Kickstarter Lesson #114: The 4 Legal Issues Every Kickstarter Creator Should Know

11 September 2014 | 50 Comments


For a while now I’ve subscribed to a blog called the Board Game Lawyer. The author, a lawyer named Zachary Strebeck, writes consistently insightful posts about the legalities of publishing board games.

I recently reached out to Zachary for some help on a contract, and we got to talking about Kickstarter. Zachary follows Kickstarter and has noticed some patterns emerge over time that every KS creator needs to know more about. I asked him to share those insights on the blog here, and he graciously agreed to write the guest post below. Thanks Zachary!


For most creators, the legal side of starting a Kickstarter campaign is the last thing on their mind as they are scrambling to get a project intro video created and planning out reward tiers. However, paying attention to these four legal areas may help to save you a ton of trouble down the line.

Issue #1 – Forming a business:

If you’re advertising and selling a product on Kickstarter, you’re in business. However, by default you are a sole proprietor (or a partnership, if you’re working with others). This type of business offers almost no benefits, since you are usually personally liable when things go wrong and the business gets sued.

Most businesspeople form a separate business entity, such as an LLC or a corporation under which to do their business. This has a few advantages:

  • It limits the liability of the people running the business to their contributions to that business (for the most part, anyway)
  • It gives a professional appearance, rather than the look of a person running a game dev business out of their basement (even if they are)
  • It makes it easier to sell or transfer the business, or raise money in other ways

In many states, forming a business entity isn’t expensive. However, the benefits to forming one can be pretty great. I would also recommend consulting with an accountant or tax lawyer to better understand how taxes will be dealt with, particularly when raising a lot of money on Kickstarter.

Issue #2 – Get it in writing:

We’ve all done “handshake deals” at some point in our lives. However, when you’re forming a team of artists, designers and other folks to develop a game, these deals may not be sufficient. This is for a few reasons:

  • You may think you have the same understanding of your deal, but until it’s distilled into a written contract, you can’t really be sure (you’d be surprised at the results)
  • There may be a ton of things that you haven’t even thought of
  • You probably haven’t given any thought to what happens when things go wrong, but the best time to do this is when you’re still on good terms (believe me, it can get pretty tough later on)

It’s easy to be so excited that you start working on the project right away. As above, though, taking some time to get everything in writing can save a ton of hassle later on.

Issue #3 – Make sure you own everything in your game, or have a good reason not to:

When you’re developing a game, there are usually many different hands working together to get it done (see Issue #2). Absent some kind of written agreement or an employer-employee relationship (which requires all kinds of insurance and other things), those other people may own the rights to the things that they’ve created.

This may seem fine before any money has come in, but when you’re looking to expand the brand with a sequel, an expansion or some other derivative work, those owners may come knocking. They’ll be looking for their piece of the pie, particularly when something is very successful.

It’s very simple to add a clause into a contract that grants or licenses these rights to the company or developer. As usual, getting these things squared away in the beginning puts you in a better place as far as negotiations go and can save you a huge amount of hassle.

Issue #4 – Make sure you’ve planned everything out before launching the campaign:

The attitude of getting a cool project page together and dealing with the logistics of it later can be extremely dangerous, from both a business and personal perspective. There are numerous examples of this in the various highly-publicized Kickstarter failures:

As you can see in these various cases, a failure to plan out how much things will really cost and set up the funding goals and reward levels to reflect that can lead to serious trouble. Is anyone going to take any of these companies seriously after this? Even if they do get backers to support them in the future, I can’t imagine that they will get the same amount of money unless they do a lot more work to repair their damaged reputations.

Then there’s the legal implications. Look at the Asylum Playing Cards Kickstarter, for instance. Washington State is suing the developer (both individually and as the business entity he formed) for failing to deliver on the promised rewards under the state’s consumer protection laws.

The creator of the Hanfree device faced a small claims lawsuit by one spurned backer (who happened to be an attorney), but certainly could have been sued by all of the other backers as well. When you take money as part of a Kickstarter project, you are creating a contract with those backers. Failure to deliver on that contract could open oneself up to liability.

Most of these things are relatively simple to do and part of being a responsible Kickstarter project creator. A lot of the information is right here on the Stonemaier Games Kickstarter Lessons and my own blog! The added benefit is that the project has a better chance of successfully shipping products within the estimated timeframe and avoiding serious legal issues.


Hey, Jamey here again. If you have any questions for Zachary, feel free to post them in the comments below. If I notice some trends in the comments, I might ask Zachary to return to the blog later to delve deeper into those topics.

Also read: Everything a Kickstarter Creator Needs to Know About Trademark Law

Leave a Comment

50 Comments on “Kickstarter Lesson #114: The 4 Legal Issues Every Kickstarter Creator Should Know

  1. Corey I’m neither of the men you addressed questions to, but I can’t imagine quoting an Indian saying would get you in much trouble with anyone anywhere; and I think it’s a very compelling quote. …hence me stopping in to reply! Caught my attention.

  2. Corey: I’ve heard that the first 10-15 seconds of a project video should be story driven, so if the quote is a core part of the story you’re trying to tell, it could be a great way to start off the video.

  3. Hi Jamey and Zack. I am working towards putting my Kickstarter video together for my campaign and thought I would set the scene of the video with this quote:
    “Only when the last tree has been cut down, the last fish been caught, and the last stream poisoned, will we realize we cannot eat money.”
    ― Cree Indian Prophecy

    For Zack – I’ve found it hard to attribute a specific author to this quote. Is there legal risk in any form for displaying this during a Kickstarter video?

    For Jamey – Do you think having a quote like this is a good pitch strategy? For reference, the game has a strong environmental theme and I thought the quote would set the stage well.

    Sorry if this a bit off topic, thanks!

      1. The short answer? You don’t HAVE to do anything :)

        Long answer – You can do three types of trademark registrations, really (at least from the perspective of a US lawyer). 1) State registrations. These are cheaper, but they’re limited to a single state. Not so useful for our purposes. 2) Federal registration with the USPTO – super useful if you want to claim trademark rights for something you’re using in interstate commerce. 3) International WIPO registrations under the Madrid Protocol – springboards off of your US federal registration to get international protection, but each country/territory has its own fee and it is quite expensive.

        Hope that helped! Feel free to email me with any questions.

  4. You’ll want to consult your own lawyer and accountant and not take this as legal advice, but I believe that if you are doing business in a state as a foreign corporation, you still need to pay taxes. So, at least in California, a Nevada LLC still needs to register as a foreign corp and pay California income taxes. It negates any advantage the LLC may have had by forming in Nevada.

    Most corps form in Delaware because there is a large amount of case law and favorable rules, but I believe they still need to pay taxes in the state where they are doing business. Again, consult a local accountant or attorney for confirmation and more info.

  5. Should the LLC be formed in the same state you reside? I’ve read that there may be advantages to form the LLC in Nevada or Wyoming. Living in IL, forming a LLC is very expensive compared to other states. Is this something to consider for a Kickstarter project? Are there other pitfalls and tax ramifications that arise by filing in a different state?

  6. No problem, Markus. Didn’t realize you were in Sweden. Things may be different there, but if you’re selling in the US you could incur liability here anyway.

    Just an important correction – this is more of a trademark issue than copyright. They protect different things!

  7. Hi Zach, Jamey and other readers,
    I have a question regarding names. I´m planning on kickstarting a cardgame about psychiatry and am thinking of naming it “InTreatment: A psychiatry cardgame”. My question is how close to an existing name can you get(there is a television show called In Treatment)? Is there a good resource for these kinds of questions?
    Sorry for using my own game as an example, was hard to come up with one like this.
    Thanks for contributing both to my gamelibrary and knowledge!


    1. Markus: Thanks for your question. Zack will be able to answer it better than me, but from my experience working with trademarks, typically you want to avoid the same or similar names if they deal with the same subject matter. For example, both your game and the TV show are about psychiatry, correct? Because of that, you probably shouldn’t use the name InTreatment. For Euphoria, there’s a Euphoria perfume, but no one is going to confuse that brand with a dystopian board game.

    2. I can give you some general information, but I’m not going to drop any legal advice here, of course.

      Trademark protects consumers from confusion as to the source of a product. This could be a brand name, a catch phrase or any other mark that distinguishes one source from another. For instance, the guy who did that Honey Badger video trademarked the phrase “Honey Badger don’t care,” or something like that. What he is trying to protect is his rights in the fact that when people buy merchandise with that phrase on it, they know they are getting it from him. He does, in fact, either sell or license the phrase for merchandise.

      In the case of a game name, if your name is similar enough to another mark that it has a “likelihood” of confusing consumers, this would be an infringement. You don’t have to show that consumers are actually confused – it is just the potential for confusion that makes a use infringing. Different courts use different factors, but Google the Sleekcraft or Kodak factors for some typical ones. In many cases, if you are using the other mark verbatim, or just pluralizing or using a sound-alike name, it is going to be seen as close enough for that likelihood of confusion to kick in. I’m not going to comment on the specific example given in the comment.

      For further reading, check this out:

      1. Thank you both for the excellent help. Not understanding copyright seems to be an important factor in some of the cases of Kickstarters going south contra how hard it is to find good names for a theme game such as this, so I wanted to make sure.
        And thanks Zach for taking the time, Sweden is a small country so we don’t have many lawyers with your specialty here:-).

  8. Jonathan,

    Oh, indeed. And i’m really glad you took the time to post all that for us all here, thank you. I think we actually still agreed on everything (save for my S-Corp preference), and forgive me for not posting such a detailed comment in the first place, thus leaving my comments confusing; I definitely posted the short (incomplete) version, and take fault for that. But, yes, you’re spot on.

    I think the 2 bottom lines are:
    #1) So much of this varies by State, and no singular piece of advice will cover everyone, with the possible exception of…
    #2) Consult an accountant and/or attorney within your own state.

    Great stuff, it deserves it’s whole own blog post. Spot on, and thank you again for providing all the clarity and detail.


  9. @John,

    It does the same for me.

    RE: Corporate formalities, I just like to cover all bases, and writing up meeting minutes for an annual or quarterly meeting that is essentially taking place in your own mind seems a small price to pay. Each state has its own case law, however, regarding piercing the corporate veil, so it may or may not be enough.

  10. @Zachary
    I shared the advice that I was given by two separate accountants (as a fact, not a potential suggestion); and said that sometimes people don’t know all that much about these details, so they opt for LLCs because they’re more straight forward or easier.

    You responded with: I don’t necessarily “agree” with the advice given, I err on the side of caution… I like LLCs.

    I responded with: Case in point.


    p.s. I really am trying to respond in the same conversation-lineage here, but it’s assigning my comments as a new comment instead of as a reply. Sorry for that. I think wordpress doesn’t like my computer. : P

  11. Zachary – Thanks for responding to my post.
    Yeah, regarding ‘acting like a corp’; oh yes, in many ways surely; but as I understand it (from counsel), the need for corporate compliance meetings and minutes are rightfully waved because you are the ONLY person to possibly hold the meeting, attend the meeting, make the decisions, write the minutes, and receive the minutes. …so you’re not required to. Regardless, checking with a good accountant is indeed the all-points-agreed major detail.
    Many will give free advice for a few minutes on a couple topics with a phone call. They’re people too, happy to help (it’s actually what accountants do for a living: help; so you’ll find them usually helpful people), and they’re hoping to earn your business. It’s a good way to choose an accountant too if you don’t have a solid rec from a friend.

    This “yes, no, maybe” is also a reason that LLCs are popular. They were made to be easier.
    It’s what your accountant will say about those too. ; )


  12. John: Thanks for the post. Yes, there are benefits to having an S-Corp. One other possibility is forming an LLC and electing to have it taxed as an S-Corp.

    I don’t know if I agree about the part where you don’t have to do any corporate upkeep if you’re a single-member S-Corp, though. You generally need to act like a corporation in order to avoid an “alter ego” accusation, which could pierce the corporate veil and destroy your limited liability. This means separate bank accounts, minutes and all that other fun stuff that comes with running a corporation.

    But you’re absolutely right about getting an accountant involved. I’m also not a tax guy, so the accountant’s advice is very valuable on that front.

  13. Going with #1, Forming a Business.

    I have it on good advice that the Tax Benefits of Forming an S-Corp are supremely better than those of an LLC. From what our accountants have explained to us, LLCs were created by the government almost “just to make money”, as there is next to no tax shelter, only liability limits (hence LL), and your annual state franchise taxes are the same as an S-Corp’s; while as an S-Corp there are more options for your accountant to play with to use built in tax shelters and write-offs that are not afforded by an LLC. There’s a little extra paperwork to fill out, but I understand it’s worth it.
    That being said: A) This may only apply to California, but I doubt it. B) We haven’t passed our first full tax year yet, so I haven’t seen this in action.
    But my accountant refused to allow me to create an LLC since an S-Corps was an option.

    Tips regarding this:
    1) You’ll get to create a # of shares of Stock. Fine. Keep ALL of them to yourself. The moment you give even ONE to your WIFE, you must have corporate meetings and file “meeting minutes” with the IRS on a very regular basis. If there is only 1 owner (100%), you can routinely skip this pesky side of the S-Corp. (So if your accountant says: S-corps are too much trouble, they’re not thinking it through. Call another accountant.)
    2) When creating your business, choose “Accrual” for your Accounting Method. Otherwise you might be liable for Taxes on Kickstarter income before you go and spend it on manufacturing and shipping. Accrual Accounting allows you postpone income taxes on income until the product the income is intended to distribute is manufactured AND shipped. (Sound like Kickstarter?)
    3) S-Corps can also declare a tax year other than the calendar year. This is usually moot, but there are times and situations it can be handy.

    Finally, this is not tax advice in any way. It’s just stuff I heard. You can’t sue me. Consult with your lawyer and accountant for advice. Because this is NOT advice.

    John Wrot!
    President of Gate Keeper Games Inc. S-Corp
    (p.s. When you incorporate, you get to give yourself a title like: President! Booyaa! ; )

    1. John Wrot:

      I think that much of the advice you relate is either incorrect or incomplete, and your post is likely misleading to those not employing an accountant or attorney with appropriate knowledge and experience. I am an attorney with an LL.M in tax, and a fair amount of experience with business formation and entity selection. The following is NOT TO BE CONSTRUED AS LEGAL ADVICE, but I wanted to clarify some of the things you said:

      “Your annual state franchise taxes are the same as an S-Corp’s”

      This is purely state driven; in some states corporations and LLC pay similar franchise fees and in others they vary widely. Also, because S corporations typically require somewhat more burdensome federal filings and on fairly rigid deadlines, and are subject to a myriad of ownership and operational restrictions under the Internal Revenue Code (IRC), there are a lot of ways to inadvertently run afoul of the rules and inadvertently blow your S election (although accidental noncompliance can be undone by filing with the IRS a request for Relief from Inadvertent Termination). The additional formation and associated year to year costs should not be disregarded.

      “1) You’ll get to create a # of shares of Stock. Fine. Keep ALL of them to yourself. The moment you give even ONE to your WIFE, you must have corporate meetings and file “meeting minutes” with the IRS on a very regular basis. If there is only 1 owner (100%), you can routinely skip this pesky side of the S-Corp. (So if your accountant says: S-corps are too much trouble, they’re not thinking it through. Call another accountant.)”

      The holding of board meetings is required for a single shareholder S corp just like it is for a multi shareholder S corp. It may be easier for you to schedule, since the meeting is just you, and you don’t have to provide yourself a written notice of the meeting, but generally you should mark the meeting on your calendar, have a written agenda, take notes on the topics and alternatives you considered, etc. You should keep minutes, and if you decide to take actions requiring a resolution of the shareholders – opening a bank account, borrowing money, appointing yourself to officer positions, entering into or ratifying contracts previously entered into, you should actually draft and sign and retain in the records of the company those resolutions. The failure to maintain corporate formalities is one of the most common ways an owner/shareholder can lose the liability and other protections that an entity structure provides, so as Zach has gently tried to express several times, you “routinely skip” this “pesky” step at your peril.

      In addition, unlike an LLC, there are a myriad of S corporation specific restrictions regarding who can be a shareholder, operations and record-keeping for tax and other purposes, which your accountant or attorney will need to keep you apprised of so you do not inadvertently lose your S status. While S corporations can have some distinct advantages over LLCs (e.g., in the self employment tax area), S corp formation, accounting and related issues are much more cumbersome than tends to be the case with an LLC (particularly a single member disregarded LLC).

      Also, you say that you have to “file meeting minutes with the IRS,” but you are not actually required to file corporate minutes, etc. with any third party, and would only be required to show them to the IRS if you were being audited and the agent asked to see the corporate books.

      “2) When creating your business, choose “Accrual” for your Accounting Method. Otherwise you might be liable for Taxes on Kickstarter income before you go and spend it on manufacturing and shipping. Accrual Accounting allows you postpone income taxes on income until the product the income is intended to distribute is manufactured AND shipped. (Sound like Kickstarter?)”

      Publication 538 provides that with respect to using the accrual method of accounting Accrual Method of accounting “. . . generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. The purpose of an accrual method of accounting is to match income and expenses in the correct year.. . .Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Under this rule, you report an amount in your gross income on the earliest of the following dates.

      When you receive payment.

      When the income amount is due to you.

      When you earn the income.

      When title has passed.”

      This sounds to me like as soon as your kickstarter is funded, and you receive the money, under the accrual method you are required to report that income for the tax year containing the funding date. Now, you might be able to commit to the related expenses in that year (that is, sign a binding contact for), even though you do not actually cut the check for the production costs until the next tax year, which under the cash method might cause problems (income in year 1, production expenses paid in year 2), while under accrual since you have incurred the production expense in the same year as you received the funding you could deduct those accrued expenses (income in year 1, production expenses in year 1), but this is not “delaying” taxation of the monies you received until a later year; rather, it is accelerating the year in which you can offset the production costs. Whether a cash method or accrual method is more beneficial is case specific, and requires an in depth conversation with your accountant.

      “3) S-Corps can also declare a tax year other than the calendar year. This is usually moot, but there are times and situations it can be handy.

      While S corps CAN technically elect a fiscal year, in order to do so, the S corp must establish a valid business purpose for having a tax year other than the calendar year. It is not just a choice you can make because you want to.

      There are also tax differences between an S corporation (beyond the increased amount of filing generally required to be made by a single member S corporation (which requires the preparation and filing of an 1120S and Forms K-1 each year (and likely similar state level filings))), all of which carry with them additional legal/accounting/prep costs, and a single member LLC (which is generally disregarded as a separate entity for federal income tax purposes, and the profits/losses/expenses of which are generally reported on Schedule C the sole member’s 1040). For example, S corporation shareholders cannot generally utilize losses to the extent such pass through losses exceed their basis in the S corp stock, whereas LLC members are not generally similarly limited. On the other hand, members of an LLC that materially participate in the business of the LLC can expect to pay self employment tax on any profits, whereas S corporation shareholders might not have to pay SE tax on the same amount (since while SE tax would be payable on the compensation portion of the S shareholder’s “earnings”, the distribution of profits (characterized as a dividend) portion is NOT subject to SE tax. Note, however, that the compensation portion of the S corporation shareholder’s earnings may be subject to payroll, unemployment or other taxes.

      How do you determine what part of the money you take out of the S corp is compensation and what part is dividend (yes, if you own and work for an S-Corp you have to allocate between the two in a reasonable manner)? Who takes care of payroll and unemployment filings., if there are any? How do S corporations and LLCs vary with respect to health insurance accessibility and retirement options? There are literally dozens of important factors to consider, and while I agree with your accountants that S corporations should be considered as a structural option, for them to simply say “[I] refuse to allow [you] to create an LLC since an S-Corps [is] an option” is just as closed minded and unreasonable as refusing to consider S corporations as an option to an LLC.

      S corps ARE actually reasonably complex and LLCs ARE generally less complex, but there are valid reasons to go either way. Practically, I think many attorneys or accountants make recommendations based largely off of which structure they initially learned to use. Many older accountants and attorneys like S corps because that is what they learned to use many years ago, and LLCs are modern and new and unfamiliar to them, and they don’t want to bother learning about them. Similarly most younger accountants and attorneys like LLCs, because that is what they learned to use and S corporations are old and cumbersome and restrictive and unfamiliar to them, and they don’t want to bother learning about them.

      In the interest of full disclosure, I am in the latter group, and generally see little reason to S corp under MOST circumstances, finding that I can generally make my LLC as S corp-y as I need to – don’t forget that an LLC can also generally make an election to be taxed as an S corporation, if it is willing to abide by all of the S corp (Code section section 1361) rules – but leaving me the default of not being bound by the many restrictive S corp rules (that is, I cannot make my S-Corp very LLC-ish). So I prefer flexibility that I can restrict, rather than restrictions I cannot easily jettison, should they prove too burdensome.

      This being said, there are reasons to use an S corporation and there are other reasons to use an LLC, but they are difficult to summarize in a tight little package. The biggest issue is probably SE tax, and the more your make from your company, the less this matters (since SE tax applies only to the first $113,700 in SE earnings as of 2013), and many people find that the reduced filing requirements, the lack of meaningful ownership or operational restrictions placed on, and the inherent flexibility available to, LLCs as compared to S corps, justify using an LLC instead of making an S corporation.

      Again NOT LEGAL ADVICE, just some general thoughts. Everyone should consult their own attorney/accountant/advisor, and I am not yours :D

  14. Zachary, Any chance you could write an article about the GameZone HeroQuest 25th Anniversary game? I’m browsing your BGG blog and while I can make some guesses of the obstacles it faces once it’s in production, I’d like an expert opinion of the matter. Thanks!

  15. […] Just to add to the article above, we’ve got a guest post article from Zachery Strebeck on the Stonemaier Games website about some of the legal tips you’ll need to succeed in a Kickstarter. As a disclaimer, it’s only an introduction and it may not cover everything for you, but it’s a solid start for anyone and Zachery is incredibly passionate about helping out boardgame creators. Well worth a look here. […]

  16. “Issue #3 – Make sure you own everything in your game, or have a good reason not to:”
    People often forget this in Kickstarter projects. When you try to make a Pokemon-related project, you’d better have Nintendo on board (or raise enough money to buy the right to use that franchise).

    It still pains me to see people without even an inkling about Intellectual Property Rights.

  17. The only thing I would add is you don’t necessarily have to own everything in your boardgame. If you’re working with an artist that’s really interested in keeping some rights over the final work it might be worth it to look into a license deal. Where in so far as the game is in print you own all the final assets but were you to ever discontinue after a certain amount of time the rights would return to the artist.

    I mention this because I know how expensive art can be for boardgames, and if you have an artist willing to give you a sizable discount by using a licensing rather than ownership model then you might have an easier time getting your game out there.

    Of course I still recommend full ownership, and it’s been what I have found to be the best option for me. I find it helpful to know the alternatives though, even if you never use them.

    1. Nicholas,

      Yes, that is a great strategy for those who may not have the funds to own the artwork outright. However, it is important to ensure that the license is broad enough not to impede on your own exploitation of the work. You don’t want to end up having to redo all of the art for a 2nd printing, just because your rights ran out early.

    1. Definitely on both counts. That was going to be #5, but the first four were running a bit long. I will have to do a Part 2 to the post. However, I think that registering the IP is something that can (and often should) wait until after the campaign ends and the game is published. For instance, when registering a copyright, you need to provide a specimen. Depending on the size of the game, you may need to provide a copy of the boxed product. Bigger boxes can generally get away with just sending in pdfs of the game.

      Thanks for reading!

      1. From my understanding, you should file an “intent to use” trademark before your product hits the shelves. This, of course, is if you believe the project will go all the way. Trademarks can be remarkably expensive if you do not file them 100% correctly.

        What are your thoughts on this?

        1. I wrote a long comment, and it didn’t go through for some reason. Let’s try this again…

          I believe it’s a question of resources. If there is a finite budget, I think that there are much more important things to spend it on, legally speaking, in the beginning. Forming the company and getting the right agreements in place take precedence.

          The reason I think this is because trademark and copyright rights manifest themselves as soon as the brand is used in commerce and the work is “fixed” in a “tangible medium,” respectively. Given this, if the Kickstarter launches, I would consider this a use in commerce of the game brand. Therefore, the trademark rights begin on that day. Filing for the registration as an intent to use is more appropriate when there is not going to be a use in commerce anytime soon, but the company wants to park those rights until that time comes.

          In the non-Kickstarter game space, this may be more appropriate, since a game is announced early and not actually sold for years, in many cases.

          It’s all very fact-dependent, so this shouldn’t be taken as legal advice. As always, consult an attorney before moving forward with your legal protection schema.

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