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LLC (limited liability company)

A limited liability company, or LLC for short, is a formal business structure that gives your business limited liability protection and flexibility on taxes.

Adam Brian Blaier | Dec 6, 2019

A Checklist for Your Startup: What You Need to Complete

Create a Business Plan Although many startups operate without a formal business plan, if you need a business loan or a line of credit, your bank may require a comprehensive business plan. This document lists your startup's objectives and your plan for achieving them. Your plan should include the following: (a) executive summary; (b) business overview; (c) operations plan; (d) market analysis; (e) products and services; (f) sales and marketing; (g) competitive analysis; (h) management team; (i) financial plan; and (j) projections. Creative Branding Choosing a strong business name is the first step in creating a recognizable brand for your startup. Avoid hard-to-spell names or names that limit how or where your business can expand. Check the Secretary of State's records to see if your desired name is similar to a business that already exists in your state or the state you wish to incorporate in. The Law Office of Elliott J. Brown can help you with this search. Secure Your Web Presence Once you choose a business name, register your domain name. Securing the .com version of your domain gives your startup the most credibility. Also, secure your business name on any social media platforms you plan on using, like Facebook, Twitter, Instagram, and Pinterest. Select a Legal Structure Choosing the right legal structure for your startup is very important. You have several legal structures to choose from -- sole proprietorship/DBA, a type of Partnership (General or Limited), Limited Liability Company (LLC), C Corporation, and S Corporation election. Each legal structure has its own pros and cons. Working with your startup lawyer or accountant to choose one is crucial. Get an EIN Obtaining an Employment Identification Number ("EIN") is easy and free at IRS.gov. The SS4 form requires some basic information about your startup, like the State of formation and address. You should designate one of the founders as the "tax" person, who will be listed on the SS4 registration form for communications. Alternatively, you can authorize your startup attorney or accountant to be the point person. Open A Bank Account Once you authorize the startup to open a bank account (via bylaws and/or first meeting of the board) and decide where to bank, call ahead to find out what documents your bank requires to open a business account. Obtain Your Business Licenses Some states and cities require you to register to do business there and/or obtain licenses or permits to conduct business, depending on your industry. Check with your city, county, and state for specific requirements. If you're a technology company without a main office and multiple people in different states, you should consult with your attorney about which states you should register to do business in. Get Business Insurance Business insurance protects your startup's assets from property damage, lawsuits, employee injuries, cybersecurity, errors and omissions, and loss of income. Consult with an insurance agent to find the plan that provides the best protection for your startup. Choose an Accounting system Your startup is responsible for paying taxes on its income. To do that, you need to keep accurate financial records. Choose a trustworthy accountant or accounting system that is easy to use but provides comprehensive financial information. Start Marketing Order business cards, letterhead, and other marketing materials with your startup's logo on them. As a new business owner, you will be networking and attracting new clients, so have plenty of these on hand. Quality marketing materials make your business look professional, and using your logo/mark early can be used as evidence for a trademark down the road.

Daniel Joseph Jones | Nov 24, 2019

Buying a Business in Seven Steps

Retain Professional Advisors In most cases, the parties to a business acquisition will want to have legal and tax advisors. The buyer may also wish to have financial, accounting, HR, environmental, and other advisors, depending on the type and scale of the business involved. Sign a Non-Disclosure Agreement In most cases, the seller will want the buyer to sign an NDA before disclosing detailed information about the business. It is ideal to have legal advisors review the non-disclosure agreement to avoid pitfalls. Due Diligence This allows the potential purchaser to examine the details of the business from a financial and legal perspective, to ensure that their valuation assumptions are correct. Legal due diligence for a corporate investment or acquisition starts with a series of document and information requests to management of the target business. The investor’s legal counsel then reviews the documents provided, and asks follow-up questions for clarification. Written questioning and documentary disclosures are often supplemented by telephone or in-person management interviews. The due diligence process helps confirm the proper valuation of the business, and helps in the drafting of the acquisition agreement. Letter of Intent This document is often required before or during due diligence in order to ensure that the buyer is legitimately interested in purchasing the business. Frequently, in exchange for manifesting their intent to purchase the business at a certain target price, the buyer will get a period of exclusivity during which the seller cannot negotiate with other potential buyers. While letters of intent are usually supposed to be "non-binding," buyers must be careful when signing them to ensure that they really are non-binding. Sign Contracts Depending on how the transaction is structured, the main contract may be called a share purchase agreement, merger agreement, or asset purchase agreement. This contract will typically include details about the closing process, the seller's liability regarding issues with the business, and the buyer's ability to "walk away" between signing and closing. Many business acquisitions require multiple contracts. The package of contracts may include a shareholder agreement (if there will be multiple owners after the sale), a transitional services agreement (if the seller will need to provide some services after the sale), or executive employment agreements (if managers will need to be retained after the sale). Closing Closing may happen upon signing if the transaction is very simple, but in many cases, there is a need to have some time between signing and closing for regulatory procedures and remediation of issues. Post-Closing Formalities Even once you "have the keys" to the business, the process may not be finished. Depending on the terms of the acquisition agreement, the buyer may have the opportunity to adjust the purchase price or claim indemnification for issues found in the business after the closing, so it can be helpful to do further due diligence once the buyer is in control of the business.

Frederic G. Ludwig III | Nov 18, 2019

Does Your Intellectual Property Constitute Copyright, Trademark, or Trade Secret Material?

About Copyright in the United States The US Copyright office has distinct definitions of what constitutes copyright protection, what is covered, and what isn’t: US copyright protects original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works of authorship include literary works; musical works, including any accompanying words; dramatic works, including any accompanying music; pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; architectural works; and non-open source software code. Copyright does not protect ideas, procedures, processes, systems, methods of operation, concepts, principles, or discoveries, regardless of the form in which it is described, explained, illustrated, or embodied. A work in the United States is under copyright protection from the moment it is created. Registration is not required to claim ownership, but the work would need to be registered in the United States to bring a lawsuit for infringement. Businesses would typically want to assert copyright ownership of their websites, marketing and advertising materials, logos, computer programs/non-open source software, articles, and instruction manuals. About Trademarks in the United States While a copyright protects original works of authorship, a trademark protects words, phrases, symbols, or designs. A trademark is typically a symbol, word, phrase, sound, color, or other unique identifier of specific goods or services from a specific source. Examples include brand names like Nike, Samsung, and McDonald’s; product names such as Big Mac or Mastercard; or even distinctive shapes such as the Coca-Cola bottle. Similar to copyright protection in the US, which is applied to a work from the moment it is created, in the United States, businesses and individuals get automatic trademark rights when they use their brands. However, with the explosion of e-commerce and global markets, trademark protection has become increasingly important as a way to assert evidence of ownership. As such, non-US companies, individuals, or entities seeking to do business in the United States need to be aware if the foreign mark they intend to use is potentially in conflict with an existing US trademark or service mark. One place to start their search is the United States Patent and Trademark Office (USPTO), where they can conduct an online search of pending, registered, and dead trademarks using the Trademark Electronic Search System (TESS). While a TESS search that yields no conflicts is not a guarantee your mark will or can be registered, it is a great first indicator. Ultimately, the determination if a mark can be registered and if it is potentially in conflict with an existing US trademark or service mark is determined by USPTO lawyers. One of the main reasons for registration to be refused is because the mark is likely to cause confusion with an already-registered mark. About Trade Secrets in the United States Trade secrets are a form of IP that pertains to any confidential, non-public formula, practice, design, method, compilation, device, or other information that has economic value. According to the USPTO definition of a trade secret, “it must be used in business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it.” Trade secrets do not require registration and they are protected for an unlimited period of time. The recipe for Coca-Cola, the Colonel’s recipe for KFC chicken, manufacturing techniques, and computer algorithms are examples of trade secrets. The United States is obligated to provide “a means for protecting information that is secret, commercially valuable because it is secret, and subject to reasonable steps to keep it secret” as a member of the World Trade Organization and a party to the Agreement on Trade Related Aspects of Intellectual-Property Rights (TRIPS). Trade secret owners can prevent people/businesses from copying, using, or benefiting from its trade secrets or disclosing them to others without permission. One of the keys to maintaining the protection of a trade secret is maintaining secrecy. Trade secret owners must demonstrate a genuine desire to keep the information secret at all times, such as marking certain documents as “confidential.” Failure to proactively keep the trade secret can result in others laying claim to it. Non-US individuals or businesses entering US markets need to be cognizant of the risk of inadvertently disclosing a trade secret by introducing a product/service into the US market that is based upon or includes trade secret material. What About Patents? There is a fourth component to what constitutes Intellectual Property in the United States, and that’s patent protection, which we’ll cover in another article. “IP laws and their navigation are complex and often confusing, “explains Eric Ludwig, ESQ, an experienced, US-based trial lawyer with an extensive background in intellectual property and business litigation. “To protect themselves and their own IP, any foreign/overseas company, individual, or entity thinking about entering the United States market, should retain competent US-based legal counsel—someone who can commit to a process of due diligence on behalf of the client and advise on various legal issues, especially in the area of best practices concerning IP laws, patents, trademarks, etc.”

Daniel Joseph Jones | Nov 14, 2019

Key Legal Considerations When Starting a Business

Choosing a Name and Branding A new business should ensure that its name and branding are unique through searches of state business registration databases and trademark databases, as well as ordinary internet searches. Using a similar name or branding to another business in the same industry can put the business in the position of potentially committing trademark infringement. For businesses seeking production or sales opportunities in other countries, it may be important to register trademarks in those countries. Some countries (particularly China) are known as havens for “trademark squatters,” who proactively register the names and branding of foreign businesses as their own, which creates huge problems if the foreign business ever attempts to sell or produce products there. Choosing an Entity Type The easiest option, from a legal perspective, is to carry out the business personally. If the business has only one owner, this is called a sole proprietorship. If the business has more than one owner, this is called a general partnership. For a more formal structure, a business may be organized as a corporation or limited liability company (LLC). The key considerations here are: (1) Liability. Sole proprietorships and general partnerships have “unlimited liability,” meaning that the owner(s) will be fully personally liable for any claims against the business. In the case of a general partnership, this liability is “joint and several,” meaning that any partner can be sued for the full amount of the business’s obligations. A corporation or LLC provides a “liability shield” that becomes increasingly critical as the business scales up beyond personal services provided by the founder(s). (2) Needs for third-party investment. For ambitious start-ups that want to seek outside investors or eventually go public, it is almost a necessity to be set up as a corporation. Venture capital investors in particular look for certain structural features in the companies that they invest in. (3) Taxes. Sole proprietorships and general partnerships do not pay taxes of their own; their profits and losses “pass through” directly to their owners’ tax returns. Corporations generally pay corporate tax on their earnings as “C corporations,” but in some cases can elect to be treated as “S corporations” and get pass-through status with a few beneficial elements. LLCs have the flexibility to be taxed as pass-through entities, S corporations, or C corporations. Choosing a State of Formation If a legal entity is needed for the business, it is necessary to choose a state to register the entity. In most cases, this can be any state or equivalent jurisdiction in the US. An entity has to be registered in any state where it regularly does business (for example, where it has an office or other facility, or has full-time employees). Therefore, it is easiest to register the entity in a state where the business will be physically based. Sometimes, there are reasons to choose a different state. For corporations that wish to take on third-party investment or eventually conduct an IPO, the most popular option is Delaware. Other states (such as Florida and Nevada) are sometimes recommended for specific purposes. Documenting the Entity A sole proprietorship does not generally require any special legal documentation, but the owner may wish to register a fictitious name (commonly known as a “DBA”) or acquire an Employer Identification Number in order to avoid using their own name or Social Security Number for the business. An LLC or corporation with a single owner can often get by with very simple organizational documents, but it is important to respect the entity’s separate legal status in order to preserve its liability shield. This means carefully keeping separate accounting books and records for the entity, documenting any transactions between the entity and its owner, and ensuring that the owner signs business-related documents in the name of the entity. It is very important for partnerships, LLCs, and corporations with multiple owners to have a detailed written agreement among the owners in order to prevent future disputes over the business.

Anastasi Pardalis | Nov 8, 2019

Brokers Beware – 7 Common Legal Mistakes to Avoid

Breach of Duty Many real estate brokers have a lot of experience in real estate transactions, resulting in exposure to different issues. Brokers with a lot of experience sometimes feel they have the knowledge to make assurances to their clients that are not always accurate. But at times, brokers lack the necessary expertise. More than once, clients have come to us with an issue that they think their broker resolved for them; however, once the issue is presented to the attorneys, it is evident that the broker’s “solution” is not feasible. Real estate brokers should be very cautious in making promises to their clients. Any assurances should be limited to the broker’s real estate expertise; other issues, such as the law, or taxes, should be handled by those experts. Sometimes a miscommunication, by any party involved in a transaction, could lead to a charge of broker negligence or liability, which could result in a lawsuit. Breach of Contract Brokers should be realistic and honest with the services they provide to clients, and what their clients should expect. A broker should never guarantee a sale price or closing date to a client, even if it seems achievable. Many brokers are eager to sign representation agreements with their client without first doing the research on accurate purchase price comparables. A broker could potentially be sued for breach of contract if they do not live up to their agreement, and sell within the required time span. It’s always better to be safe than sorry regarding possible sales dates and purchase prices, by giving an attainable and varied range. Be Wary Of Who You Refer Brokers play the part of the “middle man” standing between the seller and purchaser and other parties involved in the deal. Brokers are typically prepared with a list of contacts and referrals they could give to clients for mortgages, attorneys, and even accountants. A broker’s biggest asset is their relationships, and the worst thing would be to lose a relationship you worked hard to establish. Always be sure you personally know or have real experiences with the person you are referring – you must be able to truly attest to their expertise. A small referral fee is not worth a disappointed client, potentially ruining your reputation. Failure To Maintain Confidential Information Brokers acquire a lot of personal information from their clients and therefore have a duty to maintain confidentiality. Brokers should have a method of storing this information, whether digital or physical, and never disclose confidential information to others without first informing the client and obtaining confirmation. A few good examples of protective measures are installing a secure system on your computer, changing passwords periodically, and never providing confidential information by email. Damage To The Property Or The Client When a broker is showing a property to a client, they could be responsible for damage done to the property and any injuries to the client while on the property. Brokers should be aware of all defects in the property and warn any visitors. A broker could be found liable for not disclosing the defects if their client is injured. They could also be found legally responsible for damage done to the property, even if it was due to their client’s actions. A possible exception to this is if the accident was caused by a defect that could not be visibly detected. Notify Purchasers Of Their Rights To Inspect The Premises Buyers of residential properties have deadlines to inspect the property for termites, asbestos, as well as special things such as underground oil tanks. The contract of sale usually depicts such timeframes and deadlines, but it is the broker’s responsibility to remind the purchaser and help coordinate access to the premises for inspections. Clients might put blame on the broker for failure to notify them of such deadlines, especially when a big issue is revealed once the inspection deadline has passed. Failure To Maintain A List Of Showings A broker is owed a commission as long as they were the one who originally showed the premises to the client. Some clients shop around with brokers and then go behind the broker’s back to purchase or rent a premise. In such instances, when a broker does not get paid for their services, they could sue the client for the commission. It is crucial for a broker to maintain a list of clients and the properties that they show each client to refer to in such cases. Additionally, forming relationships with someone in management, or even a doorman of a building, could help a broker be notified should this occur.

John Kiritsis | Nov 5, 2019

3 contemporary trends affecting LLC laws in the United States.

Delaware Approach. Delaware rushed to develop LLC status laws striving to make them , the most advantageous in the country, in terms of asset protection, tax savings, and flexible corporate governance. Delaware actions had a dual motive: (i) Protect its so called turf on (being the U.S. and by extension world) capital of business formation filings in the event LLCs grew to challenge the status of corporations as dominant entity structure (ii) Make it easy for large businesses to use LLC’s as substitutions, special purpose entities, other purposes. As Delaware uses it corporate governing laws, so lure precious filing fees in its coffers, it wont be an understatement to say, that many states are trying to emulate Delaware, in regards to structuring their own corporate governance laws. Going their own way. Other states tried to make their own LLC statuses fit into their peculiarities of their other state laws. For example New York had a long standing of historically requiring many of its partnership type of entities, to comply with an expensive costly and potentially complex procedure, known as the publication requirement. Historically this requirement was based on the notions of shedding some light in regards to insights of a partnership’s ownership and/or management structure. Corporations, were largely exempt from the publication requirement, often on the premise that it was easier to discertain the ownership of the very Corporation's ownership, due in large part to the corporation filing separate tax returns at the entity level. RULLCA A third camp composed of mostly rural, western states trying to come to up with a one style fits all approach. Their answer to keeping their LLC laws evolving and maturing to the point of being a trusted, reliable, legal entity type, which could provide its owner with limited liability protection, has recently seemed to turn to the adaptation of RULLCA. It should be noted that RULLCA differs in many aspects from Delaware LLC laws.