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Legal Advice - LLC formation

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doopers
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Joined: 10/07/2016

Hi everyone,

A friend and I are going the self-publishing route for our first game design. We're looking at the legal side of things now, and would like to create an LLC in a state that makes the most sense for us. In general, we're not sure when we're going to be ready to publish, so ideally we'd like to form in a state that has low reporting requirements when we're not actually making money, and doesn't have yearly costs (big reason I'm not sure Delaware is the right state to use).

Any advice would be greatly appreciated.

Thanks!
Dave

spaff
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Joined: 11/05/2015
I would recommend holding off

I would recommend holding off on an LLC.

I'm not a lawyer, (and if you want real legal advice, consult with a legal professional) but do have a couple lawyer buddies and a few friends who run their own business, including my father in law.

There are 4 main reasons you would set up an LLC.

1. You're worried about being sued, so you legally separate your business assets from your personal assets with an LLC. That way if someone DOES sue you, they can only sue and take from the assets of your LLC, but not your house, car, personal savings, etc.

2. You're worried someone might steal or inadvertently take the name of your company, so you want to create a legal entity proving you got it first. There are cheaper ways to do this, however.

3. For the purposes of taxes you're making enough money to move from the category of "hobby" to "business" as determined by the IRS
You'll definitely need an accountant to consult you on this.

4. You need to formally divide shares of a company with two or more people -- which again, means you're making enough money to make this in issue. But even in this category- you can literally draft up your own document in Crayon and have your local bank notarize it and have the same effect. Not that I would advise this, but for the purposes of legally dividing responsibility and profit sharing a notarized document will suffice for small ventures.

If none of those things seem like an issue right now- I would hold off.

doopers
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Joined: 10/07/2016
Interesting. I think there's

Interesting. I think there's also a 5th reason--there are costs we're going to incur as we continue to move towards production, including the Kickstarter campaign that we'll be running eventually (I left that out of the original description). Setting up an LLC makes it easier for us to categorize these expenses as business expenses and make sure that we can deduct them, even before we start making an actual profit.

Am I off in thinking this way?

spaff
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Joined: 11/05/2015
You'll need to talk with

You'll need to talk with someone well versed in tax law.

I don't think it's that easy to just write off something as a business expense, even if you have an LLC. Otherwise your average Joe would call every McDonalds meal a "business meeting" and write it off, you know?

Again, one of the main purposes of an LLC is to divide personal assets and business assets for legal reasons (suits, taxes, etc.)

So if you have an LLC you can't pay money out of your pocket and write it off. You would also have to set up a separate business bank account that you run all your expenses through which would require you to invest a certain amount of capital into that account. And once you sink money into the business like that I believe the only way for you to legally pull it back out to put in your own pocket is to "pay" yourself. But in that case you will have to pay taxes on your "paycheck" and loose way more money than you save by writing off a couple business meetings.

And again, this only matters when you're actually making money. Because any tax write-off won't come off your personal taxes, it will come off your business LLC taxes. But if you aren't making money with the business you aren't being taxed so a write off won't matter.

And the amount of things you can "write off" are limited anyway. You can't write off the cost of hiring an artist, for instance. The main things you can write off I'm aware of are meals where at least 50% of the conversation is business related. Travel related to business (gas, plane tickets, hotels?etc). And your actual office space, but only if you own it outright. though I may be getting all that confused with self-employment tax which is different.

sheeptree
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Joined: 03/15/2017
I'd hold off

I don't have any first hand experience but my father owns his own business. When I asked him the same question last year, he gave me this answer: hold off until you have a product to speak of and have started actually making money. A Kickstarter campaign isn't guaranteed and a tabletop game is pretty low on the list of products people sue over. He told me to register a business once I've actually had my first successful product and for tax reasons, the profit from that while in the process of registering your LLC would be filed under you personally as if you were a contractor/freelancer.

questccg
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Joined: 04/16/2011
Just so you know...

I'm not a lawyer or an accountant. But from the advice that I have given by a Registered Accountant (Accredited), is that IF you are going to Kickstart your game... You better do it via a Company and not yourself.

Why? Because of taxes. Let's say you make $100k in June 2018. But you will only be shipping the games in February 2019. What happens if you are an individual is that you will get TAXED on the $100k for the year ending December 2018...

So if you PAY the taxes, at a HIGH rate (where I'm at it would be 50%), you would LOSE HALF of the money. That's high -- but what is worst is if that money is needed to MANUFACTURE and SHIP the game... Basically you'd be TOTALLY f-cked ... because you declared that income (and you must as an individual).

Remember $10k is KS fees (10%) so $90k @ 50% = $45k...

As a COMPANY you can DIFFER the earnings at a subsequent time. Namely when you SHIP the games. So that means February 2019 ... and depending on your Annual Year End (You can CHOOSE the date of your year end), that may occur in another year altogether.

So it's not all FUN and GAMES (Pun intended). If you plan to KS anything do your homework and talk to a Professional Accountant. Be sure that you have understood the liabilities and sales practices in your given state. Taxes can sometimes ruin a campaign if you are not careful.

Be cautious and please think twice before KS-ing. There are TAX LAWS out there and you need to understand your responsibilities towards them.

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