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If you’re a video game designer or developer, you might be wondering whether forming a limited liability company (LLC) is necessary or beneficial for your business.
Forming an LLC for your video game design business can offer several benefits that provide protection and structure to your operations. One of the primary advantages of forming an LLC is the limited liability protection it provides. By establishing your video game design business as an LLC, you can separate your personal assets from the liabilities of your business. Another benefit is that an LLC can enhance your professionalism and credibility. There’s also the benefit of pass-through taxation and tax flexibility to choose an alternate structure if that works better for your game development company.
Throughout this guide, we’ll provide you with step-by-step instructions and valuable insights on how to form an LLC for your video game design business. Whether you’re a solo indie developer or part of a larger game development team, forming an LLC can be a crucial step toward building a successful and sustainable video game design business.
The top reason to form an LLC as a video game designer is to gain access to the personal asset protection provided by this business structure. Whether you’re a small independent designer who makes mobile games or an in-demand designer working on console and PC games, you need the limited liability protections that an LLC can provide.
As an example, let’s say that you fail to deliver a completed program in time, and you force a publisher to miss a deadline. If you operate your business as a sole proprietorship or general partnership, your personal assets — like your house, car, or personal bank accounts — would be at risk if that publisher decides to sue your business.
On the other hand, if you form an LLC for your video game design business and operate and maintain that LLC in a compliant fashion, the publisher’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
However, this is just one of the advantages of the LLC for a video game designer. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which could save you a considerable amount of money compared to simply operating as an informal business entity.
Your video game design LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your design business itself does not pay taxes, but rather the profits are passed through the business entity and you pay taxes on that money when you file your own personal taxes.
You can also choose for your game design business to be taxed as a What is a C corporation? (the default form of corporation), although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to you as an owner.
The other option is S corporation (please see our What is an S Corp? page) taxation. There are quite a few limitations to electing S corp taxation, but most U.S.-based video game designers have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, and so on.
S corp taxation can help your design business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself a reasonable salary for your role and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.Compared to operating as a sole proprietor or general partner with your game design business, the S corporation taxation model could potentially save you quite a bit of cash, which you can use to buy upgrades for your computer and improvements for your office space rather than writing a big check to Uncle Sam.
Finally, an LLC structure can enhance the credibility of your game developer business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you’re a game designer, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a design business.
In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states (see doing business as definition for more). This means that if another business in the video game industry wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.
LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships in that the owners include any company profits or losses in their personal returns — the LLC itself does not owe income taxes.
An LLC may also elect to be taxed like a corporation, although this is not a very common option in the business world.There are similarities to corporations, too, especially when it comes to financial responsibilities. In an LLC, the owners (called “members in an LLC”) aren’t usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk in most cases. For more information see our LLC definition page.
The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a thorough overview of all the steps required to form an LLC, check out our complete LLC guide on the topic. The basic steps in the LLC formation process in any state are as follows:
Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes your role in video game development. You’ll also have to make sure it isn’t already in use by checking your state’s business database.
Your LLC’s registered agent (For more information, please see our what is a registered agent page) (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process or annual report reminders — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.
The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.
The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can obtain an EIN from the Internal Revenue Service free of charge.
New in 2024, all LLCs need to file a beneficial ownership information report, or BOI report. You’ll file this report directly with the Financial Crimes Enforcement Network. This reporting requirement exists to get information about your beneficial owners, or the people who get significant economic benefit or exert control over the business. By requiring this information, FinCEN aims to deter financial crimes like money laundering.
Be sure to file the BOI report on time; if you don’t your video game design LLC won’t be operating legally, and you could face hefty civil and criminal penalties.
Most states don’t require operating agreements but every LLC should have one regardless. (For more information, please see our operating agreement definition page.) This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.
You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses, as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.
Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. There are no industry-specific licenses required for video game companies, but that doesn’t mean you won’t need any permits at all. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.
Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require annual reports (each year), while others only require them biennially or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.
All About Games certainly lives up to its name, as the site was launched in 2020 by three lifelong gamers. The website includes plenty of info for gamers seeking the best hardware and games, and it also features news about competitive gaming and an informative blog. All About Games doesn’t have as many specific resources for video game designers, but it’s a fantastic place to find out about the latest trends in gaming.
The GDC is the largest industry event for video game designers, and its website features plenty of valuable information. It has tons of news items, along with technical guides, design tips, seminars, and more. The GDC even has thousands of audio and video files in its GDC Vault.
The IDGA is “the world’s largest nonprofit membership organization serving all individuals who create games.” As a member of the IDGA, you’ll receive exclusive discounts on events, conferences, and software tools. In addition, you’ll become part of their global network of game designers, which provides you with invaluable connections and networking opportunities.
Game Designing may not have the world’s cleanest website, but never fear — they certainly put far more effort into their actual tutorials than they do their own web design. Their site provides links to game design schools, presents a wealth of information for game design careers, and presents designers with an incredible series of “Tools Tutorials” to teach you everything you need to know to design your own games.
Game Analytics offers “a feature-rich and universal analytics tool for studios and publishers everywhere.” They collect and interpret game player data to help you figure out who exactly you want to design games for, and they have a broad selection of other tools and insights as well. For instance, their “21 Free Learning Resources for Game Developers” page is a great resource.
Pixel Prospector’s incredibly valuable website is split up into several different categories: game development, graphics, sound and music, distribution, business, and marketing. Under each of these various headers, you’ll find a deep pool of information that can help you design the video game of your dreams.
Note: Pixel Prospector’s website is currently undergoing a redesign, so you can expect bigger and better things soon. But in the meantime, you can access their previous site without issue.
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Starting a video game design LLC can feel like an overwhelming prospect, but it doesn’t have to be a solo endeavor. Here at ZenBusiness, we specialize in handling the “red tape” side of business. Whether you need help starting your LLC, staying compliant, managing your finances with a money app, or anything else, we’ve got your back. Let us handle the paperwork so you can focus on what you love: designing great games.
What liability risks do video game designers face?
Video game developers may not have extensive liability risks, but there are still some things to look out for. If you miss a deadline and force a developer to push back a release date, they could sue you for failing to live up to your end of the contract.
In addition, if you (knowingly or unknowingly) steal intellectual property in your game design (such as including a video or audio clip you don’t own or haven’t purchased the rights to), this could also lead to a lawsuit. In short, you shouldn’t operate a video game design company as an informal business entity — you need personal asset protection.
Why should I form an LLC instead of a corporation?
Everyone’s situation is different, and we’re not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that make it the preferred option for most small businesses.
Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look, but the LLC is a simpler and more flexible business structure.
Can I serve as my LLC’s registered agent?
Yes. Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize. For instance, you would need to be present and available at your business location during all standard business hours.
Why should I hire an LLC service when I can form my own LLC?
The do-it-yourself route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.
Need some additional information, check out our ZenBusiness vs LegalZoom page.
Should I form my LLC in my home state or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, the best option is to form their business in their home state. Forming in a different state can be a tremendous hassle and can also add unnecessary complexity to tax issues.
How much does it cost to form an LLC?
The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our guide to state LLC fees.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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