Streamer Consigliere Part I — Starting a Business

ACbullman
ACbullman
Aug 8, 2017 · 10 min read

Welcome to the first of a series of posts I will be writing about some of the legal aspects of Destiny (or any video game for that matter) content creation. But first, an important disclaimer. I am an attorney licensed to practice law in the State of Michigan, but I am not your attorney. This article is solely meant to provide helpful information to content creators and is for informational purposes only; it is neither an advertisement for my services nor is it legal advice. I am not your attorney, and nothing in this article is intended as legal advice. Additionally, this information is specifically regarding incorporation within the United States. I would highly recommend you consult your own attorney and tax professional for your own situation, but that person is not me.


With the launch of Destiny 2 right around the corner, there will soon be an influx of new players being introduced to the world of Destiny. I have a feeling this will somewhat alter the landscape of the Twitch directory, and we will see new streamers (whether new streamers or current D1 streamers) rise up the ranks. To be honest, the landscape is always changing on Twitch, but I expect there will be some bigger changes out of the gate when D2 launches with all of its new content. This spells opportunity for a lot of up-and-coming content creators out there. You may be a big streamer already and have yourself set up to succeed as a business, you may be a small streamer looking to take the leap into streaming full-time as a business, you may be a podcaster, you may be a YouTuber, or you may just be someone who is considering making the jump into your own brand of creative content and generating revenue out of it.

Whether you will be able to support yourself as a full-time content creator is not a question for me to answer, and many successful streamers who do it full-time will likely warn you against putting all your eggs in that basket. To say the creative content market in the video game industry is over-saturated is a gross understatement, as anyone with a decent PC can put themselves into whatever medium they wish. But regardless of who you are, you can certainly make money generating your own creative content and you may have questions about setting up a business if you’re serious. Do you need to set up a business? What types of businesses are there and what are the differences? What benefits do they provide for me? Allow me to give you a little primer on incorporation and how it works (again, this is for informational purposes only, see the above disclaimer):

Do I need to set up a business if I want to make money?

Simple answer: no, you don’t have to. By producing creative content as an individual and generating revenue, you are operating what is commonly referred to as a “sole proprietorship.” You are the proprietor of your creative content, and any money made from it goes directly to you. So why do people set up a company for their creative content? You will hear two reasons: for limited liability purposes and for tax purposes. I’ll get to both of those shortly, because whenever I read about someone setting up a company and explaining why, they don’t seem to really have a handle on how it works and say things that make me want to bang my head on my keyboard.

What is limited liability?

See what I did there?

Limited liability is the general premise that you, as a member of a company, can only be personally liable to the extent you have invested in the company. When a corporation or LLC is created, it is viewed in the eyes of the law as a separate entity from you. If anything happens where there is liability due to the conduct of a corporation or LLC, the corporation or LLC is usually the rightful party to be named as the alleged wrongdoer. Twitch is a new technology, and there’s all sorts of new issues coming up every day that you would likely prefer to keep your personal assets away from. For content creators, however, the biggest issue is intellectual property, namely copyright and trademark disputes, and especially copyright disputes. And because Congress doesn’t do much more these days than punch each other in the face over health care policy and the meaning of “covfefe,” we’re still cruising along with the DMCA (Digital Millennium Copyright Act of 1998). That’s right, we look to a nearly 20-year-old law to govern copyright disputes on Twitch, which wasn’t even a concept in 1998. Your potential Destiny content-related copyright issues rely upon a law that pre-dates Pokemon Snap.

Limited liability holds you on the hook for only your stake in the company (absent extreme circumstances that would allow someone to “pierce the corporate veil”). You may be thinking “sure I play other popular music on my stream, use emotes based off of obvious corporate references, and do all sorts of other things that are probably not street legal. But what are the odds someone comes after me for it?” That’s where you decide if incorporation is something you should consider. You may think you can avoid or handle any disputes, but are you willing to bet your savings account? Or your car? Or your house? Or money you’re saving for your children’s college fund? Or your Commander Zavala action figure? Incorporating is a way of putting a dividing line between your business assets and your personal assets.


Deciding to create a company?

Out of curiosity, I browsed some videos and other online resources about creating a LLC geared toward online content creators. I was screaming at my computer screen in frustration at some of the terrible information out there. And it’s a 4K monitor, and I got spit all over it.

First and foremost, for purposes of this discussion, there are two common types of business entities that are created: corporations and limited liability companies (LLC’s). They are not the same. If someone tells you they have a “limited liability corporation,” they clearly don’t have a grasp on what it is they have, because that is not a thing. That’s like an athlete mashing together the MLB and NFL. “I’m going to play in the Major Football League someday.” Really, are you sure about that? Is that like football with everyone wielding wooden bats or something?

It sounds like nitpicking, but it’s an important distinction. Corporations are not LLC’s. LLC’s are not a subset of corporations. They are different business entities subject to different state laws depending on where they are formed. Corporations are much more rigid in structure. You need shareholders who own voting stock in the corporation and elect a board of directors. The directors need to vote on and elect officers, and there has to be a president, treasurer and secretary. Everyone has to meet every now and then and vote on all this stuff again. Want to take money out? That needs to be properly authorized according to the state law. I’m paraphrasing this because each state has its own corporation act, and they all differ slightly.

With a LLC, however, there is a great deal of flexibility. You need members (similar to shareholders), but that’s about it. Don’t want directors? Don’t need to have directors. Don’t want a president? Don’t need a president. Want to be the manager, but be officially named the “Lord of Wolves?” Sure. You have considerably more freedom to structure the business as you see fit, while retaining the same limited liability that shareholders, directors, and officers of a corporation receive. Because its simplicity, most businesses with a single member or very few members and no employees go the way of a LLC. In the case of a single member LLC, you are the 100% member (or “Lord of Wolves” if you prefer) and control every aspect of the LLC.

If you decide to incorporate (or “organize” as they say for a LLC), you also need to pick a state in which do so and incorporate under its laws. At this point I would recommend discussing with an attorney if you’re serious about incorporation. Do not do what I saw some guy recommend online: he literally browsed all the filing fees on some incorporation website and recommended that you pick whatever random state has the lowest filing fee (I did not smash that like button and subscribe). That’s fine if you want to incorporate in New Mexico because you heard the filing fees are low. Have fun flying back and forth to New Mexico for your court hearings if you get sued, because you arguably just submitted to jurisdiction in New Mexico. Most small businesses incorporate in their home state, although some have legitimate reasons for incorporating in other states. If most go out of state, they usually go to Delaware. There’s a whole lot of confusion there as well, as people seem to think Delaware is some sort of tax haven. It’s not. It’s just Delaware. You don’t need to incorporate there.

Whether you stay in-state or go elsewhere, you will also need a resident address for the business in that state and a “resident agent” to whom all service of process is directed. That can be you and your home address if you’re forming in-state, but you may not want your name and home address on public records. You can use a business address or hire a resident agent company to do that for you. Again, this a discussion to have in more detail with an attorney.


So you formed a LLC. Ready for all those sweet tax benefits?

Pro tip: reporting strange coins on your tax return is a great way to get audited.

There really aren’t any. Let’s talk about that. First, I’ve seen some content creators note that they set up LLC’s so they could “write off on their taxes” or get some other undisclosed tax benefits. A LLC does not give you the ability to write off business-related expenses for tax purposes. You already had that ability before incorporating as a sole proprietor. Nothing has changed there. In fact, if you have a 100% owned LLC, the IRS doesn’t even want to see a separate tax return for the business. They will consider your LLC to be a “disregarded entity” and tell you to just file a personal tax return. Writing off business expenses remains the same tenant as usual; the only actual perceived benefit is that you may be more likely to avoid an audit as a LLC because it comes off as being a more professional business enterprise than a sole proprietorship. Sure, there can be tons of little differences depending on your state. There’s taxes and little loopholes and business registration requirements all over the place. However, in the end, if you have a single-member LLC, nothing major changes for income tax purposes.

LLC’s can elect to be “flow-through” entities, so the LLC itself is not taxed and it’s income flows directly through to the members based on percentage of membership. Say, for example, you have a three-member podcast and set up an LLC where each of you has a one third membership interest. What happens is one third of the LLC’s profits flow through the LLC for you to report as your income and the LLC issues you a “Schedule K-1” indicating how much money your one third membership interest netted you over the year.

While you’re less likely to need to form a corporation, there’s a little more complication if you decide to go the corporate route. Corporations are classified differently by the IRS depending on how the corporation elects itself to be taxed. You may have heard the distinction before between a C Corporation and an S Corporation. C Corporations pay their own taxes at the corporate level; if any shareholder distributions are authorized, the shareholders then pay tax on the distribution they receive. (commonly referred to as “double taxation”). C Corporations cannot get around this, but some corporations can avoid this by electing to be taxed as an S Corporation, eliminating the corporate level tax and allowing the income to flow directly through to the shareholders just like a LLC. There are strict requirements to be able to make the S Corp election, as the election is meant for smaller and closely-held corporations, but most content creators would meet the requirements. If you have an S Corporation, you would again be issued a K-1 that tells the IRS how much of the corporation’s income flowed through to you over the taxable year.


So that’s the basics. I’m painting in really broad strokes here and I could go on for a week, but no one would want to read all of that. This is a little primer for those of you who are jumping into content creation or taking your content creation full-time. If you’re making money through streaming, youtubing, podcasting, or designing, you can’t avoid putting yourself out there. It’s the nature of the business. People want to know who you are before they spend money on you. That doesn’t mean, however, that you should put your personal assets out there. Forming a limited liability company is a good way to keep your business your business and your personal stuff your personal stuff. It’s not an absolute shield against any of your wrongdoings and it’s not a bountiful land of endless tax benefits. But if you’re dead set on doing this for a living, take the right steps to set it up professionally and treat it professionally so you can keep your personal life safe. Talk to an attorney. Talk to a CPA. Do it right.

ACbullman

Written by

ACbullman

Editor-in-Chief of The Redjack. Occasional lawyer. Author of Destiny Legal News.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade