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The video game industry is the fastest growing industry in New Zealand. There is a hub of exciting and innovative talent in the nascent video gaming hubs across the country. As a video game developer, it can be an exciting and lucrative prospect to set up your own business. One crucial element to think about is how you want to structure your affairs. This article will set out the essential first step of planning what you want from the business. Next, we explore common ways of structuring a business in the gaming sector.

Consider What You Want From Your Video Game Business

Before you can seriously consider which business structure will suit your business, it is crucial to ask yourself what you actually want out of your business. There is no ‘right’ or ‘wrong’ structure for a new business, and the gaming sector is no exception. The most appropriate structure will depend on your business goals and how you envisage building your niche. 

For example, if you are doing freelance development work for a few New Zealand gaming studios, you may not be fussed about building a ‘business’. Likewise, you may just want a straightforward framework that lets you charge your clients and write off certain expenses. However, other video game developers may have ambitions of building their own development studios. Alternatively, they may even plan and invest in getting the studio going from the first day. No matter your goals, understanding what you wish to achieve as a video game developer is critical before choosing a business structure.

Operating as a Sole Trader

Video game developers often start as sole traders, especially when working as freelance developers or on contract work. A sole trader structure can make sense in a wide variety of situations. Structuring your business as a sole trader is fast, cheap, and maximises the control that you have over your own affairs. Likewise, you do not need to share your profits with anyone else in a sole trader business. Complete control is also often a selling point for video game developers who simultaneously want to work on their separate or side projects. 

However, there are some disadvantages to operating as a sole trader. One downfall is that you are personally liable for all debts that your business might accrue. Therefore, your personal assets, such as your car or house, might be at risk if things go wrong in your business. 

If you want to grow your video game business, a sole trader structure is also not ideal, as investors will usually look to invest in companies and gain shares when they put money in. However, you can change your business structure later if you want to switch to a company or if your goal or vision changes. Ultimately, starting as a sole trader is a great first step that gives you some flexibility later on.

Operating a Video Game Company

There is also a range of video game development companies in New Zealand, and most game development studios will be structured as companies. Companies are their own legal entity and can hold their own assets and debts. They are more complicated arrangements, impose ongoing costs in terms of both time and money, and are slower to get started. However, there are benefits if you plan to grow your video game business quickly. 

One benefit is that a company can offer various advantages depending on its structure. Limited liability companies can stop you from personally needing to assume responsibility for the company’s debts. Likewise, there can also be tax efficiencies as a consequence of the company earning income rather than you as a sole trader. However, this will depend on the specific circumstances of your business. Growth is often crucial in the gaming sector, and companies are the best way of structuring your business to achieve growth. This is because investors and banks commonly deal with company structures, hence you are much more likely to gain external support if you set up as a company.

Key Takeaways

There is no perfect way for all video game developers to structure their business affairs – each business structure offers advantages and disadvantages. An essential first step is considering your business goals before choosing an appropriate business structure. A sole trader structure might make sense for new video game developers or freelance contractors. However, if you want to build your own studio quickly, a company will be the way to go. 

For more information on structuring your video game business, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What business structure protects video game developers from liability for debts?

A limited liability company structure is the best way to protect from personal liability for business debts. In this structure, the company will hold its own debts. 

What is the most common business structure for video game developers?

While there are no exact metrics for this, most freelance video game developers will likely be set up as sole traders, whereas video game studios will be companies.

What are the advantages of a company structure for a video game studio?

A company structure is more sophisticated and can help manage governance and responsibility. This structure also lends credibility to a studio and can bring about tax efficiencies. Additionally, it can help attract other investments and finance. 

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