We’re two guys working on our first game, and since we don’t have the chops to build some  killer game art and mood-setting music we’re planning to pay someone else who can. That immediately adds a level of complexity to what we’re doing though, because previous to that our only real “expense” was labor.

Add on things like a license for Unity 3D Pro, various add-on components we’re planning to use, and the eventual spend on marketing the existence our game and the problem solidifies. Claiming those expenses on taxes has to be associated with a business entity, and since we’ll be entering into contracts with contractors and other companies it makes sense for us to try to limit liability to whatever assets the business controls.

Here are the business entities we considered:

  • Sole Proprietorship – won’t work because both of us are responsible for half the liability and will earn half the profits. Makes it difficult to file taxes at the end of the year split two ways.
  • Partnership – helps with splitting ownership but at the end of the day our personal assets are also on the line.
  • Limited Liability Company (LLC) – good option because it limits our liability legally and allows us flexibility to allocate ownership and earnings differently, and it doesn’t require quarterly meeting  notes (though some accountants recommend it still). It does require more paperwork though, and there are some state based startup and ongoing fees to pay.
  • S Corporation – also a possible option because it maintains the passthrough status of an LLC and can potentially save in taxes at the end of the year, but lacks some of the ownership/earnings flexibility that an LLC has, and requires formal meeting notes filed regularly that follow an operational document created during the formation of the company.

Right now we’re leaning toward an LLC or S Corporation because of the liability protection, but because we’re both new to the process a visit to the accountant is in order, more on how that turns out later.

photo credit: j.reed via photopin cc