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A final type of basic business entity that you may want to consider is a corporation. There are several different types of corporations. The main difference between the various types is how the owners of the corporation, called shareholders, are taxed. One specific corporate entity, called an "S Corporation," is particularly attractive to small game development companies because this type of corporation pays no tax at the corporate level. Instead, each shareholder reports any profit (or loss) on his individual tax return. The disadvantage of S Corps is that they are limited to 75 shareholders. However, this restriction usually does not pose a problem for a start-up game development company that only has a few founders. Although the requirements for forming a corporation vary from state to state, the process is not as complicated as you might think. Basically, all that you have to do is file articles of incorporation with the secretary of state in the state in which you want to incorporate. Depending on the state, you may have to pay a corporate tax to stay in business. There are many books and online resources that can assist you in forming a corporation. However, should you decide to go the corporate route, make sure that you have all formal documents and filings reviewed by your accountant or lawyer. Keep in mind that once a corporation is formed, it must behave like a corporation. This means that certain corporate formalities must be followed, including: corporate record keeping, no commingling of corporate and personal funds, annual meetings for shareholders and directors, and the observation of shareholder voting rights. If you fail to follow any of these formalities, creditors and others may be able to "pierce the corporate veil" and reach the personal assets of the shareholders to discharge alleged corporate liabilities.
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