Have been reading lots on how difficult tech startups can be due to patent trolls. Some articles have gone so far to recommend not filing for a patent until the startup has become successful.
An LLC is an excellent legal to isolate the liabilities generated by a business. However, it does not offer full protection from lawsuits. A plaintiff may attempt to hold you personally responsible by theories as negligence or gross negligence
Depending on your total personal net worth (bank and brokerage accounts, your primary residence and other investments), the scope of your business and the estimated revenues, you may want to consider combining the LLC with a legal tool that is specifically set up for asset protection purposes: a Family Limited Partnership that is filed in a state with strong charging order rules such as AZ or NV. This setup is tax neutral.
I recommend you to schedule a consultation with an attorney that has proven expertise in asset protection. An attorney with specific know how on patents should also make part of your team. . Additionally, I always recommend my clients and prospects to get an umbrella policy that offers as much protection as possible.
Good luck with your new business venture
Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4 Billion in client assets. Answers given by him in this forum do not establish an attorney-client relation. He advises to seek a specialized attorney in the area of your interest for legal representation.
An LLC will provide protection if it is structured and operated properly. Make use of the services of a qualified attorney to form the LLC, prepare the operating agreement and otherwise advise you. A multi-member LLC will provide better protection than a single member LLC for certain creditors' claims.
Personal asset protection involves careful planning and several steps. However, to protect your personal assets from any claims made against your business, you do want to form a legal entity for the business which provides "limited liability." Generally, the preferred structure is an LLC. Note that the Florida LLC Act has undergone a significant revamping and the current LLC Act will be entirely phased out by 2015.
As for intellectual property, such as the patent referenced in your question, your patent attorney will likely recommend that the application be made in the name of your business entity or even a separate holding company with limited liability protection to the company's equity holders. If your business entity holds the patent, and a claim for infringement is made against the business entity, the business entity will not be protected from liability for any judgment; however, the owners (i.e., the members of an LLC, shareholders of a corporation) will generally (yes, there are always exceptions) be immune from liability for the judgment against the business.
Not surprisingly, it is highly recommended you consult with a registered patent attorney for your patent who should be able to advise you on the issues presented by your question. He or she may also be able to handle your entity formation and business structure or refer you to a transactional attorney who can assist you.
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There is little reason or excuse NOT to set up a liability shield such as an LLC if you endeavor into business these days. Of course, the extent of protection you get is not absolute. Some causes of action such as IP infringement are personal tort actions.
As a “general rule… an officer of a corporation is liable for torts in which he personally participated, whether or not he was acting within the scope of his authority, and that such direct personal involvement by the officer is causally related to the alleged injury.” Mottolo, supra, 629 F.Supp. at 60 (citing Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (1st Cir.1980)). Under such circumstances, there is no need to pierce the corporate veil.
Further, under US law you only have a 12 month grace period by which you can be in public with your invention before you would be said to exhaust your patent rights. So I would not do anything without first consulting counsel so you are clear.
I would reach out to several business / IP lawyers of your choosing for a free phone consultation and discuss your objectives over in more detail and in private before you commit to anything here. I will also link you to a brief overview of business entities that you may find helpful.
The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the areas of business law and intellectual property to entrepreneurs, small-to-medium size businesses, independent inventors and artists across the nation and abroad. 866-871-8655 [email protected] DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.
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