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GameStartUp101: Legal: Company Formation
 

GameStartUp101: Legal: Company Formation

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This is one of presentations from the 2009-2010 Game Industry Start Up Workshop Series. The first workshop topic was "How to Form and Protect Your Business" and it took place on 9/15/09.

This is one of presentations from the 2009-2010 Game Industry Start Up Workshop Series. The first workshop topic was "How to Form and Protect Your Business" and it took place on 9/15/09.

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    GameStartUp101: Legal: Company Formation GameStartUp101: Legal: Company Formation Presentation Transcript

    • Game Industry Start Up 101
      Workshop #1: LegalBusiness Formation Basics
      www.GameStartUp101.com
      Twitter@WINetwork
      Workshop Sponsored by:
    • Game Industry Start Up 101:Business Formation Basics
      Kha Dang
      Perkins Coie, LLP
      206.359.6334
      KDang@perkinscoie.com
    • The following presentation is intended to assist entrepreneurs in spotting legal issues relevant to new businesses in the State of Washington. The attached is not meant to cover all issues that you may face. There are many factors to be considered in determining which actions and decisions would be most appropriate to any specific situation. This presentation is not intended to substitute for specific legal advice. You should decide which course of action is best after discussing it thoroughly with an attorney.
    • Choosing a Business Entity
    • Types of Business Entities
      Sole Proprietorship
      General Partnership
      Corporation
      C Corp
      S Corp
      LLC
      Limited Partnership; Limited Liability Partnership (not covered)
    • Sole Proprietor
      Simplest and most common type of entity.
      Automatically formed when an individual or married couple goes into business.
      Business income is taxed on individual’s tax return.
      Unlimited personal liability
    • Sole Proprietor
      Simplest and most common type of entity.
      Automatically formed when an individual or married couple goes into business.
      Business income is taxed on individual’s tax return.
      Unlimited personal liability
    • General Partnership
      Formed when two or more unmarried individuals go into business
      Partners personally “jointly and severally” liable (unlimited) for business.
      Profits/Losses generally allocated along % of ownership
      Each partner’s share of the business income is taxed on her own individual tax return.
    • General Partnership
      Formed when two or more unmarried individuals go into business
      Partners personally “jointly and severally” liable (unlimited) for business.
      Profits/Losses generally allocated along % of ownership
      Each partner’s share of the business income is taxed on her own individual tax return.
    • Corporation
      Formed by filing with Secretary of State.
      Must keep good records and comply with management formalities.
      Owners (shareholders) are not personally responsible for business debts.
      Two different types of corporations “C” and “S” corporations.
    • “S” Corporation
      Income not taxed on corporate level (pass through taxation).
      Corporate income taxed on an individual level, whether received by shareholders or not.
      Must file an “S” election with the IRS and comply with specific requirements to maintain the “S” status.
    • S Corp.
      Difficult to qualify
      Common stock only - no preferred (no VC investors)
      Individual shareholders (no entities)
      Limitation on shareholder number
      Residency requirements
    • (Very) Basic TaxS Corp
      One level of tax on S Corp
      $100 earnings($35) shareholder tax $65 net available for distribution    $0 shareholder tax on distribution $65 available for shareholder
    • “C” Corporation
      Double tax:
      Income of business is taxed on corporate level.
      Income (dividends) shareholders receive from corporation taxed on individual level.
      Usually not the best choice for a small business.
    • (Very) Basic TaxC Corp
      Two levels of tax on C Corp
      $100 earnings($35) corporate tax $65 distribution ($10) shareholder tax $55 available for shareholder
    • Limited Liability Company
      Formed by filing with Secretary of State
      Must keep good records and comply with management formalities.
      Limited Liability
      Can elect to have pass through tax treatment
    • (Very) Basic Tax (cont.)
      LLC – Like S Corp.
      But Preferred Stock and Entity Shareholders OK
    • LLC Not Pre-Financing Entity
      No tax exempt owners
      Not good for options (but profits interests available)
      Expensive if raising investor $
    • Online filing
      Advantages
      Speed
      Cheap
      Disadvantages
      Not complete for Corp.
      Organizational requirements
      Contribution of assets
      Founders relations
      Not complete for multiple member LLC
      Operating Agreement
      Future investors
    • Founders' Issues
    • Founders' Issues
      Vesting
      Voluntary termination of employment
      Termination for cause; without cause
      Change in control
      Single Trigger
      Double Trigger
      83(b) election
    • Licensing/Permits
      Do I need permission
      to do what I do?
    • Licenses and Permits
      Master Business Application: http://access.wa.gov/business/index.aspx
      City Specific Licenses (Bellevue on line; Seattle is paper filing)
      FEIN: (IRS)
    • Financing
    • Financial Dilution
      Dilution in preferred stock rounds often greater than entrepreneurs realize
    • Investor Controls
      Founders' Majority Ownership ≠ Control of All Decisions
      Protective Provisions
      Class Voting Rights
      Other Contractual Rights
      Investor Expectations
    • Securities Laws
      Applies to all issuances of securities
      Federal and State Laws
      Accredited Investors
    • Employees v. Independent Contractors
    • What is an Employee?
      Employees are subject to the employer’s control
      Employer must withhold and pay employment taxes on employees, severe penalties for failure to do so.
      Employer must comply with labor laws.
    • What is an Independent Contractor?
      Independent contractors are people who perform services for others but who do not have the legal status as employees.
      Independent contractors are not subject to the employers control
      Employer must file form 1099-MISC if paid more than $600 to an independent contractor
    • Knowing the Difference
      It is very important that a business properly identify a person as an employee or independent contractor.
      The burden is on the employer to prove the worker is NOT an employee.
    • BE CAREFUL….
      Classify your workers correctly, if you classify an employee as an independent contractor, you can end up having to pay the employment taxes with interest and penalties!
      If in doubt, check with an attorney or with the IRS!!
    • IRS Guidelines
      General standards
      Behavior Control (tasks, results, training)
      Financial Control (reimbursements, how paid,extent of worker’s investment, opportunity for profit and loss)
      Type of Relationship (written contract, benefits, permanency, integral to regular business)
    • Tips to Protect Yourself
      Sign a contract with an independent contractor
      Arrange a flat fee for the job, not hourly or weekly rate
      Independent contractor should be able to hire his own assistants and offer his services to other businesses
      Independent contractor should have control over the project and provide his own equipment and materials.
      Independent contractor should provide his own insurance, business cards, invoices, etc.
      Do not give employee-like benefits (sick days, vacation time) to an independent contractor
      Keep a file with the independent contractor’s business card, advertisements, employer ID number, etc.
    • IRS Employer Publications
      Employers Tax Guide: http://www.irs.gov/pub/irs-pdf/p15.pdf
      Employers Supplemental Tax Guide (categorization of employee and independent contractors):
      http://www.irs.gov/pub/irs-pdf/p15a.pdf
    • Kha Dang
      Perkins Coie LLP
      206.359.6334
      KDang@PerkinsCoie.com