No idea what I'm doing

[Varine]

Okay so... I and a couple of other people work together developing video games, and we're making plans on developing a lot bigger game than we usual do, and are planning on incorporating and continuing with the company and hopefully make a lot of money.

Now, the issue is we live in both America and Australia, and I am guessing we would need to make in international corporation or something like that? We work via telecommunications, as that obviously is the only way we can but it seems to work nicely, and eventually after college we're all going to move to one area for a while to build the company, but that's not for a while (I have another few years here in the US, then I have several years studying math in Russia, so like six years before we're all in one place) and even afterwards we'll be returning to our original countries later one and need an international corporation.

Anyway, my primary questions are right now is an international in/corporation the only option? We'll be primarily distributing through the Internet, and any hard copies that are shipped out will probably be done from the US as I'll likely do it. Would be possible to make a US-based partnership and make an alien a partner? Something like that? I don't want to pay a lot of taxes is the primary thing here because we're hoping to make like 80 grand as a very good high, which over the course of several years with several people building it, is not a lot of money and I don't want to use like three quarters of it for taxes because I have a lot of debt and I still need to figure out how to pay for Russia and a bunch of other stuff and I need money.

Also since I will not be renouncing my citizenship when I leave the US for school, I can still hold that company right? Like just because I don't live in the country that doesn't mean that I give up things like that does it?

For the record, these words like corporation and incorporation and all that, I have a very vague meaning as to what the difference is other than stocks because my book didn't go over that yet, and I don't know if it does ever either. But I do not understand this business thing it is ridiculously confusing and I fail to see how people make sense of this. Really I just do math all day, pretty much it right now, this business thing is a lot of words, and a lot of those words I do not feel fit in with the rest of the sentence, like bear. I also get off on tangents and don't delete them. I would like to extend my apologies if you found it annoying... a lot of people do, usually I think they're funny but oh well.

So I guess that would be a good start for now, and I shall return once I understand this for more. If I remember what it's called. Thank you!

[Spider]

Interesting situation in which you find yourself. Kudos for recognizing that you know little of business and reach out to learn. My experience of 19-year-olds is that they know everything! ;-) You sound like a really smart person, and I welcome you to this forum and to the world of business.

First business lesson: You don't need to know everything. What you don't know, someone else does, and you can hire that person. Sell your strengths, hire your weaknesses. I consider myself pretty good with numbers, but I doubt I'm anything like as good as you. If I were to need a mathematican for my business, I would hire someone like you.

To learn business in general, you could add economics or general business studies to your curriculum, but you have time and you could learn a great deal by committing to yourself to read some business publication a total of an hour a week - say 10 minutes every day. The Wall Street Journal and The Economist give you world news from a business point of view. CNBC on television is business stuff all day. Start reading biographies of successful business people - "Jack - Straight From The Gut," is a great book about Jack Welch, former CEO of GE (General Electric,) but there are hundreds of other books.

Never mind if you don't quite understand the jargon, just read and listen through the confusion and you will find it comes to you eventually. It will begin to make sense. As certain phrases start repeating, you can take little tangents to explore that phrase. Eventually, as you start getting your games business together, all you learn will become very useful for you.

I said, Sell your strengths, hire your weaknesses - you may find that you don't want to run a business, that you would rather deal with game development. That's fine - the owner of a business does not have to be its manager. You can hire a manager. But it will still serve you well to understand what your manager is doing.

Seems to me that you are on the brink of an extremely exciting journey. Go for it! Have fun!

[Varine]

Yeah it's a little bit weird. I'm taking some classes that deal with small business and networking and business and whatnot when I have room, but my schedule is a little bit tight and I can't afford the money or time to pay for an extra three or four credit class for a bit. I'm on somewhat of a schedule to get my degree because I need to get a job somewhere with better pay than the gas station or Burger King, so that I can finish my math undegrad and pay my debt down as much as I can so that I'm in a slightly better position for graduate school.

I'm going to talk with someone I know over the holidays who used to do audits and at least understands the tax system, and I actually leave in a few hours. Mostly I was hoping to be on a little better ground, which to an extent I am, been researching it some and I have a while left before my flight takes off, I might run down to the library for a bit see if they can help me. I hear librarians are pretty good with a lot of different things. Because really I don't understand this. Like I get the general concept but when I start reading about the more specific things, like the documents and whatnot, I get referred to a lot of legal pages, and likely that's where I'm getting most caught up. I try and read those, and then try a different search.

I have a general idea as to a kind of timeline of the structure and how we are intending on it to change, I guess I'll post that some time and get some more generalized advice on it, given that understandably how weird it is, no one will probably be very familiar with the procedures. But it'll take me a while to write it up so I won't do it now.

Thank you, though, I'll run down to the library and see if I can figure out some better terms for what I'm trying to do.

[vangogh]

I'm by no means an expert on the legality of forming a business, but I don't think you need to form an international business. I would think either of you could form the business in your particular country or you could both currently work as your own business entity, but still work together. There are a growing number of virtual companies where the people in the company don't live in the same country and work pretty much the same way you are now.

You might want to draw up some kind of an agreement between the two of you to protect you both and at some point in the future may decide to change from a virtual company to a more physical one.

Again I'm not an expert on the legality of business entities, but I do know more and more virtual companies are being started.

[Varine]

Before we publish the game we're going to lay all of the contracts out and register all of the software and things into the company name, and it will go over payment and everything like that. But I don't understand business that well, obviously, and want to work out what it's gonna look like. Altogether it'll end up really complicated legally I think, and I have a general outline but it takes a while for me to explain everything because no one can be expected to understand a flow chart that we made that has like six things on it and five hundred lines (we got overexcited at the prospect of making a flow chart for something new).

[Spider]

1. Librarians are the unsung heroes of the world. My hat off to all librarians everywhere.

2. I don't think there is such a thing as an international company. A company, a legal entity, must be formed under a legal jurisdiction. There is no legal jurisdiition called "World." You can have a multi-national company, but that is a company, registered in one country, with wholey-owned or partially-owned subsidiaries registered in other countries. And each of these companies must obey the law of their various countries, different as they may be from the laws governing the parent company.

And your contracts will be made under the laws of a certain, stated jurisdiction. Make plans to include an international lawyer on your staff, in due course.

[vangogh]

I think Frederick is right about the lack of a legal entity for international company. Companies generally form in one country or one specific area of a country. My guess is you'll need to pick one of your locations and form the company there. I don't think it's a problem to have people from different parts of the world being officers in the same corporation.

You may want to consult with a business attorney or maybe it makes sense to bring on another person who's strength is the business side of things. It sounds like you and the other people you're working with are mainly software developers. As a company you'll be very strong on the tech side of things, but the general business side will need some improvement. Why not find someone to take on that role in the company?

[nowms]

You can incorporate in the US with an initial stock purchase of $1000 for 100% of the stock for the company. After which you can sell off shares of the company to the other partners regardless of where they live. You would only pay "corporate" tax on the money you leave in the company at the end of the year. If you were to pay out all of the revenue generated by the company prior to the end of the year the company would not pay any "corporate" tax. You as an individual would be responsible for paying personal taxes on the money you paid yourself. As for the other individuals who are outside of the US, I am not sure how the pay would be affected. You could possibly pay them as a dividend or vender and use it as a write off at the end of the year.
I am not an attorney or an accountant so I would seek out advice from a professional prior to getting started. Most likely an accountant would be the first place you should go, someone who is familiar with the federal tax laws and tax laws in your state. An accountant can in most cases help you incorporate your business.

Hope this helps.

[Harold Mansfield]

Is it really necessary to form a company? I just finished up a client who authored a book with another person. They are in the process of shopping it around.
They are both in college (Freshman) and have similar plans over the next few years.
They just have a legal agreement with each other to split any proceeds and/or cost 50/50, and designated someone as the tie breaker for any votes concerning any business for the book.

Does it really have to be a company at the moment? Can't you guys just have someone draw up an agreement for now, and incorporate when you go full time.

[Varine]

Is a Multi-National Corporation something totally different from something like an S Corporation?

[Spider]

There are different classifications of incorporation but, as I understand them, they are different for tax purposes. In my book, incorporation is incorporation - differences within that simple framework is best left to accountants and tax attorneys to clarify.

One does not incorporate as a multi-national company. One incorporates, Boom! One company within one jurisdiction. After that, you grow your company by incorporating, as owner, other corporations in other jurisdictions. Once you own several companies in several countries, you will be referred to as a multi-national company.

[Evan]

Is a Multi-National Corporation something totally different from something like an S Corporation?

Generally, yes. Most multi-national corporations are publicly traded, or have many investors and generally would not qualify to be an S-Corporation.

If you are going to operate in, say, Canada or Mexico (or any country for that matter), you are likely to incorporate there as well with the same name. Presumably XYZ Canada, and XYZ Mexico would be owened by XYZ Corporation here in the United States. It will probably disqualify you to be an S-Corporation with that sort of ownership, depending on how things are set up.. Leave that to the attorneys and accountants though :)

[Varine]

Okay so we'd probably want to form the company here in the US that we'd own, and then form a company under the same name in Australia (where the other studio will be) that would be owned by the US-based company? Or visa versa. I think this is the one scenario I have ever been in where I thought one world government would simplify things....

Also could someone maybe point out the drawbacks and advantages between an S Corporation and an LLC? I don't want to use a partnership or anything because of the liability that would be put on us as general partners, and a C corporation gets taxed too many times (that's usually what things like stock brokers are isn't it?). And maybe go a little more in depth on what Evan said about us having incorporated in multiple countries would disqualify us for an S corporation? I think most companies similar to what we are (game/software development) are LLC's, which is what I'm leaning towards currently. I know that they don't require a board of directors or officers or anything, and since we aren't planning on having it publicly traded I don't think we need to necessarily incorporate. However we will eventually open our own companies individually that would be owned between ourselves respectfully and Eternal Designs, so an LLC could own part of a different company right? It doesn't need to own 100% of it?

And one last thing that I'm wondering about right now, how do company bank accounts work? Would it just be an account in on of our names, or can we do it in the company's name? We'd like to have things simplified by having the company account where money from the game will be deposited, which we'd have access to equally (as opposed to having it just in one of our names, which I guess we could just do it so that we have it in all of our names but I'm getting ahead of myself here I think) for relevant purchases (hardware or software we need, etc), and then we'd be able to work out how we'd pay ourselves from that depending on how much we have after taking care of our overhead. We've talked about it before and for the most part have it figured out (after taking care of our overhead we'd leave something like 35% in the account and split the remaining 65% between us equally).

[vangogh]

I'll leave the question of the differences in the various corporations for others and see if I can help with the bank account question. Yes you can open a bank account in your company name. I have one for myself (sole proprietor) as well as a personal account at the same bank. In my situation it's not a big deal to use the accounts interchangeably, but I try to treat things as business money goes into the business account and then I transfer money from that account to the personal account for me. Same thing when spending money. I'll transfer money to the business account if necessary and buy from that account.

The issue for you will be in having 2 people in different countries on the account. I'm not sure quite how that works, but I'm sure there's a solution.

You may just want to walk into a bank of your choice near you. It'll probably take about a half hour to get all the information you need from the bank in regards to setting up the business account.

[Varine]

Chances are we'll try to link the guys in Australia to the account as well, and simply give them cards or something for it, or set up some kind of transfer system to a local bank. We haven't put a lot of thought into it yet, but there'll be a way around it I'm sure. Like some kind of account with some of the international banks like Citi.

[Spider]

Use an online bank like ING and give everyone concerned access.

[vangogh]

Oh yeah I forgot about the online banks. I even have an ING account myself. That's probably going to be the best option.

[Harold Mansfield]

I didn't know ING had checking. I'm going to have to check it out. Good tip!