GameStartUp101: Legal: Company Formation
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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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  • 1. Game Industry Start Up 101
    Workshop #1: LegalBusiness Formation Basics
    www.GameStartUp101.com
    Twitter@WINetwork
    Workshop Sponsored by:
  • 2. Game Industry Start Up 101:Business Formation Basics
    Kha Dang
    Perkins Coie, LLP
    206.359.6334
    KDang@perkinscoie.com
  • 3. 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.
  • 4. Choosing a Business Entity
  • 5. Types of Business Entities
    Sole Proprietorship
    General Partnership
    Corporation
    C Corp
    S Corp
    LLC
    Limited Partnership; Limited Liability Partnership (not covered)
  • 6. 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
  • 7. 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
  • 8. 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.
  • 9. 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.
  • 10. 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.
  • 11. “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.
  • 12. S Corp.
    Difficult to qualify
    Common stock only - no preferred (no VC investors)
    Individual shareholders (no entities)
    Limitation on shareholder number
    Residency requirements
  • 13. (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
  • 14. “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.
  • 15. (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
  • 16. 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
  • 17. (Very) Basic Tax (cont.)
    LLC – Like S Corp.
    But Preferred Stock and Entity Shareholders OK
  • 18. LLC Not Pre-Financing Entity
    No tax exempt owners
    Not good for options (but profits interests available)
    Expensive if raising investor $
  • 19. 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
  • 20. Founders' Issues
  • 21. Founders' Issues
    Vesting
    Voluntary termination of employment
    Termination for cause; without cause
    Change in control
    Single Trigger
    Double Trigger
    83(b) election
  • 22. Licensing/Permits
    Do I need permission
    to do what I do?
  • 23. 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)
  • 24. Financing
  • 25. Financial Dilution
    Dilution in preferred stock rounds often greater than entrepreneurs realize
  • 26. Investor Controls
    Founders' Majority Ownership ≠ Control of All Decisions
    Protective Provisions
    Class Voting Rights
    Other Contractual Rights
    Investor Expectations
  • 27. Securities Laws
    Applies to all issuances of securities
    Federal and State Laws
    Accredited Investors
  • 28. Employees v. Independent Contractors
  • 29. 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.
  • 30. 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
  • 31. 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.
  • 32. 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!!
  • 33. 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)
  • 34. 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.
  • 35. 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
  • 36. Kha Dang
    Perkins Coie LLP
    206.359.6334
    KDang@PerkinsCoie.com