Question: I'm a graphic designer and I'm developing a Flash (macromedia) game and I found a guy who's available to help me out with the code. The idea of the game is mine, I designed the game and I wrote most of the code already (it still need to be optimized and some features need to be added) and did all the graphics. I would need his help cause of my limited programming skills (I'm not a professional programmer) and cause it would really take me too long to develop the game all by myself.
Fairly enough this guy asked me for a written agreement that would state who made what and would set shares on future sales. This is what he wrote me:
"Before we go any further with making this game the next best seller we should get some kind of written agreement in place. I'm saying this because I recently had a bad experience where I worked on a game with somebody else and the game became so popular that a big site wanted to license it for 5 years − obviously this amounted to a considerable sum of money and we both found it difficult to come to an agreement. So, what we would need to do is to have some kind of agreement which states who owns which part of the game − ie. the graphics, game design, idea etc are yours and anything I create belongs to me and we need to state what percentage of any future sales we would each receive if the game becomes successful. I know this probably sounds a bit formal, but as I said I've done this before and had some major problems so it is something that we need to agree on before we start anything. If you feel unsure about this then just let me know and I'd be happy to discuss it with you, but it's definitely something you should consider before you start giving the graphics/source code to people because your game is really very cool and definitely has the chance to become a popular game."
I think what he says is right, but I don't have the faintest idea how to write such an agreement and what kind of percentages to state in it. Do you have any experience about this kind of agreements? Is there a place on the net where I can find one and customize it for my needs? What do you think would be a fair percentage on the future sales for a programmer? Do I have to look for legal advice?
Answer: This is one of those things that's really no fun and there are a million ways to do it.
First of all I AM NOT A LAWYER (IANAL) 😉 so I would suggest you go to www.nolo.com and search for partnerships and consider talking to a lawyer.
You have to come to some kind of agreement and you just have to start with numbers (like I own 80% and you own 20% and then hash it out. You can say why you think you deserve X and he can say why he deserves Y and you guys come to an agreement. If you guys can't agree then you're not ready to work together.
The way WE did it in my last partnership was that we had "shares" in the company. It worked like this. There were 4 partners and none of us had already contributed anything so, we did it like this We decided there would be 240 shares. Each person would get 1 share a month as long as they were in the company. So, basically the first month each person owned 1 share. Next month each person owned 2 shares. If one person quit of course they would no longer receive shares but the other partners would so they'd keep getting more. Let's say it's one month later and one of the 4 people had quit. Then the shares would be 3 3 3 2 , the next month 4 4 4 2, So you can see that the person that quit, his *part* of the company is getting smaller and smaller *BUT* it's not ZERO because he did contribute 2 months of his time to the company. On the other hand the remaining people each keep contributing more and more time. If you work it out at that point 3 people each own 4/18ths of the company and one guy owns 2/18s since there are 18 shares that have been distrubuted. Note: We didn't acutally distribute shares we just put it in the agreement and wrote down when each person started (and quit if they quit)
Actually we didn't do it one share at a time. We declared like 100000 shares and each got 100 a month. That gave us more room to change things if we needed to. Like maybe we would decide to add a new partner to do bookkeeping but he only got 10 shares a month since he was doing a lot less work. Or maybe we got someone with alot of experience and gave him 2000 shares up front. We could also have decided that at the beginning, say one guy put in his home computer, maybe he should get 500 shares for that (or maybe just an IOU from the company for the company to pay him back for his computer when they made money)
I'm not sure that answers your question.
You can also of course decide different parts belong to different people (I own the graphics, you own the music, etc) The problem with that is that if one guy quits it may be impossible to remove his stuff from the game and without his permission the rest of the people can't proceed. It also means that when you find a publisher they would technically need to sign a separate contract with each person. They will not like that at all. This is all usually handled by making the game belong to the company and then the guy that quits only owns part of the company (relative to how many shares he owns).
More than that you can also agree, seperate from shares, who's in charge. So for example even though you have 500 shares and he has 600 that might not put him in charge if you've written it down.
When someone quits, generally you want to make sure they can't screw the rest of the company. You do this by making *exit agreements*. Basically if you quit you get XXX. You might just keep your stock but there's really nothing you can do with it until or unless the company is sold, or you might get it automatically re−purchased by the company for some ammount per share. For a company that has no income that might be $0.01 cents per share or less 😉 Of course if you're company is a hit and someone with shares quits it can be more painful but that is why you have an *exit agreement*. For example he might not get paid for 2 years. But he gets paid at the amount the company was worth when he quit. It gets more complicated. Sometimes for example your partner dies, he's married so what he owns his wife owns. You don't want her to be a part of the business so you have that in the agreement too. If someone dies their heirs get paid some calculated ammount automatically in exchange for giving up their part of the company. Sometimes this is even covered by insurance.
As for paying out you could decide that you split it evenly. You could decide you get paid based on your shares so for example if you had 200 shares and he had 100 shares you'd get 2/3rd and he'd get 1/3rd. You could decide that you each get some percent, say 10% and the rest goes to the "company" Of course you each own the company through your shares but the money in the company is company money and used for company stuff.
As a side note. Usually another reason to legally make a corporation is so that if somebody sues you they sue the corporation not you. Say somebody plays your game for 10 hours straight and goes blind and they decide it's your fault so they sue. If you are a corp then they sue the corp. If you are just you then they sue you and take your house and car (if they win). But, even if you are a corp, if you act like a person (ie, spending company money like it was your own) then the court will say you are not really a corp but a person and then they get to sue you directly. There's a term for this, It's called "Piercing the corporate veil".
Anyway, now you know why some people would rather just be employees than start their own company. There's alot of crap to deal with. You just want to make a game but to have partners and a company requires that you do things that are not about making games but about making business (agreements). It's alot to learn and I still don't know all of it.