The first day we started Pixel and Texel we decided to march to the bank and open a business account. Yay professionalism! We thought it'd be a great way to take care some necessary "paperwork" type stuff so we could rush back and continue developing. Just sign a few forms, fill out some info, and that's it, right? Boy howdy, were we ever wrong. Even running a small studio (only 2 dudes!) in a legit, legal, and safe way is kind of complex. So we've decided to share our experiences, perhaps taking some of the mystery out of the process, in a series of posts entitled "Business Mucky Mucks".
And so, let us return to our bank story. After arriving at the bank around the corner, the business banker wanted to know what kind of entity we were. My initial reaction was "An awesome one. With magic! And hands that turn into swords!" It turns out, the entity he was talking about was way less fun, as he informed us that we could only get a bank account as a sole proprietorship. In order to get a checking account with equal ownership we'd need to be some other sort of entity. Terms started flying out of his mouth. Scary terms. LLC! Partnership! S Corp! ???? We soon realized we needed more information and set up an appointment for consultation with a CPA.
So our little trip to the bank has now turned into a trip to the CPA. The very nice people there informed us of several different entity types, including:
We didn't want to clog up this post with a bunch of factoids describing the differences between entity types, so be sure to check out the links above if you're curious. In end, we decided an LLC was best for us. LLCs provide more flexibility than other entity types (due to phrasing like "unless otherwise provided for in the operating agreement"), plus tax deductions can be passed through to the individual members if desired. So, LLCs are pretty nifty. Definitely the way to go! Just one problem. How does one go about getting one of these LLC things? File it yourself? Use something like LegalZoom? Pretend that you became "official" and hope for the best? The answer: none of the above.
Let's look at each filing option and talk about why we did things differently. The first idea of self-filing with the state seems appealing at first. Until you see how much documentation goes into the creation of an LLC. And the fact that you don't recoup any money with the state if your LLC creation fails.
The second option is using some sort of online legal service like LegalZoom for 99-350 dollars. Lots of people have had success with sites like this, and they are really affordable, so why did we choose to avoid it? Simply put, using a site like LegalZoom (who provide the disclaimer "LegalZoom is not a law firm, and the employees of LegalZoom are not acting as your attorney") is a risky move. It's probably not best to start your new, awesome game studio on shaky legal ground. But don't take our word for it. The best description I've read of LegalZoom comes from this law blog, and can be summed up as such: "Are you willing to take the risk that your documents are incorrect to save money on a real attorney?" Our answer to this question was "no".
In the end, we decided to hire a real attorney for 1800 dollars and we have not regretted the decision at all. It's true the price is much higher than LegalZoom or just attempting the documents yourself, but the benefit of a real person's advice and the peace of mind that your documents have been properly created is worth the extra cost. For example, we unknowingly filled out part of our documentation incorrectly. The law office caught our mistake right away, notified us on the ideal change, and corrected it. That sort of safety net saved us a LOT of time and moolah in the end.
Long story short, if you're thinking of creating an entity like and LLC, use a lawyer. It may be a little expensive, but the peace of mind is worth it. PLUS, you'll get an awesome metal seal for stamping things.
We've used ours all over the place! Paper, bread, the floor, Pixel's hands, Texel's noggin....I mean, this things seals like you wouldn't believe!