profits among the team, then they'd just be individually responsible to report the income on their own tax forms right? I am completely retarded on anything related to that side of the house..I just wanna make games...

#30 In most states you can Incorperate yourself for about 50$. Included is your registration as a buissness. The advantages of being incorperated is of course tax deductions and Legal seperation.
As far as the taxes even states with a minimum corperate tax have a poverty rate that applies. In such, you at least have to turn a profit to qualify for minimum taxes owed.
Legal seperation hold the corperation responsible for anything that might arrise. This seperates you as an individual in a case were you might be liable.
Another advantage is that you can bankrupt a coorperation without any personal credit damage. So if your indie company doesn't work out and for some reason you have dept you can't repay you can bankrupt without any penelaty towards yourself. There are still a few catches to all of it but as long as you watch P's & Q's incorperating is a positive thing.

I have had 4 buissnesses in the last 12 years, I speak from personal experience. No matter what trade your in or the staus of your work you can ultimatly put more money in your pocket (Or your company) at less risk under coorperate law then you can trying to "Assume your a company".

Also by law most types of buissness do not need to be registered in a state. For instance the service industry. A game development company might or might not be required to register. Depending on what you are producing. An artist could be making models on contract and would not be required to register that buissness because the product is not for general sale and is only produced on demand for use with an entire product. An example of service that would be required would be a home improvemnet company. Specifically because they provide a service that requires a Liscense (IN the state Maryland anyway) and the work is subject to state and county approval. So they need to be registered.

I could go on But what I am trying to get at is there is a BIG difference between being a registered buissness and a coorperation.
If your serious about being in buissness and acting like a good buissness you should be both "Inc.'d" and Regestered if required by your state. Further on if you have employeess there status should being recorded and if you contract work you should always pay for your work based on an aggreement.
As far as a group of people coming together to make a game and dividing the profits of a finished product up the coorperation should be divided ON PAPER into coorperate officers and partnerships and all peoples involved should be subject to a set amount of expectations. This will ensure that even a group of BEST FRIENDS get what they want in the end as long as they abide by the contracts. Nothing can come between 2 friends more than MONEY.
Just protect yourself and everyone involved, as a manor of HABIT.

Another boring speech by;
Matt

#31 In the UK, there's the choice between Sole Trader, Partnership, Limited Liability Company/Partnership & Public Limited Company.

For what you mention Jeremy it'd just be a partnership, where all the partners sign a document detailing how the profits are to be split. In the UK you'd only be taxed on the income of the company and then the partners would just draw cash from it.

For the Ltd & PLC, there is a lot of extra work to be done. You have to submit yearly accounts to Companies House and if the companies income is over

#32 There's a few resources that touch upon business and development, like Davis's resource and the Gamasutra Article.

You have a few choices:

1. Contact your local small business administration. (www.sba.gov/starting/).
2. Contact your local chamber of commerce.
3. Some community colleges offer programs to help educate on the subject.
4. Contact a lawyer, though this should probably be the last person you visit.
5. Your tax preparer can also give you the ins and outs when deciding on a classification before forming a company/business.

Make sure you are covered before you jump in headfirst. The SBA and CoC are your best friends in this.

*Edit* - Forgot to mention, this is for those residing in the US. A search on the web will more than likely point you to startup resources for your respective country.

#33 Yeah, well, maybe one day I can have the big ol' corporation and all that, but for now I just wanna make this game with as little legalities getting into it as possible but still protecting the rights of my crew, and myself. I want them to understand that I am serious about all of this and that even though they are currently working on a volunteer basis, that their work will be rewarded in the event of sale. At the same time, I want to assure that no one on the team has the power to make slight modifications to what is developed, sell the game on the side and take all the money for themselves, cheating my other team members out of their well earned $$. I got into this thing not expecting to earn a dime. I hired on most people telling them flat out that there is no initial plan of making money, never-the-less, if that opportunity arises, I want to make sure that they can be seen as professionals and I can be seen as a professional, and there is no better time to start than right now, before any intellectual property is exchanging hands...

#34 I think Ward and colonies hasnt made a dime yet. And i dont think they would ever try to jeopordize any future success with illegal activities. I think people dont want to see others succeed at there expense mostly.

#35 I love this... it's turned from childish bickering (Yes, I consider all of this childish) to an educated conversation about businesses! Keep it up!

#36 Is there any popcorn left?

#37 Incorporation is pretty easy, but you can also form things like partnerships, LLCs or sole proprieterships. Basically for the low end of sole owndership you ARE the company. You pay yourself, you are responsible for company debts, you are liable for company things...when you die the company goes with you.

On the other end you have full corporations, where you have things like shareholders, the company is legally a separate entity, etc.

If you plan on paying people and selling products you want to look into forming a real business, but it doesn't have to be a true corporation, it could be an LLC or a partnership or whatever. There are tons of FAQs around about the advantages of each. The filing cost is generally small and administration is easy. Once you actually have paid employees it gets a lot more complicated though. (Have to do things for OSHA, provide benefits, keep accurate records, etc etc etc)

As far as Realm Wars goes, one thing we want to do at some point is get signatures on real documents. Right now there is a contributor agreement, but nobody signs it and there isn't a 100% way to tell if they have even read it. At some point we will get to that stuff, to make sure everything is covered legally.

As far as NDAs go, whether or not you need one is totally dependent on what you are doing. I don't see a need for NDAs for Realm Wars, we have design docs on a public site, it's easy to look at the code, etc. There isn't any information about it that we need to keep secret.

#38 So perhaps a contributor agreement would be the way to go?

#39 Since this flame war seems to have settled down into something more constructive, I'll go ahead and post.

Orbital Design Studios inc. IS incorporated. We incorporated with the state of Deleware through a company that does all the foot work for you, it's quite easy to find them online, as we did. For us, it cost about $450, and that included everything we needed, even to do business out of the country. We got the certificate of incorporation, a binder with the by-laws and other misc forms and papers, a very nice corporate seal (the old kind you have to crimp over a piece of paper and it makes a raised seal...) and some pretty decent savings on some business supplies from well known suppliers such as Staples.

By the way, we chose to go with full incorporation, but chose to make it an S corp vs a C corp, and I'll explain why in a bit.

Once this is done, you need to apply to the IRS (AHH NOT THEM!!!) for an EIN or Employer Identification Number...even if you don't plan of hiring employees or plan to hire everyone as contractors as my company has chosen to do.
WARNING: WHEN APPLYING FOR YOUR EIN, YOU SHOULD ALREADY KNOW IF YOU WILL BE A C OR AN S CORP!!!

The major differences between a C and S corps are that in a C corp, taxes are paid by the corporation itself. All well and good, S corp allows you to make those who hold the stock shares in the company. If you're holding all the paper, this can be bad. If you plan on trying to get investors or traditinal publihers to invest into your company...THIS IS VERY GOOD. Why? Well, let's look at an example real quick. You own 100% of the company. Copany owes $200K in taxes for a given game release...I hope you've paid yourself one hell of a huge salary...because not only will you be taxed for the company's profit, but your normal income as well, which the company profit is now considered to be a part of. So, you just went up several dozen tax brackets, and the tax is higher still. Yes, this is a horror story...but the reason why I say it's good, is you can be an S corp as long as you like, which means if you 'do it, and try as hard as you can to get someone to invest in your company, but do not succeed, then simply let the IRS know....and you revert to a C corp and the nightmare is gone. The big advantage of going S corp if you managed to get a few investors, is educed overall tax, since one person or entity isn't being taxed, and the total tax on the company profit is being considered to be the same as if you bought stocks on the stock market, the tax amount to each shareholder is really quite small as well. Investors don't like it when more of their potential profit is spent on taxes...which is why they'd rather you be an S corp if you want them to listen at all.

Next...you don't REALLY need one, but wow, does it make a difference. GET A DUN & BRADSTREET NUMBER. What is a D&B number you ask? Simple. Know how they track your personal credit history by your social security number? Well, then a D&B number is the number wich banks, investors and other businesses check your company's credit worthiness by. Don't let D&Bs website fool you either, unless you're a long existing company already, don't bother with the expensive version, just get the free number.

And now, after all that...you just need to do 2 things. 1. Pay your state dues. For Deleware it's $50 a yr...[sarcasm]owww...[/sarcasm] And 2. pay your registered agent fees if you DID NOT incorporate in the state where your company exists. RA services are usually pretty cheap and if you go through a company to incorporate, they usually take care of it for you and simply bill you for it on a 6 month or yearly basis.

So now, just remember to file your taxes on time, and MAKE MONEY! Remember...the only way a company can fail, is if it's in debt. If you stay free and clear and work your butt off to get that first game out the door, you're almost home free...just need 2 or 3 more, then a really nice big one and you've got it rolling.

Have fun!

#40 Oh, and a quick suggestion for NDAs and other "signature" documents.

Use PGP. :P If you don't know what PGP is, get your head out of the dirt. hop over to google.com and find a free version of PGP. It's not hard to learn the program, or understand it.

What PGP is, is a security encryption program. What Orbital does with it is this:
1. I create NDA document.
2. I use PGP to sign the document with my PGP public key, and encrypt it for the exact recipient.
3. Recipient is the only one besides myself that can open and read the document, because it's keyed to HIS public PGP key.
4. Recipient uses his PRIVATE key to decrypt the message, and sees that it's PGP signed by me.
5. Recipient then reads the NDA, and applies his signature to the signature file that goes with the NDA.
6. Recipient then reencrypts the NDA and it's signature file and sends it back to me. I decrypt it again, verify he signed the NDA and file it away on a CD-RW.

Note: IT IS LAW THAT DIGITAL SIGNATURES, WHEN ABLE TO BE UNDENIABLY VERIFIED, ARE 100% LEGAL FOR USE IN LIEU OF A PEN SIGNATURE FOR ALL PURPOSES....in the US and for US businesses of course.
(Thank President Clinton for ONE good thing he did for us...)

Hope this helps folks.