What Are They?

An S-Corporation is a type of corporation eligible to be taxed under Subchapter S of the Internal Revenue Code. This tax status allows the corporation to avoid double taxation, where the corporation and its shareholders are taxed on the same income. The corporation does not pay federal taxes. Instead, the corporation’s income, deductions, and credits flow through to its shareholders, who report the income on their individual tax returns. This means that the profits and losses of the corporation are taxed only once at the individual shareholder level rather than at both the corporate and individual levels.

To qualify for S-Corporation, a corporation must meet specific requirements, including having no more than 100 shareholders, having only one class of stock, and being a domestic corporation. Shareholders must be individuals, estates, or certain types of trusts and cannot include partnerships, corporations, or non-resident aliens.

LLC stands for Limited Liability Company. It is a flexible business structure that provides personal liability protection to its owners (known as members) while allowing them to maintain significant control over the company’s management and operation. It is particularly popular among small business owners because it combines the personal liability protection of a corporation with the tax flexibility and management simplicity of a partnership. LLC members are generally not personally responsible for the debts and obligations of the company, and their personal assets are protected in the event of a lawsuit or other legal action.

An LLC must generally meet requirements such as filing the Articles of Organization, designating a registered agent, and must have at least one owner.

How Do I Decide?

Deciding whether to form an S-Corporation or an LLC depends on several factors, including the size of the business, the number of owners, the business’s revenue, and tax considerations. Here are some general guidelines to help you decide which structure is right for your business:

1. Ownership: An LLC can have unlimited owners or members, while an S-Corporation can have no more than 100 shareholders, all of whom must be U.S. citizens or residents. If you plan to have a large number of owners or foreign investors, an LLC may be the better choice.
2. Liability protection: Both S-Corporations and LLCs provide liability protection for owners. However, an LLC generally provides greater protection than an S-Corporation because it offers a more flexible management structure and has fewer legal formalities.
3. Taxes: An S-Corporation is a pass-through entity, and a LLC can be taxed as a sole proprietorship, partnership, S-Corporation, or C-Corporation, depending on the business’s revenue and tax situation, one structure may be more advantageous than the other.
4. Formalities: An S-Corporation requires more formalities and compliance than an LLC, such as holding annual shareholder meetings, keeping minutes, and maintaining corporate laws.
5. Size of the business: An S-Corporation may be more appropriate for small to medium-sized businesses with a limited number of owners. At the same time, an LLC may be more suitable for larger businesses with more owners.

Conclusion

Ultimately, the decision between an S-Corporation and an LLC depends on the business's and its owner’s specific needs and goals. It is always a good idea to consult a qualified accountant or attorney to determine which option is best for your particular situation.

What Is it?

An operating agreement is a legal document that outlines the ownership and operating procedures of a Limited Liability Company (LLC). It typically includes information about the LLC’s management structure, members’ rights and responsibilities, voting procedures, profit and loss distribution, and other essential details.

Do You Need It?

In general, it is highly recommended that LLC owners create an operating agreement, even though it is not always legally required. This is because an operating agreement can help clarify the roles and expectations of LLC members, minimize potential disputes, and provide a legal framework for your business.

The Reasons Why

Without an operating agreement, state law will govern the operations of the LLC, and in some cases, this default framework may not align with your intentions or needs. No owner likes to be told how to run their business. Therefore, creating an operating agreement that reflects your company’s needs and goals is highly advisable. Here we listed a few reasons you should consider creating an operating agreement.

1. Clarify the roles and responsibilities of members: Your operating agreement should outline the specific roles and responsibilities of each member of the LLC. This helps to minimize confusion and potential disputes in the future.
2. Establish a management structure: The agreement can specify the management structure of the LLC, including who will be responsible for making major decisions, how decisions will be made, and how the LLC will be managed on a day-to-day basis.
3. Customize financial and ownership arrangements: You can customize financial and ownership arrangements, such as profit and loss distribution, how much each member has invested, and how much each member is entitled to receive in distributions.
4. Comply with state law: While an operating agreement is not always legally required, some states may require an LLC to have an operating agreement in place. Even if it is not required, it is always a good idea to have one to avoid any potential legal issues down the road.
5. Protect personal liability: An operating agreement specifies that the LLC is a separate legal entity and that members are not personally liable for the LLC’s debts and obligations.

What Should You Include In Your Operating Agreement

An operating agreement typically includes the following information:

1. Business information: The legal name of the LLC, its business purpose, the address of the principal place of business, and the names and addresses of the members.
2. Ownership and management: The LLC's ownership percentages and management structure. This includes the number of members, whether the LLC is member-managed or manager-managed, and the managers' and members' powers and responsibilities.
3. Capital contributions: The amount of capital each member contributes to the LLC and the ownership percentages of each member based on their contribution.
4. Distributions: How profits and losses will be allocated among members and how distributions will be made to members.
5. Voting rights: The voting rights of each member, including how votes will be cast and what percentage of votes are needed to approve an action.
6. Buyout and transfer of membership: How a member can withdraw from the LLC or sell their membership interest, as well as the process for buying out members.
7. Dissolution: The process of dissolving the LLC, including how the assets will be distributed and how creditors will be paid.
8. Amendments: How the operating agreement can be amended, including the process of proposing and approving changes.

Can You Write It?

Just because you can, doesn’t mean you should. An operating agreement for an LLC should ideally be drafted by an attorney or a legal professional with experience in business law. This is because it is a legal document with significant implications for the LLC and its members. A poorly drafted operating agreement may leave gaps or ambiguity that could lead to disputes or legal liability. Therefore, it is advisable that you seek legal guidance in creating an operating agreement.

It is also important that you involve all members of the LLC in the process to ensure that everyone’s needs and concerns are addressed. By involving all members, you can prevent misunderstandings and disputes down the line and ensure that the operating agreement reflects the expectations of all members.

The Stats

During an economic downturn, employee lawsuits tend to increase because employees feel more vulnerable and seek legal action to protect their rights. According to a report by Seyfarth Shaw LLP, the number of workplace class action lawsuits increased by 17.5% in 2020, partly driven by the COVID-19 pandemic and economic downturn.

The Reasons Why You Need Legally Sound Employee Agreements

Employee lawsuits can be costly for employers, both in terms of legal fees and potential damages. According to The 2015 Hiscox Guide to Employee Lawsuits, the median cost of employment claims that resulted in defense and settlement payment was $200,000. And that’s only the monetary cost. Lawsuits are generally time-consuming and can damage a company’s reputation.

Having employee agreements is essential for both you and your employees as it helps to set clear expectations and protect the interests of both parties. Here are some items you should include in your employee agreements and the key reasons why they are important:

1. Clarify terms and conditions of employment: This can help clarify the terms and conditions of employment, such as job responsibilities, compensation, benefits, and work schedule. This is critical in preventing misunderstandings and disputes between employers and employees.
2. Protect confidential information: This can include confidentiality and non-disclosure clauses, which protect your company's and client’s confidential information. This can help prevent employees from sharing sensitive information or trade secrets with competitors or the public.
3. Set expectations for employee conduct: It is best practice to include clauses related to employee conduct in the employee agreements. This includes expectations for professionalism, compliance with company policies, and restrictions on outside employment or activities. This can help to ensure that your employees behave appropriately and ethically while representing the company.
4. Establish ownership of intellectual property: To prevent intellectual property theft, you can include in the employee agreements the clarification of intellectual property ownership created during employment, such as inventions, patents, trademarks, and copyrights. This can prevent the headache and monetary cost of disputes over ownership and ensure that your company retains the rights to all of its intellectual property.
5. Protect against liability: Include clauses related to liability, such as indemnification and release clauses, which protect the company from legal claims or damages resulting from employees’ actions.

Is Professional Legal Expertise Necessary?

Because employee agreements are legally binding contracts that have significant implications for you, the employer, and your employees, you want to ensure they comply with legal requirements and are enforceable. We do not recommend writing these agreements yourself unless you have a law degree.

If you do not have an in-house attorney or legal consultant, or you need additional legal help that needs immediate attention, and your company’s legal team is tied up in other projects, you should consider using outsourced legal services. There are many benefits to acquiring outsourced legal services, including but not limited to the following:

1. Cost savings: Most outsourced legal services charge by the hour or project, so you only pay for the time spent on your project.
2. Specialized expertise: You can choose the services and expertise your company needs.
3. Improved efficiency: Outsourcing legal services can improve efficiency by allowing you to focus on core operations while leaving legal support to outside experts. This also includes reducing the burden on in-house legal staff and helping them prioritize their workload.

Every business should take proactive measures to protect themselves from legal issues and liabilities by providing clear policies and training to employees. It is just smart practice.

When you incorporate your business, you turn it into a legal entity separate from the individuals—yourself and your business partners—that started the company. Alongside incorporation, it can be highly useful to implement corporate bylaws that establish the internal structure that will dictate how your business is run.

What are Corporate Bylaws?

If you’ve ever established articles of organization or incorporation for a business, you’re likely familiar with bylaws. Bylaws are rules and regulations established by an organization or group to govern its internal affairs. These rules can cover a wide range of topics, such as membership requirements, voting procedures, meeting protocols, officer duties, and financial management. Bylaws are typically created when an organization is formed, and they may be amended over time to reflect changes in the organization's needs or circumstances.

In general, bylaws are more specific to C-corporations and S-corporations. However, LLCs have operating agreements that are essentially used for the same purpose as a corporation's bylaws. If your business isn’t legally registered as a corporation, you are not obligated to create corporate bylaws. However, bylaws are a highly proactive tool to ensure your business runs smoothly.

Note that bylaws are not the same as articles of incorporation, as those are documents filed with state agencies to establish your business as a separate legal entity. Bylaws primarily serve an internal purpose, though are required to be made public if your company is publicly traded.

Why are Bylaws Important?

Bylaws serve as a critical component of your business, as they provide a framework for how your organization operates, and they help ensure that everyone involved is aware of the rules and procedures that govern their actions. They can also be used to resolve disputes and ensure that decisions are made fairly and transparently.

As a note, bylaws are generally legally binding, so you should ensure that your business is in compliance with any legal requirements when creating or amending any bylaws.

Bylaws proactively protect your business by providing the following:

Governance: Bylaws establish the rules and procedures for how an organization operates and how decisions are made, making sure that everyone in the organization is aware of their roles and responsibilities. They similarly provide a framework for conflict resolution and general decision-making.

Compliance: Bylaws aid in setting a business up for compliance with any legal or regulatory requirements that apply to it. For example, nonprofit organizations may be required to have certain provisions in their bylaws in order to maintain their tax-exempt status.

Clarity: By implementing bylaws, you clarify the rights and obligations of members, shareholders, or other stakeholders in an organization. This also allows you to define the scope of authority for different positions within the organization, establish internal controls, and provide a clear understanding of how decisions are made.

Continuity: If your business experiences turnover, having bylaws in place establish a sense of continuity, even as individuals come and go. This is helpful especially if your business changes leadership, as you have a guarantee in place that the business will run in the same way regardless of who is in charge.

Transparency: Finally, bylaws aid in establishing transparency and accountability within an organization. By establishing clear rules and procedures for decision-making, bylaws help ensure that everyone is aware of how decisions are made and who is responsible for making them.

Overall, bylaws are an important tool for ensuring that an organization operates effectively and efficiently, and that everyone involved is aware of their roles, responsibilities, and obligations.

Does Your Business Need Bylaws?

Whether or not your business is legally required to establish bylaws depends on the structure of your business and the size of your organization. Bylaws are typically associated with formal organizations, such as corporations, nonprofit organizations, and cooperatives. If your business falls within this category, then contracting an outsourced attorney to put bylaws in place is an excellent, proactive step to take.

Bylaws are especially useful for organizations that have a complex structure or multiple stakeholders, as they help to define roles and responsibilities, establish decision-making processes, and clarify the rights and obligations of members or shareholders. They also aid in preventing or resolving disputes within the organization and ensure that everyone involved is on the same page.

If your business is a sole proprietorship or a partnership with a small number of partners, you may not legally need formal bylaws. However, even in these cases, an outsourced attorney can help you put basic rules and processes in place to protect your business in case of disputes, lack of internal controls, or big changes. Ultimately, bylaws are a proactive measure to protect your business in the long-term.

There are several different types of intellectual property designed to protect your work and enforce your rights. Though the differences between each type can be confusing, understanding what each protection does can help protect your business from losing valuable proprietary information. Here, we’ll focus specifically on trade secrets, how they differ from other types of intellectual property, and general best practices to protect your business’ trade secrets from competitors.

What is a Trade Secret?

A trade secret is a type of intellectual property that consists of confidential or proprietary information that is not generally known or readily accessible to others. Trade secrets can include a wide range of information, such as formulas, processes, techniques, designs, patterns, software codes, customer lists, and business strategies.

Trade secrets are valuable assets to your company, as they provide a competitive advantage over other companies, and detail the specific know-hows and processes that make your business unique and successful. Unlike patents, which require disclosure of the invention in exchange for legal protection, trade secrets are kept confidential and can be protected indefinitely as long as the information remains confidential.

Trade secrets are protected under both federal and state law in the United States. Your business can take various measures to protect their trade secrets, such as requiring employees to sign confidentiality agreements and limiting access to sensitive information. In the event of a breach of a trade secret, your business can legal remedies, including injunctions and monetary damages. However, it’s best to proactively seek outsourced legal services in the early stages of your business to ensure that your trade secrets are protected.

How is a trade secret different than a trademark?

A trade secret and a trademark are two different types of intellectual property protections. A trade secret is confidential information that provides a business with a competitive advantage, such as a secret recipe or a confidential manufacturing process. A trademark, on the other hand, is a symbol, word, phrase, or design that identifies and distinguishes the source of goods or services of one company from those of another.

Trademarks can include logos, brand names, and slogans, and need to be registered with the United States Patent and Trademark Office (USPTO). By registering a trademark, the USPTO provides the owner with exclusive rights to use the trademark in connection with specific goods or services. Trademarks can be renewed indefinitely as long as the owner continues to use the mark.

Essentially, trade secrets are confidential information that provides a competitive advantage, while trademarks are distinctive symbols or words used to identify and distinguish the source of goods or services. Both should be protected to for your business to thrive.

How is a trade secret different than a copyright?

A copyright is another type of intellectual property protection and is granted to the creators of original works of authorship, such as literary works, music, movies, and software. Copyright protection gives the creator the exclusive right to reproduce, distribute, and display the work, as well as to create derivative works based on the original. Copyright protection is automatic upon creation of the work, and it lasts for the life of the creator, as well as a given number of years past the creator’s death.

Trade secrets generally apply to the current operation of a business, whereas a copyright is granted to a completed work.

How is a trade secret different than a patent?

A patent is a legal protection granted to inventors for novel inventions or new ways of doing something. A patent gives the inventor the exclusive right to make, use, and sell the invention for a limited period of time, typically 20 years from the date of filing. In exchange for this exclusive right, the inventor must publicly disclose the invention, which enables others to learn from it and build upon it after the patent expires.

Trade secrets are similar to patents, as they both protect innovations. However, trade secrets apply more to a business’ individual processes, information, data, or software rather than only inventions or innovations.

How Can You Protect Your Business’ Trade Secrets?

If your trade secrets fall into the hands of a competitor, it can cause your business to lose market share and allow competitors to capture some of your business. And, of course, a loss of trade secrets undermines the hard work it took to build your business in the first place. There are several strategies that your company can take to protect its trade secrets, discussed below. However, a good first step to take is to contract a fractional attorney that can identify the best procedures to protect your business’ trade secrets. An outsourced attorney can also develop a full-fledged plan to ensure each aspect of your business is safe through intellectual property protections.

Identify and classify trade secrets: You cannot protect your trade secrets unless you first know what they are! Conduct a comprehensive inventory of all of your company's confidential information and identify what information is critical to your business—and consequentially needs protection.

Implement physical and technological safeguards: Implement physical safeguards, such as locked cabinets, access control, and security cameras, and technological safeguards, such as password protection and encryption, to protect your company's confidential information.

Develop protective policies and procedures: Develop and implement policies and procedures for employees to follow when handling confidential information. This should include trainings, both during the onboarding period and annually, on the importance of protecting trade secrets and the consequences of disclosing them.

Use non-disclosure and confidentiality agreements: Require employees, contractors, and third-party vendors to sign non-disclosure and confidentiality agreements that prohibit them from disclosing or using your company's confidential information. An outsourced attorney can help you draft these agreements before you hire additional employees to work for your business.

Limit access: Limit access to your company's confidential information to those who have a need to know and ensure that they are aware of their responsibilities for protecting the information.

Monitor and enforce: Monitor access to confidential information and take swift action to enforce your company's policies and legal protections if there is any suspected or actual misuse or unauthorized disclosure of confidential information.

By taking these steps, your company can help to protect its trade secrets and prevent unauthorized disclosure or use of its confidential information. Once your trade secrets are legally protected, you can take legal action if any infringement occurs.

When creating a trademark for your brand or business, there are both design and legal aspects that you need to consider. A trademark, simply put, is any word, symbol, design, or phrase that identifies your brand, and is a type of intellectual property. Ideally, you should develop a trademark that:

• Has phrasing, colors, and graphics that accurately express your brand- Has phrasing, colors, and graphics that accurately express your brand
• Is easily identifiable
• Distinguishes your brand from competitors

Your trademark should evoke positive associations with clients and consumers, as well as accurately portray the message you want to put out into the market. However, with well-designed, thoughtful trademarks comes the potential risk of being infringed upon. Brands with great trademarks are often vulnerable to being stolen from by competitors that want to mimic the positive reputation associated with that trademark. Here, we’ll address some of the most important factors to consider when developing your trademark, as well as how to protect yourself from potential infringement.

Creating a Low-Risk Trademark

As you’re developing your own trademark, it can be helpful to search for existing trademarks within your industry or business type. This will give you an idea of similar trademarks that already exist that can prevent the use and registration of your own. An outsourced attorney can guide this process for you and provide their opinion on the likelihood and availability for registering your trademark—though it ultimately is up to the decision of the Trademark Office. Generally, your trademark should not:

• Be too visually or phonetically similar to other trademarks
• Coincide with legal precedents that could prevent your trademark from becoming registered
• Be too similar to other brands known for filing oppositions

It’s best to avoid being entirely descriptive of your brand, but rather create a trademark that is unique in its associated meaning within your industry. Trademarks are assigned different levels of protection based on their strength. Generic or overly descriptive trademarks are given the least level of protection—for example, BAKED BREAD CO. for a sliced bread company. On the other hand, trademarks that are apparently arbitrary, seemingly unassociated with the product or service, or especially distinct are given the strongest level of protection. Think, Apple for computers and iPhones, Shell gas stations, or Coach for luxury accessories. None of these trademarks inherently have to do with the goods that the company creates.

Developing a Long-Term Trademark

In addition to creating a trademark that will have strong legal protections and generate positive brand recognition, it’s important to consider whether or not your trademark will support the long-term goals of your company. If your trademark will be used to market your products and services, it should be broad enough to encompass any potential changes you make in the future. For example, if your current business is to screen print tote bags, you may have a trademark that only reflects tote bags. However, as the business grows, you may want to expand into screen printing t-shirts and other articles of clothing. The tote bag trademark won’t serve future endeavors. Taking your time and choosing a trademark that can grow with your business is highly advisable.

Protecting Your Trademark

Once you’ve settled on the right trademark for your brand, the next step is to register it with the United States Patent and Trademark Office (USTPO). This process can take between nine and twelve months if no objections are raised or oppositions filed. When approved, it’s important to protect your trademark from competitors. The most effective trademark strategy is one that ensures your business is the only benefactor of the positive reputation your trademark represents. To prevent trademark infringement, you should provide notice of your trademark rights every time you use it. This can be done by using an ® once your trademark is registered, or a “TM” if you’re still in the process.

Though the USPTO registers your trademark, they aren’t responsible for enforcing the exclusivity of your trademark’s usage. Be sure to assert your rights as the trademark holder. If you find instances of a competitor using a trademark too similar to your own, a cease-and-desist letter can dissuade the infringer from continuing to use the trademark. An outsourced attorney can help you take further legal action when necessary.

The trademarking process can be difficult and full of obstacles. The best course of action is to contract an outsourced attorney that can advise you throughout the process.

Are you currently operating a business, or planning to start a new business in 2023? Running and starting a business can be highly rewarding, but also immensely challenging. There are numerous legal requirements that should be taken into consideration within your business plan to protect yourself and your ideas from being stolen, prevent tax violations, and safeguard against financial issues. Here, we’ll address common mistakes that newer business owners make and how to avoid them.

Mistake One: Operating as a Sole Proprietorship or General Partnership

If you have a sole proprietorship or are operating as a general partnership, you could be putting yourself at unnecessary risk, as neither option provides liability protection. This means that if a mishap occurs, you, your family, and your assets are at risk of being impacted in a business lawsuit. Protecting yourself from liability as an entrepreneur is just as important as the product or service you create.

Restructuring your entity can be quite the undertaking. We recommend reaching out to an outsourced legal services provider, such as Catalyst Legal, to discuss entity options that best suit your needs.

Mistake Two: Failing to Use Formal Agreements

Formal agreements and contracts form an essential component of running a business. While it would be nice to assume that every client, business partner, and vendor you interact with is fully trustworthy, this is sadly not the reality of the business world. Even if you have never had issues in the past, it only takes one instance—such as a damaged shipment or late client payment—to put your business at risk. In instances where you are in the right, it can still be costly to prove so.

Generally, formal contracts address issues such as which party is liable for problems with transactions, purchaser remedies, and limitations on damages in the event of a default. Formal agreements are not only useful for protecting yourself, but also make executing the day-to-day tasks of your business much easier. They’re needed when applying for loans, opening a credit card, hiring new employees, renting office space, and more. Implementing formal contacts within each area of your business is a proactive measure to safeguard against disputes and issues when they inevitably arise.

Mistake Three: Hiring Contractors, but Treating Them Like Employees

Using contractors can be an excellent solution when you have additional work that needs to be completed, but are not ready to invest in a full-time hire. While contractors generally have higher hourly rates than full-time employees, you can save significantly in hiring costs, benefits, and general liability. However, many entrepreneurs make the mistake of treating contractors like regular employees.

Independent contractor misclassification can look like providing the worker identical training, workspaces, and assignments without extending benefits, minimum wage, or worker’s comp. A true contractor should be running their own business, providing their own materials, and deciding how and when they will perform the work. The relationship is also a temporary one. The consequences of misclassification can include hefty fines from the IRS, payment in back taxes, and other serious penalties.

The best way to ensure your contract workers do not become employees is to create a formalized agreement that outlines the terms of your relationship with them—then following it! This is another excellent area for an outsourced attorney to step in; they can help create the formal contract and ensure that working boundaries are clearly defined.

Mistake Four: Failing to Create Confidentiality and Non-Compete Agreements

The last thing you want as a business owner is for competitors in your area trying to poach your top employees. Or, perhaps worse, for the employee to take proprietary information, trade secrets, and business practices to open up their own competing business. A non-compete agreement is a type of NDA that places common-sense restrictions on your employees to prevent them from working for competition, or creating a business that competes directly with you. Confidentiality agreements can be a useful tool to prevent the sharing of trade secrets. It can similarly cover any information you want to protect, such as intellectual property, client lists, knowledge of business practices, financial information, or specialized training.

Mistake Five: Neglecting to Protect Intellectual Property Early On

Intellectual property can be extremely valuable, as it often forms the core of your business, and can be sold for financial gain if you ever decide to exit the business. By protecting your intellectual property, you can significantly expand the value of your assets, and ensure that competitors cannot gain from your hard work.

Intellectual property should be trademarked, copyrighted, or patented, depending on what is it. A registration provides you with additional remedies and, in some cases, may be the only way to protect your intellectual property assets. Many businesses spend tens of thousands of dollars marketing and advertising their product or service, but never stop to consider how they should be protecting their investment.

By safeguarding each component of your business, and by proactively seeking legal counsel, you can establish a strong foundation that will keep your business thriving for years to come.

Often, your business will run into situations that will require you to share confidential information with another company or individual. When these situations do arise, putting a non-disclosure agreement (NDA) in place is a prudent measure to protect sensitive information, your business’ confidentiality, and proprietary business information.

What is an NDA?

An NDA is a legally binding contract that establishes a confidential relationship between your business and another. (They are also referred to as confidential disclosure agreements, confidentiality agreements, and proprietary information agreements.) Those signing the contract agree that any information exchanged cannot be made available to any other parties. NDAs are commonly used within business transactions, such as a merger or acquisition, during the due diligence process in which sensitive information is exchanged. There are two types of NDAs:

• Non-Mutual Agreements, in which only one party is required to maintain confidentiality, as they are the only ones receiving sensitive information. For example, a non-mutual agreement may be used with a new employee that has access to sensitive information about the business.
• Mutual Agreements, in which both parties share and agree to not disclose any confidential information. A mutual agreement would be used between businesses considering a merger, for example.

When Should My Business Use an NDA?

Essentially, your business should enter into an NDA when sharing any information that is inherently valuable or private to your business. The information shared is to be used only for the limited purpose for which the information is being disclosed. Below are common scenarios that would require an NDA.

Product Development

If you’re contracting a vendor to either develop, manufacture, or distribute a product that belongs to your business, an NDA can ensure that your design is not replicated, stolen, or otherwise shared. Similarly, if you’re pitching an idea to a company that takes product idea submissions, an NDA should be used to protect your idea. Patenting your idea is another proactive, protective measure you can take.

Employee Access to Sensitive Information

The last thing you want as a business owner is for a former employee to take proprietary information, trade secrets, and business practices to open up their own competing business. Requiring new employees to sign a non-mutual NDA upon hiring can protect your business in the long-term. The NDA can cover any information you want to protect, such as intellectual property, client lists, knowledge of business practices, financial information, or specialized training.

Negotiations with Prospective Buyers

If you’ve been considering selling your business, the thought of sharing sensitive information with multiple prospective buyers can be daunting. An NDA when selling your business will not only prevent your confidential data from becoming publicly available, but also can hide the fact that you’re selling. This reduces the chance of client and employee turnover during the selling process.

The same applies to any business transaction in which due diligence must occur.

Utilizing Outsourced Business Services

If your business contracts an outsourced service provider to execute some function of your company, a non-mutual NDA can protect any information that the provider might handle. This is especially important when the service provider works with sensitive financial information or has access to log-ins, email lists, your website, or social media accounts.

If you do not currently have any NDAs in place, or you are involved in business dealings that could benefit from additional protection, an outsourced attorney can step in to help draft an ideal contract for your business’ needs. An outsourced attorney can ensure that the NDA is thorough enough to protect sensitive information and establish the terms of the information exchange, as well as help you identify any terms that you are and are not willing to negotiate.

It's likely that this week alone, you'll enter into multiple contacts—perhaps without realizing it. Generally, these contracts are informal and unwritten; for example, splitting up household chores, borrowing a friend's car, lending your lawnmower to a neighbor, or making a purchase online, in a store, or at a garage sale. With these types of contracts being routine parts of our day, it's unlikely that you ever draft formal agreements for these instances. However, for business owners, choosing to not put an agreement in writing can have devastating consequences—especially for smaller or brand-new businesses. Failing to document agreements through formal contracts can create unnecessary stress for business owners.

Take the following example: a person sets up and operates a business out of their home. They sell products online, which are purchased wholesale from a manufacturer. No formal agreement is entered into by either party—except for a very short purchase order, which merely outlines the product, a unique SKU, and the number of units purchased. When the business owner receives the product, the box is heavily damaged. Upon opening the package, the business owner realizes half of the products they ordered were damaged and, therefore, unsellable. However, when the business owner calls the manufacturer, they refuse to take responsibility for the damages. They claim that they aren't liable for any products damaged in transit. In this case, who is responsible for covering the loss? What is the business owner's recourse if they cannot convince the manufacturer to send them additional product?

Unfortunately, this type of dispute happens all the time, highlighting the need for formal, written contracts. For a seasoned business, a situation like the one described above may not be as detrimental to the company, as the losses can be absorbed over time. However, for newer or smaller businesses, capital is critical to continued growth—and a 50% loss on a transaction is less easily weathered. Typically, formal contracts will address issues such as:

• Which party bears the risk of a loss in transit
• Purchaser remedies
• Limitations on damages in the event of a default

Although routine transactions may never require a formal, written contract, there are several situations in which a business owner should be sure to have a documented agreement:

• Hiring employees, especially key employees who will have access to sensitive financial information or business data.
• Long-term vendor relationships, where there will be a high volume of transactions occurring on a regular basis.
• Transactions with ongoing obligations, whether those obligations be on the buyer side or seller side.
• Businesses with multiple owners, which should always have partnership agreements in place that dictates how profits and liabilities will be distributed, and places limits on what each owner can and cannot do.
• Large transactions, whether it's a loan, purchase, or investment that total over $5,000.
• Any situation or dealing that presents inherent risk from the goods or services that a business provides.

Of course, there are many situations in which it's advisable to have the agreement put in writing. Consulting an attorney is critical if there is any uncertainty about whether a written contract is needed. Many small business owners worry about the cost of hiring an attorney to draft a contract. However, the real concern should be whether the business can bear a loss that stems from not having a formal contract in place. In fact, the long-term cost of having an attorney draft an agreement is not high, considering that if a business ends up in court, a straightforward agreement will make the terms easier to enforce. The last thing a business owner wants to do in the midst of a dispute is to have to prove that an agreement even exists.

Take a proactive measure to protect your business and contact Catalyst Legal for a free consultation. We can walk you through any potential gaps in your business’ processes that may be putting you at risk for unnecessary liability.

New businesses rarely have extra cash to spend, which means that some of the important legal processes - such as registering your trademark - often slip through the cracks. If cash is tight for your business, it is important to register your company name before your logo. Though you should eventually register your logo, it is less likely to be stolen by a competitor. Your business name, however, should be protected from the get-go, allowing others to know that it belongs to you. Here, we'll address all of the legal need-to-knows about trademarking and how you can better protect your business.

What Exactly Is a Trademark?

A trademark is a symbol, phrase, word, or design that identifies a particular source of goods and services from those that belong to another company.

Trademarks are used to help brand your company and your products. The strength of a trademark is determined by a sliding scale:

• Generic Marks - These are not registerable, as they define goods or services. We see these type of marks with things like bandages, aspirin, etc.
• Descriptive Marks - These are difficult to register because they are used to describe goods and services; an example would be using the term "best electrician".
• Suggestive Marks - These marks are registerable as they imply a particular good or service. For example, Nike suggests shoes, and Greyhound suggest busses. Suggestive marks are strong and normally do not have a difficult time getting approved.
• Arbitrary Marks - These marks are used for a word or symbol and rarely have direct correlation to the goods or service; think - the Apple brand does not correlate to computers. (example is Apple - Computers)
• Coined Marks - These marks are made up of words or phrases, such as Yahoo, Kodak, or Exxon.

Why You Need to Register a Trademark

Registering a trademark serves to prevent other businesses from stealing or imitating your brand. If someone else uses your trade name or logo for their services, a trademark registration will give you several options to stop that infringing use. A registration also puts others on notice that you own the mark that other brands cannot use. Often, providing notice of your rights is enough to prevent others from using your marks. Registration is the only way to formally cement your brand as your own.

Selecting a Mark That Is Critical for Your Brand

How do you select a mark that will set your brand apart from all the other companies? For example, if you are opening a new dental office, what are you going to do to compete with the hundred other dentists in the area? And, how do you convince clients to use your services over others? Essentially, you have to use your mark to increase the strength of your brand. Start by understanding your target audience and how you can reach out to them. Advertising is the top way to get your name out to potential customers. Selecting a mark that is memorable and meaningful can go a long way to setting yourself apart from competitors.

Although trademark rights spring out of use, failing to register your trademark can have serious repercussions for your business. That little ® after your logo or name helps to stand out. It communicates a level of trust with your target audience, as well as lets other companies know you care about your company and you have taken the time to invest in the legalities of running a business.

What is the Registration Process?

Catalyst Legal can provide you with the information needed to register your logo and company name, aid in completing the necessary paperwork, and even help you brainstorm your business' marks if needed. Our goal is to provide you with the best information possible to make an informed legal decision.

What happens if the logo or idea you have come up with has already been trademarked?

To avoid any complications, Catalyst Legal can aid in researching your mark, ensuring that yours is original and will help your business stand out.

Once the trademark has been selected, the paperwork process can begin. To complete the application, you will need the date of first use, samples of the mark, and a list of your goods and service.

Generally, the process is straightforward; however, the trademark examiner may raise the following concern:

• The mark is descriptive or otherwise unable to be registered
• The mark is too similar to another business that offers similar goods
• A disclaimer may be required

Additionally, the United States Patent and Trademark Office (USPTO) will publish your trademark for opposition, opening up the possibility for a legal battle if another company finds your mark too similar to theirs. Utilizing our services can help avoid these issues, as we can provide legal guidance before you submit your application.

Do I Need to Register My Mark?

This is a question we hear all too frequently. The short answer is yes! If you want to protect your ideas and brand, you need to legally register your trademark. Even if cash is tight in your initial stages as a business, trademark registration is a crucial investment in the long-term success of your organization.