As an attorney who advises start-up enterprises certain issues come up regularly in representing them. These include selecting a business name, organizing the business, protecting the business’ intellectual property and dealing with potential litigation.
I’ve therefore prepared a summary guide to handling these issues:
1. SELECTING THE BUSINESS NAME-In Illinois the business name must be distinguishable upon the records of our Secretary of State from the corporate name or assumed corporate name of an existing Illinois corporation or a foreign corporation authorized to transact business in Illinois or the name of a limited liability company in those records, or a name that is otherwise currently registered or reserved. In addition, if a corporation, the name must include the terms, “Corporation,” “Incorporated,” “Company,“ “Limited” or an abbreviation of those terms, and if a limited liability company the words “Limited Liability Company,” or the abbreviation “L.L.C.” or “LLC.”
2. SELECTING THE BUSINESS NAME II-If you buy a Dell laptop computer, the computer will be sold by Dell Inc. and the computer will bear the DELL trademark on it. If you buy a Blackberry smart phone, the phone will be sold by Research In Motion Limited but it will bear the BLACKBERRY trademark on it. If you intend to follow the Dell example and use the name of your business as the name of your product, selecting your business name gets more complicated as you will be selecting a brand name or trademark (or service mark, if you are a service provider) at the same time. In that case, prior to selecting your business name, you should add the step of conducting a search to determine if that name or a confusingly similar name is the subject of either a federally registered trademark or an application to register a trademark with the United States Patent and Trademark Office, whether it is the subject of a state trademark registration or whether it is in use but not registered. One of the benefits of a federal trademark registration is that it is prima facie evidence of the registrant’s exclusive right to use its mark throughout the U.S. Therefore if someone has previously federally registered a confusingly similar mark or previously filed a federal application to register a confusingly similar mark that is ultimately registered, even if they are not currently doing business in your geographic area, they can bar your use of your mark if they come into your area in the future.
3. ORGANIZING THE BUSINESS-Once you have a name, you should formally incorporate the business. The advantage of doing this is that by incorporating your business and maintaining the necessary corporate formalities over time, the corporation becomes a separate entity apart from the individuals who organize it and those individuals cannot be held liable for the corporation’s actions with certain exceptions. A corporate officer can still be held individually liable for criminal activities, negligence or fraud. In incorporating, you can be a C corporation, in which the corporation pays taxes, an S corporation, in which the corporation’s income and losses flow-through to its shareholders who pay taxes on them or a limited liability company (LLC) which may be taxed in the same manner as either an S corporation or a C corporation. How you are taxed is important; e.g., if you have a day job and your start-up is a money-loser at first, you may want to take its losses personally, whether it is an LLC or a corporation. There are other important tax consideration involved which should be considered if you are trying to decide if you wish to become a corporation or an LLC. The most important consideration, in my mind, if you’re a start-up, is if you intend or need to raise capital from third-parties in the future. With a corporation; doing so is easy, you sell them shares of stock in the corporation. Furthermore, the Articles of Incorporation can determine which shareholders control the management of the business and which don’t. An LLC cannot sell shares of stock to outsiders because it does not have any stock. However, there are less corporate formalities involved with an LLC. So if your enterprise is of limited duration, e.g., you’re developing real estate, which, hopefully, will be sold in a short time or it’s a family business that will always be in the family, or it’s akin to a partnership and you don’t intend to keep the business going without your partner, then an LLC may be the way to go.
4. REGISTRATION-In addition to incorporating your business or organizing your LLC with the state Secretary of State, you should register your name, if it is the name of the product or service that you are offering, with the U.S. Patent & Trademark Office as a trademark. Doing so not only gives you the presumption of the exclusive right to use that mark nationally but your mark becomes a matter of record in the Patent Office where potential competitors will see it if they conduct a search and, hopefully, steer clear of using a similar term. [Note that there are may be other regulatory requirements that may have to be met, depending on the nature of the business, whether it has employees or not and the products that it sells, e.g., drugs and financial products.]
5. WHEN BAD THINGS HAPPEN TO GOOD PEOPLE-Sometimes you’ll make a mistake; use a trademark that belongs to someone else, use music or a photo of a model that someone else has the rights to or pick a business name that may be distinguishable from someone else’s but still similar to that other party’s. Hopefully, these things won’t happen, but if they do and you get a stern letter from someone else’s lawyer, remember the following; (a) don’t ignore the letter, (b) retain an attorney and have him or her respond to it as soon as possible, even if your attorney’s initial response is merely, “he just got hired and needs to find out what’s going on” [Note, handling it yourself suggests you can’t afford an attorney and if money is potentially at issue, the effect of this will be analogous to swimming with an open wound in a shark pen.], and (c) don’t let emotion get in the way; remember business is business and litigation is part of business. In order to run a business successfully, there must be a significant amount of certainty and predictability in its operation. Litigation is unpredictable and often uncontrollable, both in terms of expense and outcome. That is why the outcome of most lawsuits is a settlement and not a judgment. Determine what your goal is and how you can most quickly and inexpensively reach that goal. If the other side sets conditions that makes meeting your goal impossible; what are the odds and costs of winning at litigation. If the odds are in your favor, and a good lawyer should give you an honest appraisal of those odds, you may be able to convince the other side of this, presumably it doesn’t want to lose its case, and you may be able to reach your goal despite the other side’s opening combativeness. If, on the other hand, your odds are closer to 50-50, then litigation becomes an expensive gamble. and, unless, you can afford to roll those dice, then preservation of your business’ existence and its assets, particularly its goodwill, should be your primary concern.
