Hi,

I and another person have formed an LLC in California together to start making games.

In particular, there are other people who wish to work with us on a project on the sole basis of profit share only, no other form of payment. They are working with us in our office and are free to work whatever hours they wish. We do not want to consider them employees because we literally have no money to pay them. We all just want to work together for only the duration of this project and split whatever profits we get from it based on contribution.

Legally, is this kind of setup allowed? Is there any problem that the company or co-founders can face?

Legally, is this kind of setup allowed? Is there any problem that the company or co-founders can face?

1. Yes, it's legal.
2. Yes, there are MANY problems you can face.
http://www.gamedev.net/topic/657641-question-about-human-and-financial-source-management/
http://www.gamedev.net/topic/657577-question-re-paying-programmers-for-indie-game/
http://www.gamedev.net/blog/1394-under-development-law-gdnet/
http://www.gamedev.net/blog/1394/entry-2254033-what-happens-when-you-don%E2%80%99t-have-a-written-agreement-part-1-contract-basics/
http://www.gamedev.net/blog/1394/entry-2254080-what-happens-when-you-don%E2%80%99t-have-a-written-agreement-part-2-real-life-application/

Thank you for the response. I have read through all of the links provided, and they seem to focus on internal agreement issues between the members. We all have agreed on an arrangement that is clear to everyone and everyone is happy with. We (the company) are concerned that because they are working with us in our company office, they would be considered employees, and that we might be obligated to abide by such rules such as paying them a salary. With the research we did, it looks like they have to either be considered employees or independent contractors, but since they are working here in the office, even if we make an agreement that they are independent contractors, it might not hold.

Does anyone have any information regarding this?

Yes. Talk to your business lawyer.

The law regarding employees is nuanced. Do it wrong and the Department of Labor might come knocking. Penalties for violations can be severe.

You may discover to your horror that something was amiss, that you must back pay to every one of them at a fair market value for all the time they gave you, plus pay back taxes on their missed wages, back unemployment insurance, and other back-dated fees. Suddenly your no-cost venture would jump to a six-digit or seven-digit government ordered cost. Figure three 'helpers' turned into back-dated employees with a year or two years or three years of salaries and taxes and other costs due for each of them, and suddenly your little mistake costs a half million dollars, maybe a million dollars, maybe even more. That's before punitive damages and a tax evasion lawsuit (which can mean jail time) are threatened.

It is not an area for guesswork. The cost of business lawyer time is very cheap. If you aren't comfortable with the cost, you might think of it as insurance against a potentially expensive error. We pay insurance hoping it is never an issue but knowing the risks are real. Failure to clear this type of action with your lawyer makes those risks all the more dangerous. You might be far better paying either a minimum wage or some other "valuable consideration" of a few dollars (determined by your lawyer) paid at each milestone. Get your lawyer's input. It is inexpensive by comparison.