Contract model for sharing profit between co-workers?

Contracts are important. It's all fun and games until you start making some money, at that point the relationship between even the closest of friends can change. You save a lot of pain and stress on friendships by having an agreement in writing.

Have something in place right from the very get go. Even if it's a basic document stating that you all share equal rights to the applications developed by that team and that you will all share equally in profits and losses as well. Just make sure you put all the basics down in writing and get it signed by all the team.

What you will want to do eventually is get a lawyer to draft up an agreement for you guys, but you are generally looking at around $1000 or so to hire one, so if that is too much right away, just do something basic to hold you over in the interim.

If you want a sample, just google "partnership agreement" and look at a few to get the wording you want.

 

To expand on what Bravado said.... check out legalzoom.com , i'm sure they have such things available.

But yes, you definitely want a contract written up. I would also share the monthly sales data with everyone so everything is transparent and no one feels that they're being cheated.

 

A few things come to mind:
1) Are you incorporated? Read up carefully on the taxation of royalties to shareholders and employees. You might end up in a heap of financial trouble if you simply split up the gross revenue (incorporated or not!).

2) Depending on who did what and how their work is valued, you might want to consider managing the profit sharing in any number of ways. Such as:
- Set royalty caps to individuals whose contribution has not been critical to the game. Certainly working only on a profit-sharing basis entitles one to a handsome payoff compared to the time spent working, but you probably don't want to be making 5-dollar royalty payments every month five years from now to various people.
- Also consider minimum royalty limits if you don't want to place caps. At least wait for a separately decided sum of money to trickle to the account before dividing the loot.
- Alternatively, consider negotiating buyout thresholds. That is, if the game is only making X amount of money per month and just the accounting is becoming tedious, discuss the option of paying a predetermined sum in order to be relieved of further royalty-tracking obligations.

3) If you are incorporated, make sure your royalty deal leaves a significant share for the company itself so it can keep operating.

4) Take care that your contract is absolutely clear regarding the ownership of the game IP. If a company is paying royalties for it, it would probably make most sense for the company to own the IP, which probably leads to a separate discussion regarding the ownership of the company.


All in all, profit sharing is a simple idea that's complex to put down on paper once you go into details, and terribly tedious in the long run when your sales taper down, or if the game never starts selling at all. Most of all, be extremely careful when it comes to taxes and proper accounting, and be mindful that simply calculating the royalties every month becomes a burden to whoever is responsible for it.

That being said, I wish you the best of luck with your game, the trailer looks good

 

Hi Gammabeam,

I had also the same questions as you are right now and exactly the same model on the game we are soon to publish. What I did in my case might suit you as well.

- I decided to make some contracts with my lawyer (yes you need to find one you can trust that is something that will protect you in the near future)

- I decided to share the net profit by 25% each, did not matter for me if I did most of the job for this game cause building a better relationship with my partners is what matters to me most right now.

- Each one of the members had written down what exactly was his IT in this project (for example the concept / story is intellectual property of tha game designer, etc.)

- You have to write down in this contract the responsibilities of each member and it would be better to do so with deadlines also. (for example if bugs are found then it is the responsibility of the programmer to make an update within a deadline from notice etc.)

- You might also want to write down in the same contract how are you going to manage the expenses for marketing, new hardware, etc. Or if it is the responsibility of each one to manage his own expenses before splitting the profits.

I hope that I helped you

 

Most importantly add termination, buyout, and expiry conditions to the contract. Trust me on this.

1. Terminate due to mutual agreement, or when game is no longer being sold.
2. Buyout clause at a certain sum (eg. $500 if game is making less than $50 a week).
3. Contract automatically expires 1 year from start date, unless individual agrees to renew. The renewal is only allowed if the individual is still working with you guys (ie. doing DLC updates, a new game, or helping in other ways).

Avoid unending contracts because like was said earlier in the thread that you don't want to perpetually be paying out $10 a month to 5 people.

Also a good idea to add a clause to invest back in the company to work on new projects. What is the point of giving out all that money if you make it big and have nothing to continue on another game? Try to enforce desire to invest and make new games. (eg. person A gets 30% of royalties if they invest 15% of that back in company, otherwise they only get 20%).

IP ownership is definitely important. Let the company have it. As for company ownership, make it based on shares or something that can be bought and sold.

Also, make sure everyone trusts everyone else.

This is all based on experience so take it as you may.