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Legal Business Structure / Gambling License

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LawHelp10

Junior Member
Hi, me and my business partner are wanting to form an online business in Nevada. I have 3 questions that hopefully some of you can address. One involves the requirement of a gambling license. Our business focuses on skill based video gaming on the Playstation 4 and Xbox gaming consoles. Players invite each other to cash games through our website where each user pays a head to head cash fee in advance and the winner takes the pot. We charge a 10% commission fee for each match that is set up. If both players agree to a match of $10, the pot prize would be $18 to the winner and we take $1 off each player as the fee. We also host tournaments with cash prizes where the user pays a fee to enter the tournament. It's similar to the rake system in poker. One of our competitors also operates without a gambling license because of the skill gaming and not gambling aspect and they seem to not have had a problem. I just want to make sure and clear up if our business would need a gambling license or not before proceeding further.

Secondly, we are having trouble deciding on the legal structure of our business. Initially, me and my business partner are going to own 50% each of the company and it's going to be an equal partnership. We don't know if it would be wiser to form a corporation, partnership, or a multi-member LLC.

Lastly, my business partner is from the UK and I know him through competitive gaming online and meeting each other at live events. Will him being a non-citizen cause us to not be able to form a certain type of LLC or corporation. I believe I read that an S-Corp cannot be formed if one of the owners is a non-citizen.

Thanks in advance, I look forward to your replies and hopefully someone can answer all 3 of these questions.
 
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quincy

Senior Member
Hi, me and my business partner are wanting to form an online business in Nevada. I have 3 questions that hopefully some of you can address. One involves the requirement of a gambling license. Our business focuses on skill based video gaming on the Playstation 4 and Xbox gaming consoles. Players invite each other to cash games through our website where each user pays a head to head cash fee in advance and the winner takes the pot. We charge a 10% commission fee for each match that is set up. If both players agree to a match of $10, the pot prize would be $18 to the winner and we take $1 off each player as the fee. It's similar to the rake system in poker. One of our competitors also operates without a gambling license because of the skill gaming and not gambling aspect and they seem to not have had a problem. I just want to make sure and clear up if our business would need a gambling license or not before proceeding further.

Secondly, we are having trouble deciding on the legal structure of our business. Initially, me and my business partner are going to own 50% each of the company and it's going to be an equal partnership. We don't know if it would be wiser to form a corporation, partnership, or a multi-member LLC.

Lastly, my business partner is from the UK and I know him through competitive gaming online and meeting each other at live events. Will him being a non-citizen cause us to not form a certain type of LLC or corporation. I believe I read that an S-Corp cannot be formed if one of the owners is a non-citizen.

Thanks in advance, I look forward to your replies and hopefully someone can answer all 3 of these questions.
Do you have permission from X-Box (Microsoft) and PlayStation 4 (Sony)?
 

Taxing Matters

Overtaxed Member
Hi, me and my business partner are wanting to form an online business in Nevada. I have 3 questions that hopefully some of you can address. One involves the requirement of a gambling license. Our business focuses on skill based video gaming on the Playstation 4 and Xbox gaming consoles. Players invite each other to cash games through our website where each user pays a head to head cash fee in advance and the winner takes the pot. We charge a 10% commission fee for each match that is set up. If both players agree to a match of $10, the pot prize would be $18 to the winner and we take $1 off each player as the fee. It's similar to the rake system in poker. One of our competitors also operates without a gambling license because of the skill gaming and not gambling aspect and they seem to not have had a problem. I just want to make sure and clear up if our business would need a gambling license or not before proceeding further.
It will depend a lot on the exact games you do this with and the jurisdictions in which the game will be offered. As gaming is highly regulated and each state’s law is different, you would be foolish indeed to proceed without first consulting an attorney very familiar with gaming law and the internet. As your plan may involve gamers from more than one state (and perhaps more than one country) you need to know what you can do to ensure that you do not violate the law in any jurisdiction.

Secondly, we are having trouble deciding on the legal structure of our business. Initially, me and my business partner are going to own 50% each of the company and it's going to be an equal partnership. We don't know if it would be wiser to form a corporation, partnership, or a multi-member LLC.
You will want to form some kind of limited liability entity, e.g. corporation, limited liability company (LLC), limited liability partnership (LLP), etc. There are pros and cons to each one and which is best for you will depend on the details of the business. I recommend that you consult a business attorney as well as a tax attorney for advice on the best set up. The tax attorney should be one familiar with the federal income tax law for foreign persons receiving U.S. source income. Among other things the business will have a requirement to withhold tax with respect to certain income that the foreign person receives from the U.S. business. Another issue you will need to discuss with the business attorney is what copyright and trademark issues you may have with the games that you plan to use for this service. Finally, note that having two owners of a business with 50% ownership each is just asking for trouble. As soon as you two disagree on something you will be deadlocked since neither of you commands a majority of the interests in the business. If you really want to be equal owners then discuss with the business attorney ways you set up rules for deciding what to do when the two of you reach an impasse.

Lastly, my business partner is from the UK and I know him through competitive gaming online and meeting each other at live events. Will him being a non-citizen cause us to not form a certain type of LLC or corporation. I believe I read that an S-Corp cannot be formed if one of the owners is a non-citizen.
In general a foreign person is not prohibited from owing any part of a business in the U.S. The business cannot make a S-corporation election, however, if any of the owners are nonresident aliens or foreign business entities.

What you propose is more legally complex than I think you realize. You really need to get some good legal and tax advice before starting up this venture.
 

Taxing Matters

Overtaxed Member
Do you have permission from X-Box (Microsoft) and PlayStation 4 (Sony)?
It might not be needed to get permission from the hardware manufacturers to this kind of business; much would depend on how the trademarks of those firms are used. Where I see the problem is potentially needing licenses from the publishers of each game they offer to match with their system.
 

quincy

Senior Member
It might not be needed to get permission from the hardware manufacturers to this kind of business; much would depend on how the trademarks of those firms are used. Where I see the problem is potentially needing licenses from the publishers of each game they offer to match with their system.
Read both Microsoft's and Sony's terms of use. Permission is needed to use the XBox and PlayStation for commercial purposes.
 

quincy

Senior Member
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Taxing Matters

Overtaxed Member
Read both Microsoft's and Sony's terms of use. Permission is needed to use the XBox and PlayStation for commercial purposes.
Ah, but as a bit of a gamer myself :D, I think the OP would not likely be using the hardware himself for the business. The players have the machines and are using them, certainly, but the OP would simply be providing the forum for them to connect, if I understand his business model correctly. Of course he would want to discuss this with the attorney he consults, along with the issue of licenses for the games played, which present a bit of a different issue than the hardware.
 

quincy

Senior Member
Ah, but as a bit of a gamer myself :D, I think the OP would not likely be using the hardware himself for the business. The players have the machines and are using them, certainly, but the OP would simply be providing the forum for them to connect, if I understand his business model correctly. Of course he would want to discuss this with the attorney he consults, along with the issue of licenses for the games played, which present a bit of a different issue than the hardware.
I agree that an attorney should be consulted.

There are intellectual property issues that cannot be ignored. These need to be dealt with first, before LawHelp10 concerns himself with the other legal issues that come with his proposed business.
 

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