I am starting an Indie Game Development team, I want my team members to own a percentage of game sales but not a percentage of the actual company. What is this called and how can I get it legally down on paper?
4 Answers from Attorneys
You would be paying them on a sort of commission basis, and it would be part of the members' employment contracts.
You need to be sure that you comply with minimum wage requirements for your employees, as well as the laws regarding withholdings.
Many people try to structure their employees as independent contractors. I view this as dangerous in most cases. It may work here, but be prepared for a challenge by the EDD.
Simple bonus contract.
I would refer to this as a profit sharing agreement. You should consult with a business lawyer and discuss all your objectives and concerns and he or she will be able to prepare the proper agreement that will protect your interests. There can be a number of things to consider here so I would advise against winging it yourself without professional guidance.
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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.
Tax lawyers refer to this as a deferred compensation Agreement. It is a finely structured vehicle so that your participants do not get taxed before they get any part of the earnings. Do you intend that they be paid each year for their share. If so , that part is not deferred. Do they get a piece of the sales proceeds if the company is sold? Then part is defered. How will they share in any losses? If any part is deferred, it must comply with a substantial number of tax requirements, including IRC Sections 409 and 83. What happens if someone dies or leaves during the year? When someone divorces, must you pay the spuse of the divorced party her share of the community earnings? Obviously there are many more questions, and this is not as simple as signing a standard form.
You really need to seek accounting and legal advise to use such a vehicle.