Run Your Own Corporation: How to Legally Operate and Properly Maintain your Company into the Future
Garrett Sutton, Esq.
This book detailed all of the legal steps needed to take throughout the entire business process, from creation to selling/closing the business.
Chapter 1: B.C. (Before Corporation)
A Limited Liability Company (LLC) combines flow-through taxation of a partnership with the limited liability aspects of a corporation, and offer superior asset protection benefits. LLCs are chartered with the state and provide limited liability to the owners such as business debts or legal claims against the business. With an LLC, Articles of Organization are filed with the Secretary of State. Instead of bylaws, an operating agreement is created. As with a corporation, to avoid personal liability in an LLC you must:
-Maintain timely filings with the state.
-Prepare entity tax returns.
-Maintain a separate bank account for the business.
-Separate personal and business matters.
-Have adequate capitalization (funding) of the business.
-Hold annual meetings of managers and members.
Before incorporating, you should check to see if the business name you want to use is available. There are three searches you must do.
1. Corporate name
Whether forming a corporation, LLC or LP you will need to check and see if the name is available for use as an entity name. This involves visiting the website of the Secretary of State in the state you want to incorporate in and searching for name availability. (You should search for name availability for any state you want to qualify to do business in as well). Also know that some states won’t allow certain words such as ‘financial’ or ‘insurance’ in the corporate name without having a special license in the field involved.
Be careful, because states are very lenient in name availability, since they want as many formations and filing fees to be sent in as possible; if the name is not a direct match, they’ll let it through. For example, you may find that Xcel Computing, Inc. is available within the state, but there may already be a company called Xcel Consulting, Inc. and they could send a cease and desist letter stopping you from using the name, as it could effect their business, after you have spent money promoting your new business. While the Secretary of State will allow the name, it could cause problems on various levels, which is why other searches are necessary. If you are planning to do business in two states, you should make sure the name is available in both states; you could use one name in one state and another name in the other, but it takes up a lot of space on checks and could get confusing. It is much easier to just find a name that will work in both places.
2. Domain Name
It is best if your domain name is identical to or at least very similar to your business name. Just simply search www.nameyouwishtobuy.com to see if it is available, and if it is you should go ahead and buy it; even if you decide to change it later, you will only have spent about $20.00 to secure the domain name.
3. Trademark Search
The trademark search is the most important search you will conduct, because a trademark trumps a corporate name and a domain name. A trademark protects your name to the exclusion of others when you do business with the public. You can check to see if trademarks are available at uspto.gov.
Chapter 2: A.D (Activation Day)
The IRS form to be used for an LLC depends on tax classification. If an LLC doesn’t file a Form 8832 and elect the tax classification, default rules apply. Under IRS default rules, a single member LLC is considered a disregarded entity for tax purposes and taxed as a sole proprietorship, required to file a 1040 Schedule C, and subject to self-employment tax if the business has a net income over $400. A two member LLC defaults to be taxed as a partnership. It can also be taxed as a sole proprietorship, partnership, S corporation, C corporation or if one member is a disregarded entity, with tax obligations flowing directly onto the member’s tax return. Bookkeeping is also determined by tax classification.
Chapter 3: Day One
Corporate formalities are important to avoid being held personally responsible for future company blues. You should hold an initial corporate meeting and record what happened; the minutes are easy to prepare. This meeting can occur on day one or 10 or so days after your entity is filed with the Secretary of State. Exactly what occurs initially is not as important as it is that it does occur shortly after you are formed. You should take time to flesh out your corporation on paper. Important papers to have in your corporate minute book (a binder holding all your corporate papers) includes:
-Articles of Organization
-Operating Agreement
-Shareholder or Member minutes
-Board or Manager minutes and consents
-State filings
-Actions of the incorporator
Amendments to any corporate documents such as bylaws or articles of incorporation need to be made by vote of the owners, or in some cases the board of managers. Some businesses will require even more documents, such as:
-Licenses
-Permits
-Registration forms
-Contracts
-Employee records
-Intellectual property records
-Stock records
Chapter 4: Day Two
Bookkeeping for businesses can be fairly simple: every transaction involves money in or money out. Income is all the money that comes into your business, and outcome is all the money that flows out of your business. As long as the two balance, the basics of your bookkeeping are in order.
Your business expenses will include any payments you make to acquire inventory, expenses related to actually doing business, including marketing and advertising, creation of product, shipping and receiving, research and development—in short, the costs of doing business.
Other expenses of running a business include hiring your professional team, paying employees, paying for business licenses and overhead. Many of your business expenses are tax deductible, meaning you get to write them off to reduce your net income.
10 Steps for Payroll Compliance
To comply with all of the rules and regulations on payroll withholding and reporting you will need to follow the ten steps below
1. Files IRS Form SS-4 to get your federal Employer Identification Number (“EIN”).
2. With your EIN and articles of incorporation open a bank account.
3. Get each employee an IRS Form W-4 (Employee’s Withholding Allowance Certificate) and have them fill it out. Keep this on file.
4. Visit your state’s employment division office, register your business and make the required unemployment insurance payments.
5. Institute a payroll plan for making payroll tax deposits on a regular basis. Either a staff member or an outside service must be responsible for this.
6. File the Employer’s Quarterly Federal Tax Return (Form 941) at the end of each quarter (March 31/June 30/September 30/December 31).
7. At the end of each tax year report your federal payroll tax payments on either Form 940 or 940-EZ
8. At the end of each year report each employee’s annual wages to the IRS (always required) and state (if required) on Form W-2.
9. At the end of each year file and report payment of $600 or more to each independent contractor on Form 1099-MISC.
10. Acknowledge that while this is a lot of work, every other legal business out there is going through the same thing.
Chapter 5: Day Four
It is desirable to enter into Employment Agreements with all of your company’s key employees. These should include, but are not limited to, yourself and your partners or other founders of your company, scientific personnel, software and hardware developers, financial officers, accountants, lawyers, and sales managers.
An employment agreement should include:
-Job title and scope of duties
-Term of the employment agreement
-Hours of employ
-Paid employment expenses, including travel and relocation
-Salary and other benefits
-Key man life insurance
-Assignability
-Confidentiality and Non-Competition
It is vital for start-up companies to protect their intellectual property, patents, trade secrets, products, methods of production and business model from being either provided to existing competitors, or from being poached by your own employees into new spin-off operations. An Employment Agreement should be fairly specific as to what is considered “confidential” information, and should also set out a clause whereby an employee acknowledges that breaching this confidentiality clause could leave them open to prosecution by your company.
Non-competition must be tailored a bit more specifically. You cannot prevent an employee from practicing his trade, especially where knowledge and skills have been obtained over a lengthy time prior to employment with your company. You can, however, seek to minimize to a reasonable degree, what that employee can do with the knowledge gained during their employment with your company.
-Development and ownership of inventions, trade secrets and new business ideas
-Termination
Chapter 7: Second Week
A business plan in not a formal necessity for starting a business, but will definitely help.
-A business plan creates an outline and a narrative for your business.
-It raises questions and guides you through answering them.
-Makes you stop and consider legal and financial considerations.
-Allows you to more clearly communicate your business’ possibilities with potential investors, partners and even customers.
A basic outline for a business plan is as follows.
· Cover sheet: business name, address, contact information for the business and the principals
· Statement of purpose: a mission statement for the business, inclusing goals and timelines
· Table of contents of the business plan
· Executive summary:
o Goals
o Corporate structure
o Ownership
o Financials
o Marketing plan
o Operations
· Business background
· Marketing plan
· Action plans
· Financial statements and projections
· Supporting documents:
o Personal financial information including tax returns for previous years
o Copies of existing paperwork such as transfer of ownership for an existing business or a franchise contract
o Leases for physical locations (if applicable)
o Licenses from governing bodies
o Legal documents regarding corporate structure
o Resumes of principals
Chapter 8: One Month
Steps for Maximizing and Protecting Your Website
1. Register the site
Assuming you have already obtained the domain name and filed for the trademark, the next step is to register your site with major search engines. Some locations for submission are:
Google: http://www.google.com/services/biz2.html
Lycos: http://www.domains.lycos.com/
Yahoo: http://search.yahoo.com/infor/submit.html
2. Use disclaimers and warnings
If your site provides information others may rely on, you may want to include a warning notice and a disclaimer stating that you are not responsible if they do rely on it. It is easy to find examples if you are unsure of how exactly it should be worded.
3. Use the copyright notice
Copyrights protect your written words. You can file for copyright with the U.S. Library of Congress at copyright.gov. Even if you don’t get around to filing (and you should, as it offers greater protections) you should always place a copyright notice, at the very least, at the bottom of your homepage. The notice should read as follows: “Copyright ©2014, Spotless Spaces Cleaning, LLC. All Rights Reserved” By including this information you are providing the necessary notice to protect your content.
4. Written agreements with employees
If you are going to use employees to develop your website you need written agreements with them to protect your position. First of all, the work performed and the materials developed must be described as “works made for hire” meaning you paid them to do it so they don’t get to claim the work as theirs. You want the agreement to state that they assign any and all right to the work to you, the employer. Without this language, less scrupulous types will claim they own what they developed. You also want the agreement to state that they will keep the information confidential and that your employee won’t develop a competing website for a reasonable period of time (usually two years or less).
5. Understand your web development agreement
If you are paying someone to create and develop your website, you will want an agreement in place. You will include the ‘work for hire’ language and other points already mentioned. This agreement (which you may want your attorney’s help with) should also make very clear that you own all rights—trademark, copyright, everything—to your site. As web developers in my experience tend to over promise and under deliver you need the agreement to set out dates for completion. Don’t pay the entire fee up front. Work to pay the majority of the fees only when the website has been completely constructed to your satisfaction. The agreement should also set forth responsibility and pricing for maintenance and corrections. Work towards allowing your own staff access to the site for corrections instead of paying larger outside service fees.
6. Understand your web hosting agreement
A key concern is whether you can easily get out of the contract if the web hosting company is not performing to your standards. If you can cancel at any time ‘with or without cause’ (meaning for a good reason or no reason at all) you will be in better shape than having to wait for a 90 day escape clause to expire Another issue will be the standards of performance, including speed and back up protections, to be provided. Again, this may be a contract to have your attorney review.
Chapter 9: First Quarter
A trademark is any word, phrase, slogan, symbol or design which is used to distinguish a product or service. Trademarks are usually a name or or logo but they can be other distinguishing characteristics such as the shape of a container or the design and color of a label. Marks that designate services are sometimes called “service marks” but their legal function is still the same.
Once you start looking trademarks can be seen everywhere. “SM”, “TM”, or “R” symbols are all ______ of trademarks. Any time you claim rights in a mark, you may use the “TM” (trademark) or “SM” (service mark) designation. These marks are used to mark your territory.
You may use the “TM” or “SM” symbols regardless of whether you have filed application with the USPTO. Know that you may only use the federal registration symbol ® once the USPTO actually registers your trademark. You cannot use the ® designation while your application is pending; you may use it while the trademark only on or in connection with the goods and/or services you listed in the federal trademark registration application.
Trademark notice placements may differ; the trademark that identifies a product or good can generally be placed on the packaging or on the good itself. Since the service mark may not actually sell an object, the mark that identifies the services can usually be seen in the marketing or advertising campaigns.
Trademarks can be stolen, lost and weakened if they are not protected properly. Federal trademark registration is the strongest tool available for protecting trademarks. The benefits of trademark registration include:
· Protects customer recognition and goodwill developed in your mark
· Protects your investment in advertising and promotions
· Prevents conflicts with other companies that may use your name in the future
· Reserve names that you intend to use in the future
· Gain income from licensing the mark to others
· Give constructive notice of ownership to all later users of the mark
· Have the right to display the federal registration symbol “®”
· Gain the right to make the mark “incontestable” after five years of continuous use
· Have a presumption of ownership if the mark ends up in litigation
· Allows registrants to use the federal courts in a dispute
A business name, phrase or logo may be federally registered as a trademark if it is fanciful, arbitrary or suggestive. Because they are more likely to be accepted by the USPTO, a fanciful, suggestive or arbitrary business name is a good bet when choosing a potential trademark or service mark.
A fanciful trademark is generally a mark that is without a dictionary meaning. Some examples of this are the trademarks Exxon or Xerox.
Arbitrary marks have nothing to do the with goods or services with which they are associated; example Apple for electronics, or Diesel for clothing.
Descriptive trademarks, names that describe the goods or services with which they are associated, should be avoided. As a general rule, the USPTO does not register descriptive trademarks. An example of a descriptive trademark would be naming a restaurant “Fast Food” if you provided food fast to your patrons.
Mark searches
A basic search can be done at www.uspto.gov. Please know that if you are really serious about your mark and protecting it you may want to pay a trademark search service to do a comprehensive search and analysis. These can run from $1500 to $3000, and may be worth it depending on what investment you are going to be putting into your mark. If you choose a name that is being used by another company, you may be drawn into litigation and forced to change your mark. A mark search can help determine if the name you choose conflicts with any other company’s mark.
Searches are also recommended before applying for trademark registration. A search can save a lot of time and money by detecting possible conflicts early.
A common mistake made by small companies is relying upon a state business name search performed by a state government. This is inadequate as a mark search because it is limited to that state’s list of registered business names. You must do a search on a powerful computerized database which is much more comprehensive and can detect names used in all fifty states.
Chapter 11: Year One
After being in operations for one year, some questions to consider are:
· How well have you separated yourself from your business?
· Does your business have a bank account?
· If you’re working out of a home office, is that office reserved strictly for business?
· Does your business have a separate phone line?
· Are you signing all documents, contracts and agreements with your corporate title?
· Does your corporation or LLC have Articles of Incorporation or Organization filed with the Secretary of State’s office? Does your LLC have a written operating agreement?
· Are you filing your list of officers or managers annually with the Secretary of State’s office?
· Are your municipal and state business licenses up to date?
· Has the issued stock or your corporation been filed in you stock ledger?
· Do you have a federal tax ID number?
· Are you making quarterly payroll tax deposits?
· Are all bank loans to the corporation documented?
· Are any personal loans to the corporation documented?
· Are annual meetings being held by the shareholders?
· Are annual meetings being held by the Board of Directors?
· Are annual meetings of the managers and/or members being held by your LLC?
· Are all corporate resolutions documented in writing and filed in the corporate book?
· Does your corporation or LLC have its own annual tax return?
· Is your corporate entity adequately capitalized?
Annual filings to update:
· City business license
· State business license
· Sales tax forms with the state tax department
· List of corporate officers filed with the Secretary of State
Sutton, Garrett. Run Your Own Corporation: How to Legally Operate and Properly Maintain Your Company into the Future. Minden, NV: BZK, 2012. Print.
Chapter 1: B.C. (Before Corporation)
A Limited Liability Company (LLC) combines flow-through taxation of a partnership with the limited liability aspects of a corporation, and offer superior asset protection benefits. LLCs are chartered with the state and provide limited liability to the owners such as business debts or legal claims against the business. With an LLC, Articles of Organization are filed with the Secretary of State. Instead of bylaws, an operating agreement is created. As with a corporation, to avoid personal liability in an LLC you must:
-Maintain timely filings with the state.
-Prepare entity tax returns.
-Maintain a separate bank account for the business.
-Separate personal and business matters.
-Have adequate capitalization (funding) of the business.
-Hold annual meetings of managers and members.
Before incorporating, you should check to see if the business name you want to use is available. There are three searches you must do.
1. Corporate name
Whether forming a corporation, LLC or LP you will need to check and see if the name is available for use as an entity name. This involves visiting the website of the Secretary of State in the state you want to incorporate in and searching for name availability. (You should search for name availability for any state you want to qualify to do business in as well). Also know that some states won’t allow certain words such as ‘financial’ or ‘insurance’ in the corporate name without having a special license in the field involved.
Be careful, because states are very lenient in name availability, since they want as many formations and filing fees to be sent in as possible; if the name is not a direct match, they’ll let it through. For example, you may find that Xcel Computing, Inc. is available within the state, but there may already be a company called Xcel Consulting, Inc. and they could send a cease and desist letter stopping you from using the name, as it could effect their business, after you have spent money promoting your new business. While the Secretary of State will allow the name, it could cause problems on various levels, which is why other searches are necessary. If you are planning to do business in two states, you should make sure the name is available in both states; you could use one name in one state and another name in the other, but it takes up a lot of space on checks and could get confusing. It is much easier to just find a name that will work in both places.
2. Domain Name
It is best if your domain name is identical to or at least very similar to your business name. Just simply search www.nameyouwishtobuy.com to see if it is available, and if it is you should go ahead and buy it; even if you decide to change it later, you will only have spent about $20.00 to secure the domain name.
3. Trademark Search
The trademark search is the most important search you will conduct, because a trademark trumps a corporate name and a domain name. A trademark protects your name to the exclusion of others when you do business with the public. You can check to see if trademarks are available at uspto.gov.
Chapter 2: A.D (Activation Day)
The IRS form to be used for an LLC depends on tax classification. If an LLC doesn’t file a Form 8832 and elect the tax classification, default rules apply. Under IRS default rules, a single member LLC is considered a disregarded entity for tax purposes and taxed as a sole proprietorship, required to file a 1040 Schedule C, and subject to self-employment tax if the business has a net income over $400. A two member LLC defaults to be taxed as a partnership. It can also be taxed as a sole proprietorship, partnership, S corporation, C corporation or if one member is a disregarded entity, with tax obligations flowing directly onto the member’s tax return. Bookkeeping is also determined by tax classification.
Chapter 3: Day One
Corporate formalities are important to avoid being held personally responsible for future company blues. You should hold an initial corporate meeting and record what happened; the minutes are easy to prepare. This meeting can occur on day one or 10 or so days after your entity is filed with the Secretary of State. Exactly what occurs initially is not as important as it is that it does occur shortly after you are formed. You should take time to flesh out your corporation on paper. Important papers to have in your corporate minute book (a binder holding all your corporate papers) includes:
-Articles of Organization
-Operating Agreement
-Shareholder or Member minutes
-Board or Manager minutes and consents
-State filings
-Actions of the incorporator
Amendments to any corporate documents such as bylaws or articles of incorporation need to be made by vote of the owners, or in some cases the board of managers. Some businesses will require even more documents, such as:
-Licenses
-Permits
-Registration forms
-Contracts
-Employee records
-Intellectual property records
-Stock records
Chapter 4: Day Two
Bookkeeping for businesses can be fairly simple: every transaction involves money in or money out. Income is all the money that comes into your business, and outcome is all the money that flows out of your business. As long as the two balance, the basics of your bookkeeping are in order.
Your business expenses will include any payments you make to acquire inventory, expenses related to actually doing business, including marketing and advertising, creation of product, shipping and receiving, research and development—in short, the costs of doing business.
Other expenses of running a business include hiring your professional team, paying employees, paying for business licenses and overhead. Many of your business expenses are tax deductible, meaning you get to write them off to reduce your net income.
10 Steps for Payroll Compliance
To comply with all of the rules and regulations on payroll withholding and reporting you will need to follow the ten steps below
1. Files IRS Form SS-4 to get your federal Employer Identification Number (“EIN”).
2. With your EIN and articles of incorporation open a bank account.
3. Get each employee an IRS Form W-4 (Employee’s Withholding Allowance Certificate) and have them fill it out. Keep this on file.
4. Visit your state’s employment division office, register your business and make the required unemployment insurance payments.
5. Institute a payroll plan for making payroll tax deposits on a regular basis. Either a staff member or an outside service must be responsible for this.
6. File the Employer’s Quarterly Federal Tax Return (Form 941) at the end of each quarter (March 31/June 30/September 30/December 31).
7. At the end of each tax year report your federal payroll tax payments on either Form 940 or 940-EZ
8. At the end of each year report each employee’s annual wages to the IRS (always required) and state (if required) on Form W-2.
9. At the end of each year file and report payment of $600 or more to each independent contractor on Form 1099-MISC.
10. Acknowledge that while this is a lot of work, every other legal business out there is going through the same thing.
Chapter 5: Day Four
It is desirable to enter into Employment Agreements with all of your company’s key employees. These should include, but are not limited to, yourself and your partners or other founders of your company, scientific personnel, software and hardware developers, financial officers, accountants, lawyers, and sales managers.
An employment agreement should include:
-Job title and scope of duties
-Term of the employment agreement
-Hours of employ
-Paid employment expenses, including travel and relocation
-Salary and other benefits
-Key man life insurance
-Assignability
-Confidentiality and Non-Competition
It is vital for start-up companies to protect their intellectual property, patents, trade secrets, products, methods of production and business model from being either provided to existing competitors, or from being poached by your own employees into new spin-off operations. An Employment Agreement should be fairly specific as to what is considered “confidential” information, and should also set out a clause whereby an employee acknowledges that breaching this confidentiality clause could leave them open to prosecution by your company.
Non-competition must be tailored a bit more specifically. You cannot prevent an employee from practicing his trade, especially where knowledge and skills have been obtained over a lengthy time prior to employment with your company. You can, however, seek to minimize to a reasonable degree, what that employee can do with the knowledge gained during their employment with your company.
-Development and ownership of inventions, trade secrets and new business ideas
-Termination
Chapter 7: Second Week
A business plan in not a formal necessity for starting a business, but will definitely help.
-A business plan creates an outline and a narrative for your business.
-It raises questions and guides you through answering them.
-Makes you stop and consider legal and financial considerations.
-Allows you to more clearly communicate your business’ possibilities with potential investors, partners and even customers.
A basic outline for a business plan is as follows.
· Cover sheet: business name, address, contact information for the business and the principals
· Statement of purpose: a mission statement for the business, inclusing goals and timelines
· Table of contents of the business plan
· Executive summary:
o Goals
o Corporate structure
o Ownership
o Financials
o Marketing plan
o Operations
· Business background
· Marketing plan
· Action plans
· Financial statements and projections
· Supporting documents:
o Personal financial information including tax returns for previous years
o Copies of existing paperwork such as transfer of ownership for an existing business or a franchise contract
o Leases for physical locations (if applicable)
o Licenses from governing bodies
o Legal documents regarding corporate structure
o Resumes of principals
Chapter 8: One Month
Steps for Maximizing and Protecting Your Website
1. Register the site
Assuming you have already obtained the domain name and filed for the trademark, the next step is to register your site with major search engines. Some locations for submission are:
Google: http://www.google.com/services/biz2.html
Lycos: http://www.domains.lycos.com/
Yahoo: http://search.yahoo.com/infor/submit.html
2. Use disclaimers and warnings
If your site provides information others may rely on, you may want to include a warning notice and a disclaimer stating that you are not responsible if they do rely on it. It is easy to find examples if you are unsure of how exactly it should be worded.
3. Use the copyright notice
Copyrights protect your written words. You can file for copyright with the U.S. Library of Congress at copyright.gov. Even if you don’t get around to filing (and you should, as it offers greater protections) you should always place a copyright notice, at the very least, at the bottom of your homepage. The notice should read as follows: “Copyright ©2014, Spotless Spaces Cleaning, LLC. All Rights Reserved” By including this information you are providing the necessary notice to protect your content.
4. Written agreements with employees
If you are going to use employees to develop your website you need written agreements with them to protect your position. First of all, the work performed and the materials developed must be described as “works made for hire” meaning you paid them to do it so they don’t get to claim the work as theirs. You want the agreement to state that they assign any and all right to the work to you, the employer. Without this language, less scrupulous types will claim they own what they developed. You also want the agreement to state that they will keep the information confidential and that your employee won’t develop a competing website for a reasonable period of time (usually two years or less).
5. Understand your web development agreement
If you are paying someone to create and develop your website, you will want an agreement in place. You will include the ‘work for hire’ language and other points already mentioned. This agreement (which you may want your attorney’s help with) should also make very clear that you own all rights—trademark, copyright, everything—to your site. As web developers in my experience tend to over promise and under deliver you need the agreement to set out dates for completion. Don’t pay the entire fee up front. Work to pay the majority of the fees only when the website has been completely constructed to your satisfaction. The agreement should also set forth responsibility and pricing for maintenance and corrections. Work towards allowing your own staff access to the site for corrections instead of paying larger outside service fees.
6. Understand your web hosting agreement
A key concern is whether you can easily get out of the contract if the web hosting company is not performing to your standards. If you can cancel at any time ‘with or without cause’ (meaning for a good reason or no reason at all) you will be in better shape than having to wait for a 90 day escape clause to expire Another issue will be the standards of performance, including speed and back up protections, to be provided. Again, this may be a contract to have your attorney review.
Chapter 9: First Quarter
A trademark is any word, phrase, slogan, symbol or design which is used to distinguish a product or service. Trademarks are usually a name or or logo but they can be other distinguishing characteristics such as the shape of a container or the design and color of a label. Marks that designate services are sometimes called “service marks” but their legal function is still the same.
Once you start looking trademarks can be seen everywhere. “SM”, “TM”, or “R” symbols are all ______ of trademarks. Any time you claim rights in a mark, you may use the “TM” (trademark) or “SM” (service mark) designation. These marks are used to mark your territory.
You may use the “TM” or “SM” symbols regardless of whether you have filed application with the USPTO. Know that you may only use the federal registration symbol ® once the USPTO actually registers your trademark. You cannot use the ® designation while your application is pending; you may use it while the trademark only on or in connection with the goods and/or services you listed in the federal trademark registration application.
Trademark notice placements may differ; the trademark that identifies a product or good can generally be placed on the packaging or on the good itself. Since the service mark may not actually sell an object, the mark that identifies the services can usually be seen in the marketing or advertising campaigns.
Trademarks can be stolen, lost and weakened if they are not protected properly. Federal trademark registration is the strongest tool available for protecting trademarks. The benefits of trademark registration include:
· Protects customer recognition and goodwill developed in your mark
· Protects your investment in advertising and promotions
· Prevents conflicts with other companies that may use your name in the future
· Reserve names that you intend to use in the future
· Gain income from licensing the mark to others
· Give constructive notice of ownership to all later users of the mark
· Have the right to display the federal registration symbol “®”
· Gain the right to make the mark “incontestable” after five years of continuous use
· Have a presumption of ownership if the mark ends up in litigation
· Allows registrants to use the federal courts in a dispute
A business name, phrase or logo may be federally registered as a trademark if it is fanciful, arbitrary or suggestive. Because they are more likely to be accepted by the USPTO, a fanciful, suggestive or arbitrary business name is a good bet when choosing a potential trademark or service mark.
A fanciful trademark is generally a mark that is without a dictionary meaning. Some examples of this are the trademarks Exxon or Xerox.
Arbitrary marks have nothing to do the with goods or services with which they are associated; example Apple for electronics, or Diesel for clothing.
Descriptive trademarks, names that describe the goods or services with which they are associated, should be avoided. As a general rule, the USPTO does not register descriptive trademarks. An example of a descriptive trademark would be naming a restaurant “Fast Food” if you provided food fast to your patrons.
Mark searches
A basic search can be done at www.uspto.gov. Please know that if you are really serious about your mark and protecting it you may want to pay a trademark search service to do a comprehensive search and analysis. These can run from $1500 to $3000, and may be worth it depending on what investment you are going to be putting into your mark. If you choose a name that is being used by another company, you may be drawn into litigation and forced to change your mark. A mark search can help determine if the name you choose conflicts with any other company’s mark.
Searches are also recommended before applying for trademark registration. A search can save a lot of time and money by detecting possible conflicts early.
A common mistake made by small companies is relying upon a state business name search performed by a state government. This is inadequate as a mark search because it is limited to that state’s list of registered business names. You must do a search on a powerful computerized database which is much more comprehensive and can detect names used in all fifty states.
Chapter 11: Year One
After being in operations for one year, some questions to consider are:
· How well have you separated yourself from your business?
· Does your business have a bank account?
· If you’re working out of a home office, is that office reserved strictly for business?
· Does your business have a separate phone line?
· Are you signing all documents, contracts and agreements with your corporate title?
· Does your corporation or LLC have Articles of Incorporation or Organization filed with the Secretary of State’s office? Does your LLC have a written operating agreement?
· Are you filing your list of officers or managers annually with the Secretary of State’s office?
· Are your municipal and state business licenses up to date?
· Has the issued stock or your corporation been filed in you stock ledger?
· Do you have a federal tax ID number?
· Are you making quarterly payroll tax deposits?
· Are all bank loans to the corporation documented?
· Are any personal loans to the corporation documented?
· Are annual meetings being held by the shareholders?
· Are annual meetings being held by the Board of Directors?
· Are annual meetings of the managers and/or members being held by your LLC?
· Are all corporate resolutions documented in writing and filed in the corporate book?
· Does your corporation or LLC have its own annual tax return?
· Is your corporate entity adequately capitalized?
Annual filings to update:
· City business license
· State business license
· Sales tax forms with the state tax department
· List of corporate officers filed with the Secretary of State
Sutton, Garrett. Run Your Own Corporation: How to Legally Operate and Properly Maintain Your Company into the Future. Minden, NV: BZK, 2012. Print.