We are lucky to be joined today by Abe Cohn, who writes to us from New York. He is an attorney who shares some really valuable tips on business and intellectual property.
When I let members in the community know that Abe would be contributing a guest article to Art of Hustle®, a few people chimed in with specific questions that they needed help with. You will see those answered towards the second half of this post.
If you need further assistance with matters like those discussed here, Abe provides a link to his website at the bottom. Please share widely with friends or colleagues who may benefit.
This article is for informational purposes only. Nothing in this post should be construed as legal advice.
I’m ready to finally launch my startup – which business entity should I choose?
This is an excellent question and one that startups often have difficulty with. Ultimately, the answer is, it depends. First, it’s important to keep in mind that business entities serve the fundamental purpose of acting as a legal vehicle through which a company may conduct its business. Depending on the type of business entity (LLC, C-Corp, etc.), this legal vehicle has varying restrictions and capacities. I typically counsel my clients who are sole-founders and do not have any intention of raising capital to form a Limited Liability Company, or LLC. LLC’s are certainly the easiest to set up and are a tax, pass-through entity which means that the profits and losses simply get passed through to the owner of the company (who is responsible for reporting profits/losses on personal income tax returns). LLC’s have the drawback of possessing a rather rudimentary equity structure, which do not allow for sophisticated equity splits in the form of “stock”. Instead of an owner possessing common stock or preferred stock, LLC owners simply possess equity in the company. For this reason, institutional investors generally will not invest in LLCs. Thus, if you are interested in raising capital from an investment firm, you should with near certainty select a C-Corp. C-Corps are slightly more complicated to organize but are entirely necessary for startups with big dreams and a need for capital.
What criteria should I use when selecting a co-founder for my company?
First and foremost, the founder should ask him/herself, “Do I enjoy spending time with this person?” It is easy to forget the fact that co-founders, certainly during the early stages of a company’s evolution, spend A LOT OF TIME together. If you do not like the person you are considering, do not pick him to be your co-founder! The next most important criteria to consider is the co-founder’s background and qualifications. Do not hire your best friend, or brother, or wife, simply because you are compatible on a social level. It is absolutely crucial to select a co-founder that possesses a valuable skill set that your company needs. More specifically, try to find someone who possesses a skill that you are lacking. Are you a financial wiz with an expertise in Excel but hate public relations and marketing? Great. Select a co-founder who enjoys meeting with media contacts and relishes the opportunity to pitch your business to investors. Ultimately, your co-founder should not be a replica of yourself, but rather serve as a compliment to you with unique insights and capabilities.
Do I need to protect my company name and/or logo with a trademark? How do I go about doing it?
Yes to both. Remember, a company’s most prized possession is its intellectual property; the branding assets that consumers come to associate with the business and the legacy of excellence, represented by a Name that investors will want to purchase. A company’s name is its cornerstone-branding asset and along with its logo, will obtain the greatest amount of protection with a Federal trademark. First, it is necessary to check the United States Patent and Trademark Office’s (USPTO) database and ensure that the desired company name has not already been registered in conjunction with a similar set of goods/services. If the name is free, you’ll need to submit a trademark application to the USPTO. Here, you will submit the contact information of the owner, a description of the desired trademark, and evidence of how the trademark is used in commerce. If you are not currently using the mark in interstate-commerce, you can submit what is called an Intent-to-Use Application. Trademark law can get tricky – please do not be afraid to speak to a trademark attorney about your particular case.
What is an NDA and when do I need one?
An “NDA” is simply the acronym for Non-Disclosure Agreement. An NDA is a contract between two parties, which codifies the commitment of the signees to not disclose or reveal any of the proprietary information/ideas (the specifics are determined by the scope of agreement) exchanged between the two parties. It is a very powerful agreement because if one of the parties does in fact reveal the sensitive information given to them (and which is covered by the scope of the NDA), the other party can (theoretically) sue for breach of contract.
I want to hire a contractor to design my packaging? How do I make sure that I’ll own the intellectual property rights to the design?
Thank you, another excellent and important question. If you hire a graphic designer or branding firm to design your packaging, you must ensure that the designer explicitly signs away his/her copyright to the work-product. This is typically done through a work-for hire agreement which, consists of the substantive and procedural terms of the agreement (what’s being designed, how much money is being paid in exchange for the design etc.) and most importantly, a clause which states that any work designed will be owned by the company commissioning the rendering of the work.
“I’ve always been curious if there’s a formal process for when we want to make the tools/frameworks we’ve developed free and open to use for anyone, just as long as they attribute it to us. I guess, is there a formal licensing process to make a product I’ve designed be designated as (CC-BY-NC-ND)? Like, am I supposed to work with an attorney and then file an application for it?”
This question is in many respects, a corollary issue to the previous question and is centered around copyright law. Under copyright law, creators of “original works of authorship” have the sole right to make copies of the work, distribute copies of the work, display the work publicly, and make derivatives of the work. Depending on the medium through which the creator intends to distribute and make available the tools/frameworks, he should make it clear that the free use of the work is subject to a the display of an authorship credit. The specific language and verbiage necessary to effectuate this caveat should be discussed with an attorney.
“What do you do if you were collaborating on a film with someone and then they ran off with it and took your name off and took credit for your share of the work as well as their own? Hiring a lawyer would only make sense if there was money to be made, right? But if they are getting job offers based on credit for work you did? Someone told me that there was really only a point in pursuing it if there was enough money being made from the film to recover damages… at least enough to pay for the lawyer… but that feels so helpless.”
First of all, I completely empathize with anyone who finds himself/herself in this situation. Unfortunately, I tend to agree with the individual who suggested only pursuing the matter if there is money to be made. Lawyers can be expensive and it may just not be worth going after this nefarious individual if there is no money at the end of the road. The key is for the individual to empower himself from day one by having the necessary contracts and agreements in place which will hopefully prevent this situation (or at least reduce the likelihood) from ever happening.
“I’ve considered changing my business name from [first name, last name] Productions to something more interesting and descriptive of my work. I think this might require some legal work to secure a ‘fictitious’ name or something, but I have never really looked into it. Would be nice to know how to create and use a fictitious name for your business.”
Fictitious business names, or what are sometimes known as DBAs (Doing Business As), are simply legal vehicles, which allow a company to engage in business under a different name than the one registered with the State. The fundamental purpose of the DBA is to provide notice to the public of the true name of the business, if it would not otherwise be apparent from the name that the company is using in the public domain. Setting up a DBA is a fairly simple process and while the mechanics may differ from State to State, all that is typically required is the submission of the proper paperwork and the payment of a nominal government filing fee.
Abe Cohn is an Intellectual Property Lawyer at Cohn Legal Group, a specialty group of a larger law firm, designed specifically to provide a boutique and highly individualized experience for entrepreneurs and startups.