What to Ask: Incorporation and Intellectual Property | Tiffany Donaldson, Esq.
Starting a new business? UpCounsel attorney Tiffany Donaldson explains what every startup should be asking their legal team about incorporation and intellectual property3 min read
Will my business/product name infringe on existing business trademarks?
Many small business owners do not realize that by going into business under a business name or using a product name that is already federally registered could lead to a lawsuit for trademark infringement.
Is the business/product name I like available, brand-able, and protectable?
A quarterly, if not an annual, legal budget so small business owners know what amount to set aside.
What is your track record with this type of case in terms of approvals?
Trademark law is the foundation of brand selection. Before you choose a brand name or business name, make sure it can be protected by trademark law through a trademark search and evaluation by a trademark attorney.
Should I be an LLC or an S-Corp?
Both business structures should protect you, as long as you treat the business as a separate entity. The choice is based on many factors, including whether you will be looking for investors, have owners from outside the U.S., how many owners there will be, and tax considerations. Consult an attorney before making this decision.
Should I file in Delaware?
The entities that file in Delaware are usually C-Corps looking to take advantage of Delaware laws that tend to be more business-friendly and/or more sophisticated. If you are a small entity, and your main business is not conducted in Delaware, then this is likely not where you want to file. Where you should domesticate your entity and whether you need to file foreign filings in other states depends on where you do business. Consult an attorney.
Should I hire an employee or independent contractor?
If you are going to be directing and controlling how the work is done, you likely need to classify your hire as an employee. There are many legal requirements related to hiring an employee, including the need for Worker's Compensation Insurance, even if the employee is just part time. Consult an attorney for more information.
Independent contractors must be independent and out of the client's control or the state, and/or IRS can determine that the independent contractor is misclassified, which can result in fines and back taxes.
If you hire an independent contractor, consult an attorney for an independent contractor agreement tailored to your business needs.
What is the best way a small business owner can protect personal wealth and assets from business risks?
Filing an entity, such as an LLC, Corporation, or Nonprofit Entity, and treating that entity separately is the best way to protect your personal wealth and assets from business risks. Trusts are another vehicle for asset protection. Consult an attorney on the steps to take to further protect your personal assets from business risk.
What specifically are small business owners most confused about when you first meet with them?
Which entity to file
How can quality legal services help a small business grow?
Small businesses need to be protected through strong contracts. A business can grow when it can operate knowing that it has done its best to protect itself from lawsuits in interacting with clients, employees, and contractors.
How can quality legal services help small businesses save money?
A stitch in time saves nine, or possibly a million when it comes to legal issues. Being proactive can prevent major lawsuits from ever happening. The cost of seeking professional help at the beginning shall far outweigh the cost of government fines, employee lawsuits, customer lawsuits, products claims, class actions, etc., incurred from failing to follow the law.
How can small businesses maximize the value of their legal team’s services?
Disclosing all relevant information at one time, giving an honest assessment of the company, returning calls and emails timely, and voicing all concerns upfront are ways to maximize the value of the team's services.
Should business partners have the same amount of equity in a company? Why or why not?
The allocation of equity is determined based on the goals of the business partners. If all are putting in the same contributions, the same effort, and the same time, then out of fairness, they may all want the same amount of equity. There is no right way to allocate equity.
What are the top three things a small business owner should be aware of when purchasing an existing business?
Accurately determine the value, review the business's tax returns to determine profitability and if there is outstanding tax liability, and find out if there are any human resources issues or outstanding lawsuits pending against the company.
Do you have any other essential legal guidance for startups that you haven't already included in this survey?
Startups need to make sure they have contracts tailored to their needs. Doing business on a handshake often leads to trouble. Having a clear understanding between all parties is critical to long-term success.