First Steps in Action

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Everyone had certain ideas about how not to run the company. Because Pat, Dusty, Jean, and Alex needed to be working full time on the prototype, and because Dana had the most experi ence dealing with publishers ("and human beings," added Pat), it was decided that she would be the CEO and would be responsible for putting the company together around the team.

The thorny topic of allocating company ownership and control came up. Everyone took turns saying what he thought his main contribution to the new company would be, and what he thought was fair compensation for that contribution. Dana and Dusty had spoken privately ear lier that day about company allocations . The two of them agreed that they could probably insist on a bigger share of the pie given the value of their contributionsDana's publishing contacts and Dusty's technical facility would generally fetch more on the job market than the art and game design skills of Jean, Pat, and Alex. However, they both felt that they would prefer work ing in a cooperative environment where everyone felt equally valued, and would be willing to risk the consequences of having five equal owners . "I know it's probably moronic from a busi ness point of view, and I blame the year I spent on a kibbutz after college," Dusty said, "but I'd rather try it this way." Dana also raised concern about giving Jean an equal share of the company, since none of them had ever worked with her before. "Maybe we can work it out so that no one actually owns the founders' stock for three or four years ?"

Dana proposed a five-way equal split with four-year monthly vesting. This sounded good to everyone and they gave Dana the go-ahead to figure out a structure for the company. All five of them also agreed to put $5,000 apiece into the company for its initial capitalization.

"What do we call it?" asked Dusty. "She needs something to tell the lawyer." Much murmuring ensued.

"Nothing hypergothic or manic-depressive," Alex pleaded, "I don't want our logo to look like it came off of a dungeon entrance ."

"How about an anagram of our initials ?" suggested Jean.

"D-D-J-A-P. That's not very promising ," said Pat, "A double d and a racial epithet."

"Then leave off the epithet," said Dana. "Let's call it Double D Development." Everyone thought this was utterly hilarious, and so it stuck.

No fool, that Dana, her first move was to get the names of a couple of local corporate lawyers with experience taking care of small, cash-starved businesses. She set up initial consultations (free) with two attorneys , Michael Rahn and Eva Tinder. After Dana explained Double D's situa tion to each of them, the two attorneys had roughly the same basic advice and estimated costs of getting the business up and running, but Dana had a better rapport with Michael. She reported back to the team, who agreed thatall other things being equalDana would be having the most contact with the lawyer and should work with whomever she was most com fortable. The team retained Michael on behalf of Double D.

Dana and Michael decided that the best structure for Double D would be an S-corporation because it would be quicker to get up and running than an LLC, but would also offer limited lia bility protection and pass-through taxation . Furthermore, since all of the owners will be employees , they may be eligible for some tax benefits. Michael also mentioned that the com pany may eventually be interested in reorganizing as a C-corporation and there are tax advan tages to doing that as an S-corporation rather than as an LLC.

Michael explained that the other documents Dana would need right away were all of the corpo rate filings, a set of bylaws, a stock purchase agreement, and employment agreements for the founders. When Michael asked how the ownership would be allocated, Dana told him that the group was pretty dead set on splitting the stock five ways equally. She also said that the founders wanted their stock to vest over four years. Michael agreed that this was a good idea and told Dana that the group should file 83(b) elections within 30 days of the award date. He told Dana that his office could help prepare the documents for the founders.

Michael asked Dana if she was sure everyone understood the impact of the equal ownership decisionthat a gang of three could control the company with its majority. Dana asked if there were ways that everyone could share equally but without the risk of three owners hijack ing the company. Michael suggested that the bylaws could be written to require a supermajority vote (for example, requiring 80 percent of the votes ) for certain actions, like firing a founder.

Michael took this information and drafted articles of incorporation, bylaws, and a restricted stock purchase agreement that he thought would fit with this consensus-driven company. He e mailed the documents to every founder and scheduled a meeting with the group to go over the agreements and answer any questions.

The decision to start a company brings so much complexity and change that it can be easy to feel overwhelmed. Between the personal changes involved in self-employment and concern over lining up and executing the actual work product, structuring the business can be overlooked.

This chapter outlines the first three steps any nascent company should take.

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Game Development Business and Legal Guide
Game Development Business and Legal Guide (Premier Press Game Development)
ISBN: 1592000428
EAN: 2147483647
Year: 2003
Pages: 63

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