I am in the beginning phases of starting a product line and in attempting to trademark my business name in California the forms asked if the potential company was a corporation, a LLC, or a limited partnership. I have no knowledge as to what the difference between the three possible options are and I am unsure as to what would be the most appropriate for my potential business.
These are different types of business entities. It is likely your business is just a sole proprietorship at this point and not registered as any of these 3 entities.
The benefit of these 3 entities is that they provide personal liability protection.
A full consultation would be necessary to properly advise you.
The main difference between an LLC and a partnership is that LLC owners are not personally liable for the company's debts and liabilities. This means that creditors of the LLC usually cannot go after the owners' personal assets to pay off LLC debts. Partners, on the other hand, do not receive this limited liability protection unless they are designated "limited" partners in their partnership agreement.
Also, owners of limited liability companies must file formal articles of organization with their state's LLC filing office, pay a filing fee, and comply with certain other state filing requirements before they open for business. By contrast, people who form a partnership don't need to file any formal paperwork or pay any special fees.
LLCs and partnerships are almost identical when it comes to taxation, however. In both types of businesses, the owners report business income or losses on their personal tax returns; the business itself does not pay tax on this money. In fact, LLC and partnerships file the same informational tax return with the IRS (Form 1065) and distribute the same schedules to the business's owners (Schedule K-1, which lists each owner's share of income).
The owners of a corporation are the shareholders. The owners of an LLC are its members. Beyond the name differences, there are other substantial differences between the two. An LLC has complete freedom to distribute its ownership stake to its members without any regard to a member's capital contribution to an LLC. This becomes important when profits are distributed to each member. Although a certain member may not have invested as much as another member, an LLC's operating agreement may specify that all members receive an equal share of the profits. See also: http://www.avvo.com/legal-guides/ugc/business-entity-comparisons
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All have different taxation and liability limitations. Best to meet with an attorney to discuss which fits your business better. Good luck.
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This is an extensive conversation about which entity to use and the differences. There are many factors to take into consideration. Attorney Bernard has given you a great amount of good detail from a legal and tax point of view of the differences. As for your California trademark application, you should know that this is not the same as a "real" trademark registered in the United States Patent and Trademark Office, which is what gives you exclusive rights generally. The CA trademark registration is generally not useful, certainly not interstate. If you intend to sell over the internet, you will want a federal trademark, which is what actually gives you rights to prevent others from taking your name. A Ca trademark registration does not. In addition someone may already have the name registered in the USPTO unbeknownst to you.
a trademark and business attorney will include a search in his or her fee so you can be aware of what you might be getting into. A trademark application with the USPTO is not terribly expensive and will give you the protection you are looking for.
The foregoing is for informational purposes only and may not be relied on as attorney-client advice.
This is one of the most common (and important) questions people ask when forming a new business. My recommendation is that you set up a meeting with a local attorney who works in this area and review the pluses and minuses of the three forms as they apply to your business plan, line of work, ownership structure, etc. If you are a "do-it-yourselfer" there is an excellent Nolo Press book on Forming a Corporation in California, that has a five page chart comparing the different corporate entity structures (Subchapter S, Subchapter C and LLC, but not limited partnerships.) You might also check out an article on LLCs versus S Corporations in the October, 2015 Contra Costa Lawyer magazine that is available free online.
If you have an accountant, it would be a good idea to get that person's input too.
Best wishes on your new venture!
You've received great insights on the business entity aspects of your primary question; however, I will focus on the trademark issues. Note, your trademark(s) may be owned by you personally, some business entity type, or any combination thereof.
You need to understand what a trademark is and how trademark rights arise, which should lead to an understanding that your adoption of a given name as your trademark could expose you to trademark infringement and/or trademark dilution liability from those who may have preexisting confusingly similar trademarks to your proposed name.
A trademark is a source identifier for whatever goods and/or services you provide. For consumers, you may think of the trademark as your brand, i.e., a marketing shortcut, e.g., if I say "Coke" you immediately have a strong idea of what I may be referring to.
Now in the U.S. trademark rights arise by using the trademark in commerce, i.e., use in relation to you selling your goods and/or services. Note, I have said nothing about registration. Fundamental trademark rights arise by use as noted and not by registration. Such non-federally registered trademarks are known as common law trademarks. Although, federal registration of a trademark does confer some significant advantages, such as the presumption of national validity. If your business involves interstate or foreign commerce, federal trademark registration is what you want.
In any event, now that you understand how U.S. trademark rights arise, how does one become liable for infringing a trademark? It is unlawful to brand and offer to sell a product or a service under the same or similar trademark as one already being used if it’s likely that offer would cause ordinarily prudent consumers to falsely believe the product or the service is sold by the original user of the mark. In short, trademark infringement requires a likelihood of confusion as between the two marks being compared. So if you adopt a name as your trademark that may be confusingly similar with a preexisting trademark you may find yourself liable for trademark infringement, regardless of your intent, and regardless of registration status. This is why before you adopt your proposed name as a trademark, you have your trademark attorney clear such use. And because as noted, trademarks need not be registered, such a clearance search needs to include common law sources and not just rely upon searching the USPTO TESS database. Also, you are not equipped to evaluate the likelihood of confusion analysis, that analysis is not a brightline test, not black and white, but applies your specific facts to a number of factors, the Du Pont factors.
Also, aside from the liability exposure issue that might arise from your adoption of a given name as your trademark, you want your trademark attorney to evaluate your proposed name for any other problems, such as inherent problems in the name which might be a play, such as whether your proposed name is generic, merely descriptive, primarily a surname, and several other potential problems. Once a given name is properly cleared and evaluated for these other potential problems, then registration federally or at the state level is often smooth and relatively fast. But without taking those steps, you are just guessing and if you guessed wrong you might not get obtain registration, or worse you might find yourself liable for damages.
There are many factors to consider. You should get a consultation with a business attorney.
There have been a lot of great posts here, with a lot of helpful information. I just wanted to help clarify a couple introductory points.
Corporations and LLCs are legal entities that can provide the owners with limited liability. They also can hold property, including bank accounts, and trademarks.
If you are starting a business and plan to sell a product line, the first thing you should address is forming the business entity. This will give you a base from which to build your business, and protect your personal assets. You should speak with a business attorney to go over all of the aspects of each entity, and select the one that is right for your goals.
The name of a business alone is simply a trade name. But that name cannot be registered as a trademark unless it is used in connection with the sale of goods or services (ie. you sell a product with your logo on it).
After you form your business entity, then you should look into trademarks. Since you have already formed your business, you can register the business entity as being the owner of the trademark rather than you personally. Also, keep in mind that the name of your business does not have to be the same name as your product.
There are many ways to form and structure a business. And it is always best to have a good plan from the start. As stated in numerous other responses, you should consult with a business attorney who can help guide you through the process.
The response provided is for general informational purposes only, and should not be relied upon as legal advice. Being general in nature, the information provided may not apply to any specific factual or legal set of circumstances, or in the jurisdiction applicable to you. This response does not create any attorney-client relationship, and no such relationship should be implied. Please contact a qualified lawyer in your jurisdiction for legal advice or representation. Jordan Kohler is licensed to practice law in the state of California.
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