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Which state to start business? Which form of business llc, s corp, corp or sole proprietor? Do I need a trademark? App & Website

Seattle, WA |

I am planning to start a website & app that will contain peoples financial data. Which state would be best to protect my business? I've read that Delaware may be best because of the chancery court. Also if the business will start with one owner and employee me and hopefully grow to be acquired by another business or go through IPO. What entity is best for growth? I want to avoid as much taxes and fees as possible seeing that I am a startup of one. I will be selling no physical products just a subscription service and advertising. Any help or direction would be great. Last part is do you think I should apply for a trademark right away?

Attorney Answers 8

  1. Best answer

    The legal evaluation of your situation is a lot more labor-intensive and sophisticated than can or should be tried in an open public form like this site. Trademark (I think you mean service mark, or logo) is only a tiny part of Idea protection (intellectual property protection), which is legal expertise you'll need.

    A lot of legacy corporations are or were incorporated in Delaware because Delaware has had a reputation for being hospitable to management and stock-issuing needs. Over time, the home state of incorporation has become less important, so I would not recommend incorporating in Delaware unless you have a particular need to. No matter where it is incorporated, the entity has to register in each state where it transacts business.

    If you are on this site because you're not sure how to find lawyers and CPAs who know the subject areas, I can give you some referrals and I'm sure other lawyers answering your posted question can, too. There are many good quality law firms and CPAs in this area who would be interested in helping you.

    On the other hand, if you are on this site because you hope to work out these questions on your own and avoid legal fees, I think you'll be disappointed.

    This answer is intended as a courtesy only, and does not constitute an attorney-client relationship between the attorney and the questioner.

  2. The only one of your questions that can be answered on this forum is the last. Yes, if you use a trademark you should apply for a trademark registration and likely a Federal one. Probably what you want is a servicemark registration not a trademark registration, although they are essentially the same process. The best entity to choose depends on a complex set of laws and on type of business and type of product or service.

    Avvo is for finding a lawyer, and you obviously need one. Avvo is not for getting a recipe on avoiding a lawyer because that would be a recipe for disaster. Get an attorney, pay an attorney and you will get answered that hopefully fit your facts.

    I am not your lawyer and you are not my client. Free advice here is without recourse and any reliance thereupon is at your sole risk. This is done without compensation as a free public service. I am licensed in IL, MO, TX and I am a Reg. Pat. Atty. so advice in any other jurisdiction is strictly general advice and should be confirmed with an attorney licensed in that jurisdiction.

  3. I agree with my colleagues that you need to consult with an attorney. Where to incorporate and what type of legal entity to use depend a lot on the circumstances and your particular goals. Generally speaking, if you are thinking about raising capital or a possible IPO, corporation could be a preferable option but this is just a very generic statement. An experienced attorney will assist you in making the right choice, which can have a long-lasting benefit.

    The above answer is intended only as general information and does not constitute legal advice.

  4. As others have stated, the questions you raise are important and complex. The answers depend on your long term goals. You want to setup the business with the long term goals in mind. Key considerations include who the owners will be, who will manage the business, taxation of the business and owners, liability protection and administrative costs. The short term costs of engaging a CPA and attorney to set the company up correctly will be greatly outweighed by the ease of growing the company because it's setup properly for its future. Delaware has historically been a favorite due to its favorable corporate laws but many other states have adopted similar structures. Delaware is also a common choice when venture capital and IPO is in the mix. Delaware, however, adds additional costs because you have to have a local presence in Delaware as well as setup separately in the other state(s) where you're doing business. Again, there are a lot of issues to consider in this decision.

    As far as the trademark goes, you should protect any marks that connect your customers to your products/services. Whether you do this immediately or later in the process depends on how certain you are that the marks won't change as you launch and grow the company. We've seen a number of companies change their name/brand/logo once they've launched due to customer response.

    You will also need good contracts with your customers - both the subscribers and advertisers.

    As others have said, the issues you raise are complex and require the input of an attorney and a CPA.

    No attorney-client relationship is created by this response. My response is general in nature and does not constitute legal advice. You should confer with an attorney familiar with your situation prior to taking or refraining from any action.

  5. In addition to the advice to sit down with an attorney, if you haven't done so already, I would also highly suggest you spend some time writing out a business plan before you meet with an attorney. It doesn't have to be elaborate. You can save yourself a bit of time and money by doing some of the leg work that involved your plans for business. It will give anyone helping you out an idea of your goals and what possible avenues you should consider.

    The response is based on the information provided. Absent an express agreement, this communication does not constitute legal advice or create an attorney-client relationship.

  6. My colleagues comments are all on point. However, I think you need to consider starting as an LLC so that if you bring in Angel investors they are able to take tax losses on the initial start- up phase. If it was a c-Corp then you could not pass these losses through to you initial investors. As you progress to next phase and become profit bake then you would consider converting from LLC to C-Corp in contemplation of your IPO. However, take incremental steps and start as an LLC which also allows you to have a very flexible capital structure and flexible income and loss allocations. Forget an S-Corp altogether given your plans for the future. FYI....DE is commonly used because it has great protections for officers and directors built into DE statutes and case law so that is why it is preferred vehicle if you are going to have many shareholders and a concerned about lawsuits form the shareholders if you are an officer or director.

    My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

  7. Others have provided some valuable insight. I'll only go into a bit further detail regarding a couple aspects. The earlier you file a federal trademark or service mark application, the earlier you will have presumptive nationwide rights in your brand. Thus, there is certainly a benefit to filing early.

    Also, if you are primarily offering an app, website, or related SaaS (software as a service) type offerings, you will want to make sure you have an adequate license related contracts (e.g., a EULA) to protect your rights in your product/service.

    I'd be happy to offer a brief initial consultation at no charge, if you are interested.

    Good luck!

    I am an attorney, but I am not YOUR attorney. By providing free, generalized information, I am not entering into an attorney/client relationship with you, nor am I providing legal advice applicable to your particular needs.

  8. There are many federal (and possible Washington State) regulations and compliance issues when you collect, maintain, and disclose personal information about consumers (especially financial information). If you are operating a subscription service on the Internet that provides such information to subscribers, you must be aware of and adhere to all relevant privacy and data security regulations. Getting good legal advice on which regulations apply to your proposed app and what you need to do to be compliant is critical to your new venture and should be your first step. You need to fine tune your business plan in light of these legal obligations before you take any other steps to move ahead with your planned venture.

    After you have addressed all the legal compliance issues, you should turn to the issue of the best jurisdiction for forming your business entity and consult an accountant (or attorney with accounting background) for advice on the tax ramifications associated with both your short and long term goals for the business. This will assist your lawyer in determining the best type of business entity for you to use (i.e. whether limited liability company, corporation, etc.).

    With respect to trademark, you should assure yourself that no one else is using a logo, slogan, etc., similar to the one you plan to use in connection with goods or services that are similar to yours. If you find a confusingly similar mark, whether or not it is federally registered, you should create a different, unique one that will help you establish a distinctive brand.

    This answer is solely informational and is responding only to the limited content of your question. It is not legal advice. It is not intended to, and does not, establish an attorney/client relationship. Proper legal advice requires a more complete development and understanding of your factual circumstances than can be gleaned from your question. You should consult an attorney for legal advice and counsel.

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