So you want to develop games?
Whether you want to form a big work-for-hire studio or a bootstrapped indie game company, the basic principles are the same. Have a plan, protect your personal assets and your company’s IP, and follow the laws. I can’t underestimate the importance of adhering to a good legal structure for your company.
With that in mind, here’s my ultimate checklist for everything you need for your own game development studio:
YOUR GAME COMPANY GAME PLAN
1. Draft a business plan
A solid business plan is the basis of any new business. It contains you plan for funding the company, researching your market, developing your product, promoting the game to consumers, staying afloat, and finding success. The games business is a difficult one – planning for both success and failure is crucial part of it, and needs to be addressed before you begin.
2. Gather your team of advisors
Most entrepreneurs don’t know all of the ins and outs of starting and running a business. Any good business has a team of specialized advisors to help them. At the very least, get an attorney and a tax advisor to make sure you’re staying compliant and protecting your new business.
3. Fund your company
Businesses need money to develop and sell a product. A game company is no exception. There are a number of ways to fund your company, from bootstrapping it yourself to getting investors (whether for equity or through crowdfunding). Figure this out as part of your business plan.
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FORM YOUR COMPANY
4. Decide what kind of business entity to form
There are a few different types of business entities, each with its own pros and cons. For limited liability (which is super important), your two main options are corporations and LLCs. Deciding which to form is a choice you should make with your attorney and tax advisor’s help.
5. Figure out how to divide up ownership
If you are the only owner in the company, things are easy – you own the whole thing. But if there are multiple owners, or some active owners and passive investors, things can get tricky. There are many options here, but it’s best to discuss them with an attorney first.
6. Avoid “dead” equity
One issue that’s common with startup companies is something called “dead” equity, where one of the founders has left the company but still owns a piece. To avoid this, you have the membership “vest” over time, so they don’t get all (or any) of their ownership interests until they show that they’re in it for the long haul.
7. Be an equity miser
Another issue that startup company founders face is giving away too much equity. Once you give it away, it’s difficult to get back, so you need to be careful and a bit of a Scrooge when handing out ownership. One great way to do this is through a dynamic equity system like the “Slicing Pie” method, which fairly distributes ownership based on actual time and money contributions.
8. Form the business entity
Once you’ve got all the issues worked out, it’s time to actually form the entity. In many ways, this is the easy part – usually there are just some forms or paperwork that need to be submitted along with a fee. However, there are many potential pitfalls in doing this wrong, so it’s best to have professional help.
9. Get your company agreements in place
Now that the company exists, you need paperwork to show all of those decisions you made earlier about ownership and control. Again, these are best drafted by a professional, rather than trusting forms you found on the Internet or get through LegalZoom. I’ve seen my fair share, and they ain’t pretty.
OWN YOUR INTELLECTUAL PROPERTY
10. Get employment agreements signed
A game company’s value is almost entirely wrapped up in its intellectual property (the game content, the brand names, and the software you create). When you hire employees, you automatically own the copyright to what those employees create (in most cases). However, the safest bet is to have a comprehensive employment agreement signed, which transfers not only copyright, but also patent and other important IP rights.
11. Sign agreements with your contractors
Unlike with employees, you DON’T automatically own copyright to work that’s done for you by independent contractors. You need a written and signed “work for hire” agreement in place. This is vital for your business, and not doing it can be a MASSIVE headache down the road. Bonus sub-topic – are you sure you know if the people working for you are employees or contractors? This can be a murky distinction, and it’s best to talk it through with your attorney.
12. Protect your trade secrets
Some things are best kept a secret. This can be inventions or processes that you plan to patent, or proprietary software code that you’ve developed. Keep these secrets under wraps by taking reasonable security measures and getting signed confidentiality agreements (otherwise known as NDAs) in place. Hint: they can be integrated into your employee and contractor agreements.
PROTECT YOUR INTELLECTUAL PROPERTY
13. Choose your company and game names wisely
Have a cool-sounding name for your new company or its first game? Hold up a second. You need to do a proper clearance search for those names before starting to use them. If you don’t, and someone is already selling a product under that name, you could open yourself up to a trademark lawsuit and lose out on all of your brand marketing.
14. Register your trademarks
Once you (or your awesome attorney) has cleared your names, it’s a good idea to get them registered with the USPTO. This puts everyone on notice that you have exclusive rights to that name, allows you to sue them in federal court, and makes you the presumptive original owner of those trademarks. These are all important things when building your brands!
15. File timely copyright registrations
Once you’ve published a copyrightable work (like a game), you need to file a federal copyright registration for that work within 90 days. If you do, you get to take advantage of legal damages dictated by statute, get your attorneys’ fees paid, and avoid having to prove how much you were actually damaged (a difficult task). It’s cheap to do – there’s no excuse for not filing a timely copyright registration.
16. Police your trademarks and copyrights
Once you’ve started your brand and released your game, you need to stay on top of any infringement that’s out there. There are a number of tools available that don’t require litigation – cease and desist letters, DMCA takedowns, filing complaints with publishing platforms, etc. Then there’s always filing a lawsuit, which is often a last resort, as it’s the most expensive and time-consuming.
STAY COMPLIANT AND PROTECT YOUR COMPANY
17. Have a comprehensive privacy policy
Unless your game isn’t connected to the Internet in any way, you’re probably taking some kind of personal information from your users. If you are, you need to have a comprehensive privacy policy available to them. This details what you collect, how you use it, and who you share it with, among other things. It’s the law – don’t skip this step!
18. Protect users’ personal information
In conjunction with your privacy policy, you should have reasonable security measures in place for protecting that personal info you collect. A plan for what to do in case of a data breach (including notification of users and mitigating further harm) is also recommended.
19. Get an ironclad terms of use drafted
There are a number of potential legal wrangles you can get into with your users. Disputes over virtual currency, in-game behavior, and termination of users’ accounts can all blow up into something much bigger (class actions). Avoid these issues with a bulletproof terms of use, limiting your liability and preventing class action lawsuits over your game.
20. Follow local regulations
Depending on where you are and where you release your game, there could be a number of local regulations. Gambling laws, game rating requirements, and many other things are dealt with on a local level and vary between countries. Make sure you’re staying on top of these when you release your game.
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CONCLUSION
That’s it! A roadmap of the legal steps for starting your new game company from the beginning to releasing your game.
