As people say goodbye to the December holidays and begin planning their goals for a new year, many considering starting a new business in order to be their own boss and start down the road to financial independence. So, if you plan on starting up a new venture in 2015, you will likely have questions about the structure and operation of the business. You should also be aware of the importance of protecting any intellectual property your new business may own. In this post, I will give you some basic direction for doing both as we consider the certain aspects involved in such a decision, including some of the legal concerns. As usual, don’t consider this article to be legal advice, or the whole answer. If you have additional questions or concerns, please take the time to make an appointment and let’s talk about it.
The first step in starting any new venture is to make sure you are either doing or building something that people want. That may seem like a given, but in our narcissistic society, many people get so excited about their own idea they overlook the fact that nobody else thinks it’s a good idea! Research into mistakes made by many start-ups shows that approximately 40% of them are building or doing something that nobody else wants! That’s staggering. So before you quit your paying job and extend your credit to start a new venture, make sure you a meeting a need that is not being met. Remember the basic business principal of supply and demand. If there is a high enough demand for what you are doing, and you have the only supply for what people are demanding, then you’ll be able to name your own price and make a fortune. However, if you have a huge supply of something no one is demanding, guess what? No one will buy what you have. It’s not rocket science.
How to Protect Your Name
Once you’ve found your niche that you’re certain no one will be able to do without, it’s important to consider a name for your product or service. This may seem like a piece of cake, but what you choose to call your enterprise will be an important component of its popularity, and will in time become your intellectual property. We all recognize the name of the famous search engine Google, but is that an accident? Would we still recognize it if it had been called BackRub (Larry Page’s and Sergey Brin’s original name)? More importantly, would it have grown into the conglomerate that it has with such a mundane name? Probably not. The name “Google” is actually an original word derived from the number googol, which is the number 1 followed by 100 zeros. Now that word accurately conveys in an instant a large quantity of data that is capable of being searched and organized. That’s perfect, right? Corporation spend a great deal of money making sure they have selected the correct name for their business. According to its own SEC filings, Google now spends over 6 Billion Dollars per year for marketing and advertising expense. So, why shouldn’t you do the same thing and spend some time making sure the name of your business reflects instantly what you do and/or what you sell.
Once you have selected the perfect moniker, it is important to make sure no one else is using it in association with the exact same goods or service. For that, you should perform, or have performed, a full trademark search in the region or country in which you intend to operate. Those search typically cost between $500 and $1500, depending on a number of factors, such as whether you have it done at LegalZoom or some similar site, or whether you have a qualified attorney review the significance of such a search. Once you eliminate the possibility of any conflicting marks, you’re then ready to register your mark as a trademark or service mark.
Registration of a mark protects the mark from being used by anyone else in association with the goods and/or services in which you trade, but only in regions in which you actually conduct commerce. These days, with the proliferation of the Internet, most companies operate globally, but in reality many businesses are still regionally centered. For a small business, it’s perfectly sufficient to register your mark in the state in which you intended to do business, at least a first, in order to gain some valuable protection. This process is usually as simple as filling out a form you can obtain from the Secretary of State’s office and paying the requisite minimal fee. If you decide to go forward with a full-fledged Federal level trademark, the filing fee for the U.S. Patent & Trademark Office is $325 per classification, plus whatever your attorney charges to file the application for you. Typically the cost for a Federal mark averages between $1000 and $1500.
How to Protect Your Ass(ets).
The next consideration for any new business is what structure to use in forming the business. A full detailed analysis of this topic would increase the size of this post exponentially, so I’ll just do a cursory review. Most entrepreneurs will start out as either sole proprietors or partnerships, either of which are fairly simple and cheap to form. In most cases, all that is required is a business license from your local county government. The problem with either of these types of entities are that they do not protect your personal assets, meaning your home, automobile or any stocks, bonds or savings you have accumulated, all of which are subject to attachment if you are sued for anything related to your business. For this reason, most people will want to form some type of business entity such as a corporation or a limited liability company. These types of business forms are creations of the state, meaning that they are legal fictions of sorts. Either a corporation or an LLC are separate and distinct from their owners in the eyes of the law, so that if either gets sued in court, only the assets of the business entity are subject to attachment, not the assets of the individual owners. If I sue Sony Corporation and win a million dollars, that judgment is paid by Sony, not the individual stockholder of Sony, at least not directly. This makes a huge difference for the small businessman.
If you are starting a new venture, consider forming either a corporation or an LLC and invest in the entity only the amount of capital necessary to start up the business. Treat that investment as a personal loan from yourself to the business if you want to get creative with the taxation issues. That way, you as an individual are only at risk for the amount of your investment in the event that the business entity incurs any direct liability.
The costs to form a business entity vary depending on which you choose. The state of Tennessee charges $300 to form an LLC with up to 6 member, and $100 to form a corporation. Registration with the county in which you do business usually costs around $7. Of course, legal fees for the establishment of a business entity will again depend on whether you use an online filing service. I of course recommend that you have your operating documents properly tailored to your need by a qualified attorney, which will run between $1000 to $3000.
Budget out the Costs
If you truly want to do something, you should plan on doing it correctly. Starting a new venture costs money, so budget out your costs before you jump in with both feet. Set aside a few thousand dollars for legal costs and meet with a qualified attorney before going into business for yourself. It will be money well spent. Finally, set some realistic goals that are specific and measurable. With the right amount of planning and advice, you could achieve your goal of financial freedom. Happy new year!