Startup and video game law, from a Canadian and U.S. perspective
Incorporating a Video Game Studio
We represent a number of indie video game studios and are often asked what legal structure should be used when incorporating a video game studio. Fortunately, the legal structure we recommend for most indie video game studios is simple and cost-effective to put in place. [Press Start]
- Incorporate. The studio should be an incorporated company (and not a sole proprietorship, meaning doing business personally). By incorporating you ensure that the company, and not you personally, would be the liable party should legal issues arise in the future. We do not recommend a partnership as the split of a partnership could tie up game IP and prevent release.
- Create one class of Shares. The company should have a simple structure comprised of a single class of common shares without a cap on the number of shares that can be issued (otherwise called an unlimited number of shares). If you are incorporating in the US where an unlimited number of shares is not possible, set a high cap such as 10,000,000 shares.
- Issue a few million shares per founder. Don’t stress about the number of shares to issue – more is better! Issue at least 1 million shares per founder as this avoids fractional shares should you issue shares in the future and looks better visually if you are trying to recruit people to the company. The shares should be purchased for a nominal amount, ex. $0.00001/share. Remember, ownership percentage is what matters and owning 1/10 shares is the same as owning 1,000,000/10,000,000 shares.
- Consider reverse vesting shares. If you are offering shares to a few team members who need to prove their value by, for example, meeting development milestones, then consider reverse vesting the shares issued to those team members. Reverse vested shares are issued to the team member up front but can be forfeit (entirely or in part) if the team member does not meet certain milestones set by the company, such as a time or development milestone. By reverse vesting shares you ensure that the company shareholders have earned their shareholding and, without, someone could walk away and keep their shares!
- Assign IP. The company will be licensing the video game to end-users and, in order to license the game, needs to own the game. By assigning all intellectual property that you have in the game to the company you ensure the company has sufficient rights to license the game.
The above is a simple to understand structure that works for many indie video game studios with a small shareholder base. By starting with a simple structure you can also easily modify the structure in the future should the studio take off and your legal needs shift.
Shameless plug: Voyer Law offers a flat fee legal package just for indie video game studios. Click on legal packages for more information.