Founding a game development studio is an exciting challenge that requires creativity, technical know-how and entrepreneurial skills. The federal government’s new games funding scheme offers an excellent opportunity to secure funding for projects and realize the dream of having your own studio. The games industry is regarded as a key driver of innovation – not only in the entertainment sector, but also in other economic sectors such as education, healthcare and industry. It is an important part of the cultural and creative industries and plays a key role in Germany’s digital transformation. However, in order to be successful in the long term, founders must take numerous legal, tax and organizational aspects into account.
From choosing the right legal form to financing and complying with legal requirements: Each step requires careful planning and well-founded decisions. In this blog post, you will find out what is important, which funding options are available and which legal pitfalls you should avoid.
Choosing the right legal form
The choice of legal form is one of the first and most important decisions when founding a game development studio. It not only influences liability, but also tax obligations and the company’s public image. Sole proprietorships are quick to set up and ideal for solo developers, but here you are liable with all of your private assets. A UG (haftungsbeschränkt), on the other hand, offers limited liability and only requires a small amount of start-up capital (from 1 euro), while the GmbH is suitable for larger projects as it attracts investors and has a professional image. The GbR is a simple solution for small teams, but carries the risk of personal liability for all shareholders.
Legal aspects:
- Consideration of funding requirements and legal forms:
Some funding programs, such as the federal government’s games funding, require the company to have a certain legal form, e.g. a GmbH or UG. Sole proprietorships or GbRs often cannot benefit from such programs. The legal form should therefore also be chosen strategically with regard to funding opportunities. - Regulations on the exploitation of results in cooperations:
If several founders or partners establish a studio, it is important to specify in the partnership agreement how income from the exploitation of games is to be distributed. This applies in particular to license fees, profits from sales and future income from expansions or DLCs. - Long-term growth strategy:
The chosen legal form should not only be suitable for the start-up phase, but should also be able to keep pace with the studio’s growth in the long term. For example, a UG can be converted into a GmbH if the company expands or attracts investors. Such restructuring should be planned at an early stage to avoid unnecessary costs and legal complications. - Compliance with disclosure and accounting obligations:
Corporations such as GmbHs or UGs are subject to stricter disclosure and accounting requirements than sole proprietorships or GbRs. These include the publication of annual financial statements and compliance with commercial law regulations. - Limitation of liability for external projects:
When working with external service providers or publishers, it is important that liability is clearly regulated. A corporation offers the advantage of liability being limited to the company’s assets, which minimizes the founders’ personal risk. - Flexibility when investors join:
A GmbH or UG makes it easier to transfer shares to investors or take on new shareholders. This can be crucial if the studio grows and needs additional financing. - Consideration of international business models:
If the studio plans to distribute games internationally or work with foreign partners, the legal form should also take into account tax and legal requirements in other countries – for example through double taxation agreements or international liability regulations. - Accessibility requirements and protection of minors:
Studios must ensure that their games comply with legal requirements – for example through age ratings (USK) or accessible operating concepts. Such requirements can have an impact on the choice of legal form, as certain funding programs define these aspects as a prerequisite. - Obligations to comply with data protection standards:
For games with online functions in particular, studios must ensure that they can comply with data protection requirements such as the GDPR. A clear regulation of responsibilities within the company is essential here.
Practical tip:
I support you in choosing the right legal form and in drawing up legally compliant articles of association. In this way, you create a solid foundation for your studio.
Using financing and funding opportunities
The federal government’s new games funding scheme offers games developers a unique opportunity to secure funding for their projects. Funding is available for both prototypes and the production of market-ready games. Grants of up to 50% of the eligible costs can be applied for – depending on the size of the project and the company. Eligible costs include personnel costs, software licenses, external services and marketing measures, etc. In addition to games funding, there are other funding options such as state funding programs or EU-wide initiatives such as the Creative Europe MEDIA program. Private investors or crowdfunding platforms such as Kickstarter can also be a useful addition.
Legal aspects:
- Funding must be used for the intended purpose; violations may result in the funds being reclaimed.
The funds may only be used for the purposes described and approved in the application. Any deviation – such as use for unauthorized expenditure – may result in the funding having to be repaid in full. This also applies to minor deviations, which is why careful documentation of the use of funds is essential. - Funding applications require detailed project descriptions, financial plans and evidence of the proper use of funds.
The application should contain all relevant information to demonstrate the project’s eligibility for funding. This includes a clear description of the project objectives, a realistic timetable and a financing plan that transparently breaks down own funds and planned funding. - In cooperation projects with other studios or international partners, clear contractual arrangements should be made.
In cooperation projects, the rights and obligations of the individual partners must be clearly defined. This applies in particular to the distribution of funding, the exploitation of results and the responsibilities for reporting to the funding bodies. - Compliance with youth protection and consumer protection regulations is mandatory.
Funded projects must comply with the legal requirements for the protection of minors, including an age rating by the USK. In addition, monetization models such as loot boxes or pay-to-win mechanisms must be disclosed and checked for compatibility with consumer protection regulations. - Accessibility is a central component of many funding programs.
Applicants must demonstrate how they will implement accessibility in their project – for example through optional subtitles, adaptable control concepts or other accessible features. These requirements apply in particular to game productions, while prototypes may be exempt from this. - Projects may only be started after the application has been approved.
As a rule, the premature start of measures leads to exclusion from funding. Exceptions are only possible if prior approval has been obtained for the early commencement of measures – however, this is at the discretion of the funding provider. - Cumulation with other public funding is often restricted or prohibited.
If several funding programs are to be used, this must be disclosed in the application. Overlaps can lead to certain funds not being approved or having to be repaid. - The publicity obligations for funded projects must be complied with.
It is mandatory to refer to the funding in games and marketing materials – for example by means of logos or mentions in the credits and trailers of the game. - Success monitoring and evaluation are part of the funding requirements.
Applicants must be willing to participate in evaluation measures and provide all necessary data. This includes reports on the progress of the project and evidence of the achievement of the objectives defined in the application. - Sustainability criteria are becoming increasingly important in funding.
Projects should demonstrate how they promote environmental sustainability – for example through resource-conserving production methods or energy-efficient technologies. - A credit check of the applicant is part of the application process.
Companies must be able to prove their financial stability to ensure that they can bear their own share of the project and that there is no risk of insolvency. - The use of external services is permitted to a limited extent.
External services may only account for up to 50% of the company’s own personnel costs and must be justified on a project-specific basis.
Practical tip:
Prepare your funding application carefully and document all project-related costs in detail. You can also use the option of combining different funding sources in order to finance your project optimally.
Legal protection through contracts
Collaboration with freelancers, publishers or other partners is common in the games industry – but without clear contracts, conflicts can quickly arise. Development contracts, for example, regulate the cooperation with publishers for the financing or marketing of a game. Freelancer contracts clarify rights to created content such as graphics or music as well as remuneration modalities. License agreements enable the use of external technologies or content (e.g. game engines), while non-disclosure agreements (NDAs) protect your ideas from unauthorized disclosure.
Legal aspects:
- Development contracts should contain clear milestones and payment terms.
These contracts regulate the collaboration between developer studios and partners such as publishers or external service providers. They should precisely define which results must be delivered at what time and which payments are linked to them. A clear structure avoids misunderstandings and creates transparency regarding the responsibilities of the parties. Mechanisms for dealing with delays or non-fulfillment should also be defined. - With license agreements, care must be taken to ensure that all necessary rights for the publication of the game are covered.
License agreements often concern the use of game engines, music, graphics or other protected content. Developers must ensure that they acquire all the necessary rights to distribute the game worldwide and on all platforms. It should also be regulated whether the license is exclusive or non-exclusive and whether it is limited in terms of time or geography. Failure to clarify these points can lead to legal conflicts. - Non-disclosure agreements must be specifically formulated in order to be effective in the event of a dispute.
NDAs (non-disclosure agreements) protect sensitive information such as game concepts, technical innovations or business strategies from unauthorized disclosure. They should precisely define what information is considered confidential and for how long confidentiality applies. Specific wording increases the enforceability of the agreement in the event of breaches. - Contracts with freelancers should contain detailed provisions on the transfer of usage rights.
Without a clear agreement, the rights to the content created often remain with the freelancer. The contract should therefore clearly state that all rights of use are transferred to the studio – ideally for an unlimited period of time, geography and content. This is particularly important for graphics, music or programming code that is used for the publication of the game. - Cooperation agreements for joint projects must define responsibilities and the utilization of results.
When collaborating with other studios or companies, contracts should clearly regulate who is responsible for which tasks and how the income from the project is distributed. This is particularly important for funded projects, as funding is often linked to specific responsibilities. - Early access programs and beta testing require disclaimers in the terms of use.
When a game is released at an early stage of development, errors or bugs may occur that could lead to complaints or legal claims. Contracts with testers or early access users should therefore contain disclaimers and make it clear that the product is not yet final. - Regulations on monetization must be contractually secured.
For games with in-game purchases such as loot boxes or subscriptions, contracts should regulate how these revenues are divided between the parties involved (e.g. developers and platform operators). Legal requirements such as consumer protection laws must also be complied with. - Contracts with platform providers should regulate revenue shares and publishing rights.
If a game is distributed via platforms such as Steam or the App Store, the contract must specify the fees that apply and what rights the platform provider receives (e.g. exclusive publishing rights). Provisions on the removal of the game from the platform should also be included. - Contractual penalties for breaches of contract can be useful.
Contractual penalties can be agreed to ensure that all parties comply with their obligations – for example, in the event of unauthorized disclosure of confidential information or failure to meet milestones. - Contracts for compliance with youth protection requirements are essential.
Game developers must ensure that their content complies with the applicable youth protection laws – for example through age ratings (USK/PEGI). Contracts should regulate who is responsible for these requirements and what consequences violations can have. - Accessibility regulations can create competitive advantages.
Contracts with partners or service providers can contain clauses that ensure that accessible features such as subtitles or adaptable control concepts are integrated into the game – especially in the case of funded projects. - Renegotiations for project extensions should be covered in the contract.
If a project is subsequently extended – for example with DLCs or additional content – the contract should regulate how these changes are implemented and remunerated.
Practical tip:
I support you in drawing up individual contracts that protect your rights and create a clear framework for all parties involved.
Monetization strategy: publisher or self-publishing?
A crucial aspect when founding a game development studio is the question of how the game is to earn money. There are two main options here: Working with a publisher or self-publishing. Both approaches have their advantages and disadvantages as well as different legal requirements.
Publisher model
A publisher usually takes on tasks such as financing, marketing and distribution of the game. In return, it often receives a significant share of the turnover or exclusive exploitation rights.
- Advantages: Access to resources and expertise in marketing and distribution.
Publishers often have extensive networks and established structures to market and distribute games worldwide. They can also offer valuable insights into market trends and target group analyses, which are crucial to the success of a game. Through their experience in the industry, publishers can also assist with placement on platforms such as Steam, PlayStation Store or app stores. This allows developers to focus more on creative development while the publisher takes care of the business aspects. - Disadvantages: Less control over the project; revenue must be shared.
Working with a publisher often means that the publisher has a say in important decisions such as gameplay changes, release dates or marketing strategies. In addition, publishers often receive a significant share of the game’s revenue, which reduces the profit margins for the studio. In some cases, exclusive rights to certain platforms or regions can be ceded, limiting the developer’s flexibility. - Legal aspects: The contract should clearly regulate which rights to the game are transferred and which obligations the publisher assumes.
It is essential that the contract specifies in detail whether the publisher receives exclusive or non-exclusive rights and how long these apply. Clear provisions should also be made regarding financing (e.g. advances), the distribution of revenue and the repayment of advances. The contract should also include mechanisms to resolve disputes and ensure that the developer retains significant creative freedom. - Reclaim rights in the event of non-fulfilment:
Many publishers secure the right to reclaim funds in the contract if certain milestones are not reached or the project is canceled. Developers should ensure that such clauses are fair and that realistic milestones are defined. - Data protection and user data regulations:
If a publisher is given access to user data (e.g. for online games), clear regulations must be made on how this data is processed and protected – especially with regard to the GDPR. Developers should ensure that they are not liable for data protection breaches by the publisher. - Termination provisions:
The contract should contain clear conditions under which both parties can terminate the collaboration – for example, if the publisher fails to fulfill its obligations or experiences financial difficulties. This protects the studio from long-term obligations in problematic partnerships. - Regulations on the exploitation of earnings:
It must be clearly defined how revenue from the game will be distributed – especially in the case of additional content such as DLCs or expansions. The rights to future projects or sequels should also be regulated in the contract. - Obligation to comply with youth protection and consumer protection regulations:
The publisher is often responsible for compliance with legal requirements in the target markets – such as age ratings (USK/PEGI) or transparency in monetization models such as loot boxes. Developers should ensure that these requirements are contractually regulated. - Marketing obligations of the publisher:
The contract should specify which marketing measures the publisher is responsible for and which budgets are earmarked for this. Developers should ensure that the publisher is obliged to actively promote the game and not just passively include it in its portfolio. - Rights to unpublished projects:
If the game is not published for any reason (e.g. due to financial problems of the publisher), it should be contractually regulated that the rights revert completely to the developer.
Self-publishing
With self-publishing, developers retain full control over their game – from pricing to marketing.
- Advantages: Higher profit margins; complete control over the project.
With self-publishing, developers retain full control over all aspects of their game – from pricing to marketing. As no shares have to be transferred to publishers, the revenue remains entirely with the studio, which can lead to higher profit margins in the long term. In addition, developers have the freedom to make creative decisions without external influence, which is particularly attractive for indie studios. This independence also makes it possible to react more flexibly to market trends or customer feedback. - Disadvantages: Higher costs for marketing and sales; financial risk lies with the developer.
Without the support of a publisher, developers bear the entire responsibility for marketing, sales and customer service themselves. This requires not only additional financial resources, but also specific expertise in areas such as PR, community management and platform strategy. The financial risk is also higher, as all costs – from development to publication – must be borne by the studio itself. Mistakes in marketing can lead to a game not achieving commercial success despite its high quality. - Legal aspects: Self-publishing requires legally compliant general terms and conditions for platforms as well as data protection concepts in accordance with the GDPR.
Developers who publish their games themselves must ensure that their general terms and conditions (GTC) comply with legal requirements and are suitable for platforms such as Steam, app stores or their own websites. Data protection also plays a central role: if user data is collected (e.g. for online games or newsletter subscriptions), GDPR-compliant data protection guidelines must be created and implemented. - Technical infrastructure and legal protection for online functions:
Self-publishing often requires the creation of a separate technical infrastructure for online services such as multiplayer functions or cloud storage. Clear terms of use must be defined in order to minimize liability risks – especially in the event of server failures or data loss. - Monetization regulations:
Developers should determine at an early stage how they want to generate revenue – for example through one-off sales, subscriptions or in-game purchases. The legal framework for monetization models such as loot boxes or pay-to-win mechanisms must be carefully examined in order to avoid violating consumer protection laws. - Contracts with distribution platforms:
In the case of self-publishing, it is necessary to conclude contracts with platforms such as Steam, Epic Games Store or console providers. These contracts regulate, among other things, the platform’s revenue share and technical requirements for the game. Developers should ensure that they do not overly restrict their rights to the game. - Observe international legislation:
Self-publishing on global markets brings additional challenges, as different countries may have specific requirements for the protection of minors, tax obligations or consumer protection. Developers must ensure that their game is legally compliant in all target markets. - Customer support and return policies:
As a self-publisher, you are directly responsible for customer support – for example in the event of technical problems or refunds. The return policy should be clearly defined and comply with legal requirements in order to avoid conflicts with customers. - Marketing strategies and community management:
Without a publisher, the entire responsibility for marketing and community engagement lies with the developer studio. This requires a clear strategy for addressing the target group and regular interaction with the community via social media or forums. - Tax obligations for international sales:
Self-publishing on global platforms often means selling in different countries with different tax regulations (e.g. VAT). Developers must ensure that they pay these correctly and organize their accounting accordingly.
Practical tip:
Regardless of whether you want to work with a publisher or publish yourself, I can help you draw up contracts, general terms and conditions and privacy policies for your platform.
Observe tax obligations
As a game developer, you need to deal with your tax obligations at an early stage – especially if you are applying for funding or generating sales. In addition to VAT, you should also consider trade tax and possible tax obligations in connection with grants received. The choice between small business regulation (§ 19 UStG) or standard taxation is also an important point that you should plan strategically.
Legal aspects:
- Subsidies may be taxable; this should be clarified with a tax advisor at an early stage.
Subsidies are often considered business income and are therefore taxable unless they are expressly exempt from tax. A precise examination of the tax treatment is essential in order to avoid unforeseen tax burdens. This applies in particular to grants awarded as part of the federal government’s games funding program. - Correct bookkeeping is essential in order to provide evidence of the use of funding.
Funding bodies require detailed proof of use to demonstrate that the funds have been used for the intended purpose. Incomplete or incorrect bookkeeping can lead to funding being reclaimed or future applications being rejected. - In the case of international projects, special tax features such as withholding taxes must be taken into account.
If you work with foreign partners or generate income from abroad, withholding taxes may be incurred. These must be taken into account correctly and, if necessary, minimized through double taxation agreements. - The VAT liability for the exploitation of games must be checked.
Depending on the business model (e.g. one-off sales, subscriptions or in-game purchases), different VAT regulations may apply. Developers should ensure that they apply the correct tax rates and that their invoices comply with the legal requirements. - Consider the tax implications of license agreements.
License fees for the use of game engines, music or other protected content can have tax consequences – especially when payments are made abroad. Careful consideration is required here to avoid double taxation. - Optimize investments in software and infrastructure for tax purposes.
Costs for software licenses, server infrastructure or hardware can be written off under certain conditions. Developers should check whether special depreciation allowances or investment deductions can be used. - Funding may not be used for costs incurred in advance.
According to the funding guidelines, only costs incurred after the application has been approved are eligible for funding. Developers should ensure that all project-related expenses are only incurred after the funding has been approved. - Clarify the tax treatment of crowdfunding income.
Income from crowdfunding campaigns is generally considered business income and is taxable. It is important to book this correctly and plan provisions for tax payments. - Use the small business regulation strategically or deliberately forego it.
The small business regulation (Section 19 UStG) can make things easier for smaller studios, as no VAT is shown. However, input tax deduction is not applicable in this case, which can be disadvantageous for large investments. - Check for trade tax liability for cooperative projects or joint projects.
When collaborating with other studios or companies, developers should ensure that income is correctly split and taken into account for trade tax purposes – especially in the case of cooperative projects with independent development shares. - Consideration of tax reporting obligations for cross-border services or sales within the EU (OSS procedure).
For digital products or services to customers in other EU countries, the One-Stop-Shop (OSS) procedure can be used to report and pay VAT centrally. - Documentation of research and development costs for tax benefits through the research allowance.
Companies can claim up to 25% of their R&D costs as a tax research allowance – provided that these costs are correctly documented and meet the legal requirements.
Practical tip:
Use digital accounting tools or consult a tax consultant to efficiently fulfill your tax obligations. This will help you avoid errors when accounting for subsidies or VAT.
Conclusion: Well prepared for self-employment
Founding a game development studio offers exciting opportunities – be it through innovative projects or attractive funding opportunities such as federal games funding. However, without a solid legal basis, problems can quickly arise – be it in terms of financing, cooperation with partners or compliance with legal requirements. The games industry is not only an important part of the cultural and creative industries, but also a driver of innovation in many other sectors. It promotes technical and creative expertise that is increasingly in demand in areas such as education, healthcare and industry. A strong foundation of legal protection, tax planning and strategic organization is therefore essential in order to be successful in this dynamic sector.
With my experience in setting up companies, drafting contracts and advising on funding, I can help you achieve your goals safely and efficiently. Whether it’s choosing the right legal form, drafting legally compliant contracts with publishers or freelancers or optimally preparing funding applications – I’m at your side. Use this opportunity to successfully implement your creative ideas and at the same time exploit the diverse potential of the games industry. Together we can lay the foundations for an economically sustainable and innovative game development studio!
