Sometimes businesses may have a good product, a great team and loyal customers - and still fail. One of the reasons that this can happen is because a business owner did not consider key legal questions when starting out.
Time invested early in considering the legal issues involved with starting a business pays huge dividends down the road as costly mistakes and disputes are more likely to be avoided. This contributes greatly to the longevity and viability of any enterprise.
While there is no need to answer all possible legal questions right at the start of doing business, if you are able to think about them earlier, you will be better able to plan for success. Below are a few important questions that a business owner should think about early on. It’s not a complete list, and your business may have unique questions, but the questions below represent some common legal questions that should be answered.
While any business owner may be able to ask these questions, the smart move is to consult with legal counsel to come up with answers. None of the information below should be relied upon without the advice of an attorney as individual situations vary.
What is the right type of business entity for my business?
Choosing the right business entity for your business is crucial, but it’s not always an easy choice. That’s why it’s important to learn about, and consider carefully, what type of business entity would work best for your company.
Generally, there are a few types of business entity: sole proprietorship, partnership, limited liability company, corporation. Depending on the type of business that you are establishing, the right type of entity will be different. There is no one-size-fits-all answer.
The answer will depend on a few things, though. How many people are founding the business? What line of business are you in (certain professions, such as architects or accountants in many states, must choose a form of a partnership)? Do you plan to seek investment funding? What state do you plan to operate in? What kind of revenue do you anticipate in the next few years?
As part of the decision-making process, it makes sense to understand the benefits and responsibilities involved with each type of business entity (certain entities, such as corporations, have more administrative overhead than other forms). After that, it’s usually a wise idea to consult with an attorney and/or an accountant to make sure that you are making the best choice for your business.
How will I protect the value of my brand?
A business' brand represents the sum of all of a business' interactions with customers, suppliers, competitors and the general public. Every business has a brand and good brand is worth protecting.
As soon as your product or service comes to market, brand value begins to accrue and helps to differentiate your offering from those of competitors. Brand value is what allows certain companies to charge a premium for their goods and services, or to build recognition and trust among customers. In fact, a company's brand can often end up being its single most valuable asset - potentially worth even more than facilities, inventory and equipment.
That's why smart business owners consider brand protection from the beginning. The crucial first step is to "clear" a chosen brand name or slogan; this means searching the federal trademark database and corporate name databases to ensure that nobody else out there is using a similar trademark that might cause confusion or legal hassles down the line. Typically, this process is performed by a trademark lawyer.
After clearing a brand name for use, you will want to decide when to seek federal trademark protection. Federal trademark registration offers a number of benefits, but the key one is "national priority". This simply means that your business is nationally recognized as the one with the exclusive right to use a particular name, slogan or device or anything that is confusing similar. A federal registration also makes it much easier to take legal action against others who may use a trademark that is confusingly similar to yours.
What kind of intellectual property will my business have?
Your business will probably use some form of intellectual property - copyrights, trademarks, patents, trade secrets - to generate revenue and create lasting value. For intellectual property to be truly valuable it must be identified, and where appropriate, protected.
In practice, that means understanding what type of intellectual property protection applies to goods or services that your company is offering. Maybe it’s a brand (trademarks) or book (copyright) or a new machine (patent) or even a hard-won list of customers or prospects (trade secrets). Identify these things early and decide how they will contribute to the overall mission of your company.
If you have read this far, you know that trademark law protects brands (see above). Other kinds of intellectual property law protect inventions and new creations. As a business owner, it is important to ask the right questions to make sure that intellectual property is adequately protected and that all necessary ownership rights have been secured. Failing to do so can lead to huge problems down the road.
Jonathan Tobin, Esq. is a California attorney specializing in issues facing creative businesses of all sizes. His law firm provides ongoing support to dozens of business owners through the groundbreaking Creators Legal Program. He can be reached anytime at firstname.lastname@example.org.
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