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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37951
Experience:  Run my own successful business/contract law practice.
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Hello, I am an Australian game developer launching an application

Customer Question

Hello, I am an Australian game developer launching an application on Facebook. Revenue is made via Paypal payments and 'offers' that players complete for advertisers. I would like to know what steps to take to ensure that I am doing things right legally, and am protected. I may also be taking on a Canadian partner.
Submitted: 3 years ago.
Category: Business Law
Expert:  lrizos replied 3 years ago.
Good Evening,

When you say you want to do this legally what do you mean?

How does the application work and why do you get paid?

Customer: replied 3 years ago.
Hello
When I say legally, well I don't know, this is why I am asking the question. I want to know what I should do.

The application is on Facebook, I get paid when people buy "points" within the game, which they use to buy virtual goods/services to make their character better.
Expert:  lrizos replied 3 years ago.
Good Morning,

I would suggest that you first get approval from Facebook to be able to do this.

As it is running on their website then you would have to make sure that any gambling permits would have to be applied for. Facebook would be the best to speak to about this.

In terms of protecting yourself you should try and speak to an insurance broker and see if you can insure against any claims by users.

In relation to protecting your idea you have instant copyright in Australia but not overseas. You may need to register in the US. Also you may consider Trade marking any logo.

I hope this is of assistance and if so please click on the accept button.
Customer: replied 3 years ago.

Hi

Thanks for your reply. I'm looking for a fairly detailed / researched answer for this question, so I'll try to answer the information you have replied with.

 

My application is approved by Facebook, and operates within their policies and guidelines. The application is not gambling, it is a game where people buy virtual goods and virtual currency within the game (most applications run this way, eg. FarmVille, Mafia Wars and so on). So for simplicities sake, think of it as a website that users pay to use if they want.

 

I would like to know if I should create a company in the U.S., if so what state would be best? Or should I have a business/company in AUS. I'm also unsure if there are other options that I should be thinking about.

Expert:  lrizos replied 3 years ago.
I have requested you be looked after by a US lawyer
Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your post.

I am a US based attorney who has experience with multimedia startups and applications. How exactly can I assist you?
Customer: replied 3 years ago.
Hi, thanks for your reply. Is there any further information that would help other than my posts above?
Expert:  Dimitry K., Esq. replied 3 years ago.
Just to be clear, what you wish for me to give you a detailed response would be on the posts below:

I would like to know if I should create a company in the U.S., if so what state would be best? Or should I have a business/company in AUS. I'm also unsure if there are other options that I should be thinking about.

Correct?
Customer: replied 3 years ago.
Yes (unless there is other information / options that you can think of). I want to make sure that I operate the business correctly and under the best circumstances.
Expert:  Dimitry K., Esq. replied 3 years ago.
Fair enough, I will do my best to assist.

First of all, are you ever planning on visiting the US, or you just want to create an office there? If you'd ever visit or work there, would you be closer to the West Coast (California, Nevada) or the East Coast (New York, Massachussets, Texas, DC)?
Customer: replied 3 years ago.
I do plan to visit the US, but not work there. I currently have a Canadian programming partner. I don't plan to set up an office (unless there was some very fortunate way that my application/s became very popular like Zynga!). The place of setting up the office if that did happen, would depend on what is the best option based on state laws taxes etc ( I prefer West Coast however). Also, would this impact any tax implications in US and AUS?
Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your patience.

If you prefer the West Coast, consider incorporating in Nevada. Nevada duplicated most of Delaware's corporate laws and those states are currently deemed the best locales for business start-ups and incorporations. Make sure to first perform a Business Entity Search and then file the proper documentation. Here is a link to the Nevada Secretary of State website where you can begin your research and begin downloading forms:

http://nvsos.gov/sosentitysearch/CorpSearch.aspx

Here is where you can even file online:
http://nvsos.gov/index.aspx?page=428

In your situation consider setting up an LLC. That provides the best flexibility of protection as well as a good tax rate on the profits. Also make sure to find a local process agent who can act as your intermediary in the states. This is the person who receives your mail, can get served instead of you (if you get sued), and provides you with presence in the US.

Good luck.

Edited by Dimitry Alexander Kaplun on 11/9/2010 at 5:54 AM EST
Customer: replied 3 years ago.

Thanks Dimitry. Do you have any advice in terms of tax implications? It would seem to me that if I have LLC I would pay tax through that company, then when I transfer money to Australia, I would also pay income tax here?

If that is the case, would there be any benefit to incorporating in US, and not just having a company here in AUS?

Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your follow-up.

I unfortuantely cannot provide you with legal advice, merely legal information--I am barred under my JustAnswer agreement to actually advise someone, as that may be deemed representation.

In terms of tax implications, that very much depends on what type of earnings and income your business will generate. Currently the US tax rates for 2011 are under intense debate, so I cannot give you information that would be timely.

Actually the whole beauty of a single member LLC is that the LLC status is disregarded, and the income of the party owner is taxed at his income tax level--so no, you do not get double taxes, as a portion of your tax is paid into Nevada, and teh remainder you record via local AUS requirements.

Good luck.

Edited by Dimitry Alexander Kaplun on 11/9/2010 at 6:26 AM EST
Customer: replied 3 years ago.

Thanks again for the quick response. If I could just ask a clarification of your last paragraph (and I know that you can't give specifics, but perhaps an example?)

 

Say for instance the application made $100,000 in the year with net profit of $80,000. I then pay my programming partner $25,000 as his share of profit. I am unsure about your comment about part of the tax paid to Nevada and remainder to AUS. How do I work out that? Would the intermediary control this? (I also assume that an intermediary is placed on a retainer and paid for work done?)

Expert:  Dimitry K., Esq. replied 3 years ago.
Thank you for your patience.

Unfortunately tax law is not my strong-suit--I cannot give you an answer of which I could be sure 100%. For that I would suggest you retain a local CPA who can optimize your taxes for you. The intermediary does not do taxes--he is there merely as your agent, although it may be possible to find someone who can perform both tasks for you for an additional fee.

At this time, these are the rates in the US, but they may change before the New Years.

Tax Rate
Married Couples Filing Jointly
Most Single Filers
10% Not over $16,750 Not over $8,375
15% $16,750 – $68,000 $8,375 – $34,000
25% $68,000 – $137,300 $34,000 – $82,400
28% $137,300 – $209,250 $82,400 – $171,850
33% $209,250 – $373,650 $171,850 – $373,650
35% Over $373,650 Over $373,650


You, as a single filer, would be taxed under the scheme below--anything you remove out of the business to third parties they ultimately pay a tax on, which would lower your tax burden.

Good luck.

Edited by Dimitry Alexander Kaplun on 11/9/2010 at 6:42 AM EST
Customer: replied 3 years ago.
Thanks again for the quick help. I'm still confused about your comment "as a portion of your tax is paid into Nevada, and teh remainder you record via local AUS requirements". Or does that mean if I transfer the profit to AUS, then I wouldn't be paying tax in Nevada, and then only in AUS?
Expert:  Dimitry K., Esq. replied 3 years ago.
You are most welcome.

That is correct, depending on how your CPA will prepare your taxes--it is possible for you to avoid paying certain local taxes in favor of your autralian obligation. Over that, however, you will have speak with an accounting expert.

Good luck.

Edited by Dimitry Alexander Kaplun on 11/9/2010 at 6:51 AM EST
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37951
Experience: Run my own successful business/contract law practice.
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