Many times we’re so heads down focused on our passion, working towards deadlines, or having too much fun that we could easily neglect the importance of being Legally Savvy & Sound. Don’t let the complexities of the legal system keep you from chasing your dream. Far too often when it comes to legal matters, topics like formation, contracts and trademarks, things can get confusing and frustrating. But that doesn’t mean they should be ignored. If you’re serious about building a firm foundation for your company, non-profit or freelance business you have to take the necessary steps to make sure you’re covered. We want you to build amazing things and not allow roadblocks to hold you back. So to cover some of your legal questions we asked our friend Michelle O. Stewart to help us out!

michelle

Michelle is an attorney that specializes in Corporate and Securities transactions and she was recently selected by the Silicon Valley Business Journal as a 40 under 40 award recipient. Below are some questions that were submitted by our community:

At what point does your blog/site become a business? When should I get a business license if I start out doing this as a hobby, but it seems to be moving towards a business?

Although there is no exact legal requirement which specifies at which point the shift to a business occurs, you should think about the benefits of organizing your idea as a business. One of the most important factors being the need to limit your personal liability. If you plan to enter into contracts or agreements with third parties, it might make sense to organize business as an entity so that obligations and liabilities are in the name of the Company and not in your personal name. On the other hand, there are tax and other costs associated with forming a business to consider. The type of business you form will dictate when a business license in required.

I plan to start a personal online business soon. Should I trademark or register my name prior to launch?

You do not need to officially register a trademark for a name if you can establish rights in a mark based on legitimate use of the mark. However, owning a federal trademark registration on the name provides several advantages including a legal presumption of the registrant’s ownership of the mark and the registrant’s exclusive right to use the mark nationwide on or in connection with the goods and/or services listed in the registration application. I would recommend that you are using the name prior to registration. If you are not using the name prior to launch, consider registering the name in conjunction with the launch.

What type of incorporation do you recommend for a small business and which do you recommend for a small business?

Without knowing the type of business, purpose, and future plans of the business, it is hard to recommend the type of entity to incorporate as. Some of the most common forms for small businesses include partnerships, limited liability companies and S-corporations. There are various advantages and differences in choosing one form over another – some of which include taxation, ownership, fundraising, governance and structure, and employee compensation. Please see here for a high level overview on some of the various forms of entities you may elect to choose (this is from the perspective of a technology company).

I’ve heard that there are a lot of benefits if I registered my business in the state of Delaware, is that true? If so, why?

Many investors will insist on the Company being incorporated in Delaware. One main reason for this is that the laws for companies are well settled and established in Delaware. In addition, the Delaware Secretary of State is quite efficient to work with and many of the transactions you will need to do with the Secretary of State (such as changing the Company’s name) will happen much faster. Do keep in mind however that Delaware will require a franchise tax for doing business in its state which may result in a company paying tax in at least two jurisdictions (Delaware and the state of its principal place of business)

I have a non profit that is not 501c yet. Can people still write off the tax deduction? I have the Tax ID and nonprofit classification. The 501c is a long process.

In order for your donors to be able to write off their donations the non profit organization needs to apply to be a tax exempt entity at both the federal and state level. Your non profit status is a legal structure under the state system however it does not provide tax exemption for the organization, thus your donors will not be able to write off the donations. The IRS recently introduced a more streamlined process for 501(c)(3) organizations. Please see here for more details.

What is the best legal way to form a partnership between two entities? For instance, two businesses that come together to offer one product offering.

In order to assess the best legal way to form a partnership between two entities, you would need to consider the business objectives and structure of the companies. That being said, one approach is to form a joint venture together. This would mean the two entities coming together to form a third entity that would carry out the business purpose that the companies want to achieve together. There are many ways to structure the joint venture which would require the entities to discuss and agree upon the goals of the new venture.

I’m wondering what your suggestions are for creating Terms and Refund Policies on a website. I launched a coaching program last month and honestly am not sure if my Terms were legally appropriate or protected me/my clients. How do I craft that so it would actually be legally safe for everyone?

Other than working with a lawyer, I would recommend taking a look at similar companies in your space and reviewing their terms and refund policies. Look at reputable nationally recognized companies in your industry and adapt to your business. You will find that many of these policies are very similar in nature and can take some comfort if the same terms are being provided across various companies.

I am in the midst of recreating my website and coaching business. I was wondering what type of attorney would I use to create my privacy policy, Disclaimers and Terms and Conditions of the website?

Many lawyers specialize in privacy and terms of use. You will want a lawyer that is versed in technology transactions or online commercial transactions to review your policies and disclaimers of the website.

What are some common best practices from a legal perspective for a new business owner to keep in mind?

There are many things to keep in mind but I will highlight just a few:

  1. Understand the legal requirements of the type of entity you form – maintaining corporate formalities is important to ensure that a court will not pierce the corporate veil and allow a third party to invoke personal liability exposing your personal assets to litigation.
  2. If you haven’t already hire a good accountant! The legal and accounting at times go hand in hand and often your tax and financial considerations will dictate many of the legal structures you need.
  3. Good record keep is very important – make sure to document in writing any agreements, contracts etc. with third parties. If you are a corporation, be sure to document your yearly or quarterly board and stockholder meetings.

Read Disclaimer:

These responses reflect the personal views of Michelle Stewart in her individual capacity. It does not necessarily represent the views of Reed Smith LLP or its clients, and is not sponsored or endorsed by them. The purpose of this site is to assist in dissemination of information that may be helpful to startup companies, but no representation is made about the accuracy of the information. The information contained in these responses are provided only as general information for education purposes, and topics may or may not be updated subsequent to their initial posting. By reviewing these responses, you understand that this information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice. These responses should not be used as a substitute for competent legal advice from a licensed attorney in your state. This site is not intended to be advertising and Michelle Stewart does not wish to represent anyone desiring representation based upon viewing this site in a state where this blog fails to comply with all laws and ethical rules of that state. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, any tax information contained in this site was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal, state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed on this site.

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As a personal development company for modern-day women, we equip women on a mission to build unstoppable momentum, become spiritually confident, and to never feel alone on the journey.

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