Legal issues for new businesses
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Transcript of Legal issues for new businesses
Do I need a lawyer for this?Common legal issues for new businesses
About Legal Hero
Legal Hero makes law simple for businesses. With a curated network of vetted, experienced attorneys and a large selection of clearly-priced projects, we’re changing the way clients engage with lawyers. We believe that clients can have it all: fantastic lawyers, enabled by technology, at fixed prices they can see before they ever hire the lawyer. Small business owners have enough challenges to deal with, and finding a great lawyer for a fair price shouldn’t be one of them. Whether you are just starting a business, hiring a new employee, or looking for a new office space, Legal Hero can provide an experienced attorney to get the job done right. And, unlike with other legal service providers, you will never have to worry about hourly fees or not knowing what something will cost in advance.
With projects like business formation ($900), copyrights ($240), employment offer letters ($420), NDAs ($375), and dozens more, Legal Hero can provide a great lawyer for any legal issue your business faces.
Warning: a lawyerly thing to say
The information contained in this presentation is intended to serve as general background information on legal matters relating to starting a
business. The included information does not establish an attorney-client relationship between you and Legal Hero and is not a substitute
for legal advice. Prior to taking any action, we encourage you to contact a lawyer.
What we’ll cover today
1. Starting up – choosing an entity
2. Intellectual property basics
3. Building and managing a team
4. Tax issues
5. Social media concerns
6. When you need a lawyer
Starting up
Why do entity types even matter?
• Taxes• Liability• Set-up/maintenance costs
Implications of your entity choice: taxes (1/4)
Pass-through taxation Double taxation
Busin
ess
Ow
ners
Earnings Dividends
Implications of your entity choice: liability (2/4)Bu
sines
s Limited liability means that creditors can only go after the businesses’ assets, such as cash and inventory.
Without limited liability, creditors can go after the assets of the owners as well, such as their savings and their homes.
$
$
Ow
ners
Implications of your entity choice: liability (3/4)
Business Assets Owner Assets
$ $
Even with limited liability, must treat business assets as distinct from personal, or you run the risk that limited liability will not be recognized.
WARNING: YOUR BUSINESS IS NOT YOUR PIGGY BANK!
Cost of set-up and maintenance
Implications of your entity choice: set-up/maintenance costs (4/4)
Sole proprietor: no set-up; it exists just by doing business
Partnership: no set-up; it exists just by doing business together; may have Partnership Agreement
Corporation: standardized set-up; annual franchise taxes; board governs
LLC: Slightly higher formation costs; operating agreement; annual franchise fee
Limited Partnership: Can be expensive to set up LP Agreement and administer
Cheap
Pricey
Business entity types: overview
Sole Proprietor Partnership Limited Liability Co C-Corporation
Tax Treatment
Asset Protection
Set-up Costs
Governance/maintenance
Pass-through Pass-through Choose treatment Double taxation
No limited liability
No limited liability Limited liability Limited liability
None None Formation; LLC Agreement
Formation; Bylaws
NoneNone (sometimes Partnership Agreement)
Annual franchise fee
Annual franchise tax and report; board governs
Ownership restrictions
S-Corporation
Pass-through
Limited liability
Formation; Bylaws
Annual franchise tax and report; board governs
No more than 100 shareholders, all of which must be US citizens/residents, and can only have one class of stock
One person None None None
Business entity types: influencing factors
1. How many founders are there?
2. How many owners of the business will there be?
3. Will I be raising money? From whom?
4. Will I be issuing equity/options?
5. Will I be losing a lot of money before I make any money?
Intellectual Property: A primer
• Patents• Trademarks• Copyright• Trade Secrets
Patents: What are they and are they worth it?
A patent is . . . protection for a novel, non-obvious, useful machine, process, manufactured item, material, or any
improvement on these things . . .
But is that really what you have?
1.) Document idea 2.) Preliminary patent search
3.) File within one year of
publication of idea
Once successfully filed, patent lasts 20 years from date of filing.
Patent filing process
A word, symbol, or phrase used to distinguish your goods/services from others
Trademarks: Protect yourself!
As long as you don’t:• Abandon• Improperly License• It becomes generic
What is a trademark/service mark?
How do you trademark?
Likelihood of successful trademark registration
Generic/Descriptive Suggestive Fanciful/arbitrary“World’s Greatest Bagels”
① Conduct a trademark search (TESS, Google, etc.)
② File application with the USPTO③ Respond to follow-up from USPTO
How long does it last?
Why trademark?• Legal presumption of ownership & ability to sue concerning mark in federal court• Public notice of your claim of ownership of mark & listing in USPTO online database• Right to use federal registration symbol ®• Use of US registration as a basis to get registration in foreign countries
Copyrights
• The expression of an idea (lyrics, words, etc.)• NOT the idea itself
• 70 years after death of creator
• For corporations – 120 years after creation or 95 years after publication, whichever longer
What is a copyright?
When is it worth it?
How long does it last?
• Valuable expressions (music, books, software)
• If infringement/piracy is likely
Trade Secrets: The “other” IP
Why a trade secret? (vs Patent)
• Longevity• Secrecy• RECIPES!!!
How do I protect my trade secrets?
• Non-Disclosure Agreements
Technical or business
information
From which business derives value
That is not known to
the public or competitors
Which the biz makes
reasonable efforts to
keep secret
Trade Secret!
Employee vs. consultant – A balancing act
Consultant/ContractorEmployee
Works under control and direction of employer
Works on company schedule
Trained by the company
Provides own materials/equipment
Behavioral Control
Relationship Type
Financial Control
Yes
Yes
Yes
Gets paid on a regular basis (i.e. weekly, monthly)
Gets paid on a per-project basis
Gets reimbursed for business expenses
Receives employment benefits (i.e. health insurance)
Independent Contractor/Consulting Contract
Employee Offer Letter
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Building & managing a team: keeping information confidential
Confidentiality Agreements
NDAs critical if protecting a trade secret!
Non-competes
•aka non-disclosure agreements (NDAs)•Restrict the ability of employees to disclose any confidential information about the company
•Restrict the ability of employees to work for any competitors for defined period of time – outlawed in some states, such as California•The more vague, the more scrutiny from a court
Consideration is key (something must be given in return for NDA or non-compete)!Often packaged into a Non-Disclosure, Non-Competition Agreement or Employment Offer Letter
•Must be technical or business information•Must derive value from this information being kept secret•Can’t generally be known to the public or competitors•Must be considered secret and business must take reasonable efforts to keep it secret
Building & managing a team: employee benefits
Required benefits• Health insurance (maybe)• Social Security and Medicare taxes• Unemployment insurance• Worker’s compensation• Disability insurance • Family and Medical Leave Act
• 12 weeks unpaid leave for illness• Paid leave (in some states)
Common/Expected benefits• Vacation!• Retirement plan
Generous benefits• Gym memberships• Transportation benefits (MBTA, car)• Meals• Subsidized memberships
Building & managing a team: the Affordable Care Act (1/2)
The magic number = 50
• Essential health coverage• Pre-existing conditions• Coverage of dependents
up to 26• No caps on lifetime
coverage• “Grandfathered plans”
• Existed before 2010
Full Time Equivalents (FTEs) Employer Mandate Qualified Health Plans
•Triggers aspects of the law• >30 hours per week
•Or >130 hours per month•Seasonal employees• >120 days per year
• 50-99 FTEs – starts in 2016
• 100+ FTEs • 70% of FTEs in 2015• 95% of FTEs in 2016
• $2000 penalty per FTE for not covering
• No mandate for smaller companies
Building & managing a team: the Affordable Care Act (2/2)
The other magic number = 25 Incentives• Small Business Health Care Tax Credit
• <25 FTEs• Up to 50% of company contribution to employee premiums
• Company must pay at least 50% of premiums• Avg. employee salary <$50,000
Exchanges• Marketplaces for health insurance coverage
• Many states have their own, others use the federal exchange• Small Business Health Options Program (SHOP)
• For companies <50 FTES• Companies up to 100 FTEs (in 2016)
Wage and hour laws
Minimum wage• Federal minimum wage is $7.25
• States range from $7.25 to $11.50 (District of Columbia)
Tipping• An employer may pool tips, but managers and the employer cannot
receive any portion
Taxes: online taxes
Same state sales
“Nexus” – physical in-state presence (e.g. warehouse, employee)
Taxes: employment taxes
Payroll taxes• Paid by employer and employee
• Must remit and withhold• 15.3% of employee’s income
• 16.2% for high wage earners• Social Security and Medicare
• Social Security 6.2%• Medicare 1.45%
• Social Security tax maxes out at first $117,000 of income• No max for Medicare tax
• Penalties for failure to pay
Social media policies
Why?• Protect company• Set expectations for employees
What?• Set limits for company-related social media
posting• Protect company information• Maintain intellectual property rights• Cannot restrict free speech rights
• Mainly applies to rights around labor, not general speech
• Policies for passwords
Who?• All employees• Especially those with access to corporate
social media accounts
Yelp and the law
Fake reviews• FTC prohibits undisclosed paid endorsements• State attorneys general are getting aggressive• Yelp is more vigilant
Retaliation• Anti-disparagement clauses in terms of service• Outlawed by California in 2014• More states following
A word of caution
Hiring a lawyer: When is it worth it?
No, really, lawyers can be helpful• Can help you create customized contracts that protect you and your
business• Can ensure that you are complying with the law• Can help you think through issues and weigh the risks of different
paths
Always hire a specialist• Lawyers are more and more specialized, so you should leverage
expertise• Issue expertise (i.e. trademark lawyers)• Industry expertise
Hiring a lawyer: When is it worth it?Get a lawyer when… DIY when…
Business Formation
Co-Founder Equity Paperwork
Employee Offer Letters
Patent
Trademarks
Stock Option Plan & Agreements
Copyrights
Raising Money
Vendor Agreements
Customer Agreements
Consulting Agreements
Real Estate (Lease Review)
Terms of Use/Privacy Policy
You have co-founders/will raise $ Single Founder & no complications
Always
Preparing multi-use template Filling out a customized template
Preparing multi-use template Filling out a customized template
Always
Always
Always
Most times unless critical
Always
Preparing multi-use template/critical Filling out template/non-critical
Preparing multi-use template/critical Filling out template/non-critical
Website will collect any user info Website only presenting info
Work-sharing/month to monthTerm of 1 year or more
Thank you!
Please reach out with any questions.
Dan Devoe: [email protected]
Use codeBRANCHFOOD
to get a 10% off at Legal Hero