Incorporation is an important choice

Everybody knows, that execution is king. All the best ideas don't amount to anything, if you can’t get them out there to the world. A truth that was also the theme for the latest edition of the Growing Games Workshops.

 

One, very important, part of execution is, to make sure you have the best setup to launch your ideas into reality. One aspect of this setup, is what kind of company you decide to incorporate to hold all of your interactive and game development dreams.

That was exactly the subject of one of the talks this day. Anders Erlandsen of the LETT Law Firm took the audience on a tour of the different company setups, possible investor pitfalls, and how to protect your IP legally.

Afterwards, we caught up with Anders, to talk a bit more about how you chose the right company type for you, and why it’s worth spending more than a couple of minutes making that decision.

Why is it important to choose the correct type of business?

- It allows you to organize your work in a structure
“It makes it much more clear, who has what responsibilities, and who can make which decisions on behalf of the company,” Anders explains.

- It helps you secure the right for the things you develop
“Securing the rights is especially important in the line of business you are operating in [game development]”, Anders answers. “Choosing the company type can help you control, where the rights for your IP and work are held”

- Tax
“And finally, there is also the purely financial reason, that it can save you from paying too much tax,” says Anders.

 

 

What are the factors you should examine, before choosing what type of company you should establish?

- Financial resources
“First and foremost, you need to make clear, what financial resources you have available”, Anders answers. “When you form a company there is something called share capital, which is money that you have to put into the company to begin with. And there are some differences here between the different types. So you need to know, what your resources are, and how much of it you want to tie up in the company.”

- Desired management
“You also need to consider, how you want your management to function. If you create a partnership company f.ex., then there are no formal requirements for the leadership, but other company types have more strict requirements regarding management and boards.”

- Worst Case-scenarios
“I also think you should always consider the worst-case scenario,” Anders says, outlining the problems you might encounter, if you end up at ends with a former partner. The type of company you choose can play a role in deciding who can continue on with the project, or how you split up things after a business breakup.

- Taxation
Anders points out taxation as another factor, you should take into consideration. “Do you expect to run with a deficit for some years or Do you have an alternative income?” he asks.  “Because then it might be worthwhile to stick with a single person entrepreneurship or partnership.”

Risks
Finally, you should also consider, what kind of risks you are running in the current state of your business, Anders says. “Some company types have their liability limited to the funds available in the company, whereas you in personal entrepreneurship and partnerships are liable with everything you own.”

Are there any special factors you should consider, if you want to be able to work with international partners?
“Company types are generally pretty much the same around the world,” Anders explains, so in general company types are pretty much the same all around the world, the only real exception being the Entrepreneurial Company

“That being said, there is no doubt that it looks more professional, if you have a company with a capital requirement. I mean, it just does.”

Are any company types better suited to take in investors than others?
“I would say, that capital companies are preferable in such a situation,” Anders answers, as he outlines, how companies with capital requirements have some different options regarding shares and stakes, that makes it easier to adjust the setup, so you can f.ex. make sure, that the founders still retain the power to make decision for the company. In addition to this, the same rules apply as with the question about international partners. “The setup simply appears a bit more professional with capital companies.”

Using a company with capital requirement also ensures that the articles of association are public, where they in a partnership would not be public as such. “So you’re a bit more ‘out there’ with, how the company is structured,” Anders explains.