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I have been developing a game for 3 years now. And recently, a friend has joined me to work on the game with me. By next year, we plan to bring along an artist and musician to help us finish the game.

Currently, we are planning on dividing the company where I own 70% and my friend owns 30%. We are looking into forming an LLC. When we do get an artist and a musician, we won't have the money to pay them. We are hoping to give them 5-10% of the company each depending on how involved they will be in the project. So the approach I am taking is to cut the pie equally amongst 4 members based on the amount of value they bring to the project. Is this a good approach? Is this even possible with an LLC? Should we be forming an S Corp instead and then allocating shares accordingly? Are there any other approaches that are better suited for what we want?

Thanks!

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Yes, you can do that with an LLC. Keep in mind that when you issue membership interests/"shares" in the LLC down the road, the artists/musicians who get those interests/"shares" may have some tax issues, since if the value of the company has risen since its inception, they'll be getting interests/"shares" that have value, and they'll have to either buy them for that value or pay tax on the value (in short).

You could also form an S corp for this and you could give out options but that still has similar tax issues, and an S corp has limitations on the number and types of shareholders.

So I'd just stick with an LLC, and would aim to find the artists/musicians and give them equity before the LLC has value--before it starts generating much revenue.

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Awesome! Thanks for the answer! We'll definitely will be getting artists/musicians before the company makes any revenue. But it's good to know that the they will be taxed on the amount of shares they receive if the company has value. Thanks again! – Vakey Nov 7 '11 at 16:48

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