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Dear Jas 1: Setting up as an indie developer
Jas Purewal is a games lawyer at Osborne Clarke and writer of Gamer/Law. This is the first of a series of guest posts answering your questions about games development and the law. Got a question for Jas? Ask him!
Q: I’m thinking of setting up as an indie developer. Should I work as a sole trader or set a company up?
A: You’re doing the right thing by considering whether to get registered (with HMRC) as a sole trader or setting up a company: you definitely need to do one or the other if you want to conduct a business as a developer. Very basically, there are three main things to think about when deciding which option to choose:
(1) Liability:
If something goes wrong with one of your games (e.g. it accidentally infringes someone else’s game) or you have a contract dispute with a contractor, then as a sole trader you are personally liable. If that means money is owed, you have to pay it yourself. However, if you have a company, then the company is liable – not you. That’s one of the big reasons we have companies: if things go bad, the company suffers rather than you. That’s what allows businesspeople to take calculated risks – if they were personally liable all the time they probably wouldn’t.
Photo by Ken Teegardin
(2) Flexibility:
If you have a company then you can get other people onboard as shareholders and directors, both to even out the workload as well as give them a stake in the business. It also means that the company owns all the IP/other asserts and you can therefore sell it one day if you want (this is usually easier than you owning all the IP yourself). In other words, having a company gives you more options (although each of those options has its own cost/admin involved).
(3) Tax:
There are different tax treatments for sole traders and companies. Very simply, sole traders pay income tax but companies pay corporation tax. That said, this is the one bit which I can’t advise you in much detail on – you’d be best off speaking to an accountant about your precise financial situation, how much you make from games development/other work and what makes most sense from a tax perspective therefore.
However, generally speaking (and leaving aside the tax question) my suggestion is normally that an indie studios incorporates a company and uses it to trade, rather than working as sole traders. It means additional paperwork and administrative obligations, but ultimately that’s the way most developers go eventually. It’s also worth bearing in mind that there are other structures you could use in theory, like partnership or limited liability partnerships. If you’ve got more detailed questions, have a look at online resources like the official government business site (http://www.businesslink.gov.
Jas Purewal is a games lawyer at Osborne Clarke and writer of Gamer/Law. This is the first of a series of guest posts answering your questions about games development and the law. Got a question for Jas? Ask him!
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