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I am starting an independent video game studio. I have a team of around half a dozen people who are currently at work on our first game.

I'm not comfortable advertising the game under the name of the studio since it is not yet a legal entity, so I have decided to form an LLC.

My issue now is how to keep my team of 6 workers as volunteers, not paid employees. The studio will not have income until the game comes out, and I am currently funding the studio/game out of pocket. I can't afford to pay these people out of pocket as well.

At present, everybody is volunteering their time and we have an informal agreement that we will split profits evenly when the game is released.

Can I legally "employ" my team as volunteers? What does this require contractually to be legal/fair?

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2 Answers

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Your problem is a bit different from what you have characterized.

You haven't identified the state in which your are operating. In California (and, I suspect, in some other states), when the parties agreed to split profits they formed a general partnership. This is a really bad situation. Please see Beware the Unintended Partnership.

I realize that you don't have a lot of money, but you need to see a lawyer ASAP before you make the situation any worse.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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Yes I was similarly cautioned today, and the fellows I talked to got me a free hour of legal advice that should cut it for now. Thanks for the help! – JasonSage Sep 18 '12 at 4:31
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From what it sounds they're not volunteers, they're partners. They should be members of the LLC, and your work should be based on the operating agreement of your partnership (LLC).

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What are the implications of having multiple partners? Specifically I am worried about leading the company. I'm not (necessarily) willing to have leadership of my company shared between individuals that I have on my team because of their technical abilities. – JasonSage Sep 16 '12 at 4:55
@Jason, generally it depends on the jurisdiction, but in the US LLC's have what's called "Operating Agreement" that specifies how and by whom the company is managed, and it is similar to a corporation charter. I'd say that you're partners already, legally, so you'd better formalize it sooner than later. – littleadv Sep 16 '12 at 5:06
I'll take a look at this option. – JasonSage Sep 16 '12 at 5:13
Is it possible to do this if one of the members is not a US citizen? Also, to be clear, this gives me the option of not paying them as employees as long as it is in the agreement? – JasonSage Sep 16 '12 at 5:18
LLC doesn't have citizenship restrictions, S-Corp does. But do make sure to get a proper legal and tax advice, before taking any action. – littleadv Sep 16 '12 at 5:24
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