Business Time (Part I)

by Tim
Wed, August 19, 2009 -- 14:59 UTC

Well, here we are, our webpage is finally live. It’s taken longer than expected getting from “let’s start this party!” to “man, this is a sweet party!”, so I thought it might be interesting to share some of the unexpected hurdles we’ve bumped into along the way. Particularly, those pertaining to Starting A Business. When I inquired with friends who had trod this path before me, they shared their Great Lessons – sage words of wisdom earned at a great cost. Unfortunately, because I did not at the time possess a clear outline of the overall shape of what was to come, these bits of widsom were of little immediate value to me. I hoped that some day they would become useful, like in the movies when a bullet is stopped by a seemingly-worthless trinket the main character keeps on a chain around his neck.

Given our lack of clarity on the issue, and because we happen to work in an office teeming with talented lawyers, the first thing we did when we hit the ground was find a lawyer and start talking about exactly what steps must be taken to start a game development business in Philadelphia. It turns out it is at once easier and more difficult than we had imagined. Let’s start with the easy part: First we needed to decide what kind of corporation we wanted. There were several options on the table, but we quickly whittled it down to either an LLC or S-Corp. The differences between the two are subtle, and we talked for a while about the tax and liability implications. Because it is such a complex optimization space, it’s hard to confidently recommend anything to anyone. That being said, we decided on an LLC for now, with the option for an S-Corp election if and when we establish some cash flow. This seemed right for a situation where all partners are supporting themselves out-of-pocket, startup costs are low, and losses are expected for at least the first year.

The next question was where we should incorporate. Apparently, there is something of a mythos surrounding ‘Delaware Corporations‘, a mark of priviledge and prestige in the business world. Companies sometimes even append it like a title, e.g. “Columbian Chemicals Company (a Delaware Corporation)”. According to our friends in the business world, this made a lot of sense a few decades ago because of Delaware’s tax incentives. However, as time went on, other states figured out why everyone was incorporating in Delaware. Hungry for that tax revenue, they adopted competetive incentives, and the free market corrected itself. So, given that there was no obvious advantage to incorporating out-of-state, and the massive headache of dealing with twice as many state tax bureaus, we decided to go with Pennsylvania after all.


Delaware. Where the corporations come from.

A quick aside – apparently, Philadelphia is working with a group called the Videogame Growth Initiative to establish incentives for incoming game developers and publishers. Given that Philly recently decided to join California for an old-fashioned budget crisis, it seems unlikely that any such investments are likely to pass in the short-term. Still, it suggests that such incentives are starting to crop up in less-well-known locations, and that video game startups may actually do well to look outside of CA when deciding where to set up shop.

But enough about Philly. Once we finished officially incorporating (there is a form and a fee) and received our tax ID (which is like the SSN of a business), we were able to set up our company bank account. Each of us poured an equal part to cover startup costs (office equipment, software, hardware, etc…), and we all got fancy-looking bank cards. In this process, I learned an amusing fact: when bankers hear that you are starting a business, they get Excited. Coming from a world of personal finance limited to free checking that comes with a free casserole dish, it was jarring to see the curtain pulled back, and realize how much more interested banks are in ‘helping you out’ when you are talking about a business account. And by helping you out, of course, I mean selling you services that make no sense for a tiny three-man company. So, we thanked them for their enthusiasm and promised we would talk more if/when we see a positive number on our balance sheet.

Anyways, That just about wraps up this first installment. I’d love to hear any other indie devs’ experience with this – the comment section awaits you! Next time: The Hard Part.

Rae says...
Sat, August 22, 2009 -- 8:43 UTC

I’m not an indie dev. Just a fan. And a fortune-teller! Congratulations on your future successes! :D

Fri, August 28, 2009 -- 18:16 UTC

[...] adventures in starting our own company. If you haven’t read the last one, you might want to check it out here. Today’s topic is: The Partnership [...]

Thu, September 17, 2009 -- 15:57 UTC

[...] of the wonders I beheld. Note: this post is all pleasure – in future we may put together a Business Time post talking about the connections etc. that PAX yielded but for now, it’s all about [...]

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