Welcome back to Business & Budgets! In this post we will be discussing how to legally setup your new business, if you have already started a business and realize these things aren't in place now is the time to make the corrections. The primary two things we will cover are legal structures and intellectual property.
There are a variety of business structures that you may chose from., the important thing is that you do your research and make a decision. You do not want to start making consistent money, start building a brand and then get sued without an appropriate structure in place..If you haven't set anything up, you can typically just file everything under a Schedule C under your personal taxes when it's time to file your return. Here's your primary options for business structures:
Sole Proprietorship: This business structure is an unincorporated business structure that is owned and operated by one individual. With this structure all debts, liabilities, losses and gains are reported on your personal tax return. This structure does not cost anything to setup in most cases, though it does not protect your assets and is difficult to sell the company or raise funds.
General Partnership: This structure is for a business with multiple owners and typically no registration is required. Everyone is capable of possessing equal ownership, though it offers little to no protection. General partners can become personally liable for the debts of the company outside of their investment.
Limited Liability Partnership: This structure is best for business partners. Affordable setup fees and provides a layer of security for the partners personal assets. Partners are not liable for the decisions and misconduct of other partners.
Limited Liability Company: This is a great option for solopreneurs who are seeking protection from being personally liable for the company's debt. Which is why it is the most popular option for small businesses.
Corporation: There are two different types of corporations, C-corp and S-corp. The S-corp allows share holders to pass through the corporation's losses and incomes through their personal taxes. The C-corp is much more complex than the other previously discussed structures with expensive setup and maintenance. This business type operates completely separate from it's owners.
Consult with a local professional to figure out what the best option is for you and your business, Legal Zoom is not a friend of your budget.
When you are a creative entrepreneur it is extremely important that you protect your work every step of the way. Protection of all inventions, logos, slogans, brand images and more ensures that nobody else takes your work and profits.
Patent: This is for individuals who come up with new inventions and need to ensure that someone else does not duplicate the design and reproduce it as their own. This process generally costs $1,000 to $100,000 depending on your invention and industry. Once your application is filed, you have the legal right to stamp your new invention as patent pending to inform the public that the product is protected.
Copyright: This provides protection for a variety of creative works including software, media, music and other virtual intellectual property. A copyright can exist for up to fifty years after the death of the creator of the work.
Trademark: This is a protection that is applied to slogans, names, brands, logos and more. This does not expire after a particular term of years, like copyrights, this will remain in effect as long as you continue to operate with business with it. You can trademark on a state level and protect your mark in up to three states, you will be able to use the TM mark or you can file for a nationwide trademark which would allow you to use the registered R symbol.
NDA (Non-Disclosure Agreement): This agreement is drafted for individuals who are interested in keeping the details of business endeavors and ideas confidential as they disclose private information to potential partners and investors. Make sure all parties information is correct, that expiration of terms are clear and that the elements of confidentially are clearly described.
Non-compete contracts: This contract is drafted to protect business owners from having their ideas stolen and sold by current or prior employees. These agreements typically implement time periods on how long an individual has to wait before working with a competitor.
Trade Secrets: As the term implies these are secrets. The most important thing about a secret is that it isn't shared, in the event that it must be shared, precautions should be made. These secrets generally aren't filed because they would then become public information. They are instead protected with the usage of employee contracts and NDAs.