Do I need a lawyer for this?Common legal issues for new businesses

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With projects like business formation ($900), copyrights ($240), employment offer letters ($420), NDAs ($375), and dozens more, Legal Hero can provide a great lawyer for any legal issue your business faces.

Warning: a lawyerly thing to say

The information contained in this presentation is intended to serve as general background information on legal matters relating to starting a

business. The included information does not establish an attorney-client relationship between you and Legal Hero and is not a substitute

for legal advice. Prior to taking any action, we encourage you to contact a lawyer.

What we’ll cover today

1. Starting up – choosing an entity

2. Intellectual property basics

3. Building and managing a team

4. Tax issues

5. Social media concerns

6. When you need a lawyer

Starting up

Why do entity types even matter?

• Taxes• Liability• Set-up/maintenance costs

Implications of your entity choice: taxes (1/4)

Pass-through taxation Double taxation

Busin

ess

Ow

ners

Earnings Dividends

Implications of your entity choice: liability (2/4)Bu

sines

s Limited liability means that creditors can only go after the businesses’ assets, such as cash and inventory.

Without limited liability, creditors can go after the assets of the owners as well, such as their savings and their homes.

$

$

Ow

ners

Implications of your entity choice: liability (3/4)

Business Assets Owner Assets

$ $

Even with limited liability, must treat business assets as distinct from personal, or you run the risk that limited liability will not be recognized.

WARNING: YOUR BUSINESS IS NOT YOUR PIGGY BANK!

Cost of set-up and maintenance

Implications of your entity choice: set-up/maintenance costs (4/4)

Sole proprietor: no set-up; it exists just by doing business

Partnership: no set-up; it exists just by doing business together; may have Partnership Agreement

Corporation: standardized set-up; annual franchise taxes; board governs

LLC: Slightly higher formation costs; operating agreement; annual franchise fee

Limited Partnership: Can be expensive to set up LP Agreement and administer

Cheap

Pricey

Business entity types: overview

Sole Proprietor Partnership Limited Liability Co C-Corporation

Tax Treatment

Asset Protection

Set-up Costs

Governance/maintenance

Pass-through Pass-through Choose treatment Double taxation

No limited liability

No limited liability Limited liability Limited liability

None None Formation; LLC Agreement

Formation; Bylaws

NoneNone (sometimes Partnership Agreement)

Annual franchise fee

Annual franchise tax and report; board governs

Ownership restrictions

S-Corporation

Pass-through

Limited liability

Formation; Bylaws

Annual franchise tax and report; board governs

No more than 100 shareholders, all of which must be US citizens/residents, and can only have one class of stock

One person None None None

Business entity types: influencing factors

1. How many founders are there?

2. How many owners of the business will there be?

3. Will I be raising money? From whom?

4. Will I be issuing equity/options?

5. Will I be losing a lot of money before I make any money?

Intellectual Property: A primer

• Patents• Trademarks• Copyright• Trade Secrets

Patents: What are they and are they worth it?

A patent is . . . protection for a novel, non-obvious, useful machine, process, manufactured item, material, or any

improvement on these things . . .

But is that really what you have?

1.) Document idea 2.) Preliminary patent search

3.) File within one year of

publication of idea

Once successfully filed, patent lasts 20 years from date of filing.

Patent filing process

A word, symbol, or phrase used to distinguish your goods/services from others

Trademarks: Protect yourself!

As long as you don’t:• Abandon• Improperly License• It becomes generic

What is a trademark/service mark?

How do you trademark?

Likelihood of successful trademark registration

Generic/Descriptive Suggestive Fanciful/arbitrary“World’s Greatest Bagels”

① Conduct a trademark search (TESS, Google, etc.)

② File application with the USPTO③ Respond to follow-up from USPTO

How long does it last?

Why trademark?• Legal presumption of ownership & ability to sue concerning mark in federal court• Public notice of your claim of ownership of mark & listing in USPTO online database• Right to use federal registration symbol ®• Use of US registration as a basis to get registration in foreign countries

Copyrights

• The expression of an idea (lyrics, words, etc.)• NOT the idea itself

• 70 years after death of creator

• For corporations – 120 years after creation or 95 years after publication, whichever longer

What is a copyright?

When is it worth it?

How long does it last?

• Valuable expressions (music, books, software)

• If infringement/piracy is likely

Trade Secrets: The “other” IP

Why a trade secret? (vs Patent)

• Longevity• Secrecy• RECIPES!!!

How do I protect my trade secrets?

• Non-Disclosure Agreements

Technical or business

information

From which business derives value

That is not known to

the public or competitors

Which the biz makes

reasonable efforts to

keep secret

Trade Secret!

Employee vs. consultant – A balancing act

Consultant/ContractorEmployee

Works under control and direction of employer

Works on company schedule

Trained by the company

Provides own materials/equipment

Behavioral Control

Relationship Type

Financial Control

Yes

Yes

Yes

Gets paid on a regular basis (i.e. weekly, monthly)

Gets paid on a per-project basis

Gets reimbursed for business expenses

Receives employment benefits (i.e. health insurance)

Independent Contractor/Consulting Contract

Employee Offer Letter

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Building & managing a team: keeping information confidential

Confidentiality Agreements

NDAs critical if protecting a trade secret!

Non-competes

•aka non-disclosure agreements (NDAs)•Restrict the ability of employees to disclose any confidential information about the company

•Restrict the ability of employees to work for any competitors for defined period of time – outlawed in some states, such as California•The more vague, the more scrutiny from a court

Consideration is key (something must be given in return for NDA or non-compete)!Often packaged into a Non-Disclosure, Non-Competition Agreement or Employment Offer Letter

•Must be technical or business information•Must derive value from this information being kept secret•Can’t generally be known to the public or competitors•Must be considered secret and business must take reasonable efforts to keep it secret

Building & managing a team: employee benefits

Required benefits• Health insurance (maybe)• Social Security and Medicare taxes• Unemployment insurance• Worker’s compensation• Disability insurance • Family and Medical Leave Act

• 12 weeks unpaid leave for illness• Paid leave (in some states)

Common/Expected benefits• Vacation!• Retirement plan

Generous benefits• Gym memberships• Transportation benefits (MBTA, car)• Meals• Subsidized memberships

Building & managing a team: the Affordable Care Act (1/2)

The magic number = 50

• Essential health coverage• Pre-existing conditions• Coverage of dependents

up to 26• No caps on lifetime

coverage• “Grandfathered plans”

• Existed before 2010

Full Time Equivalents (FTEs) Employer Mandate Qualified Health Plans

•Triggers aspects of the law• >30 hours per week

•Or >130 hours per month•Seasonal employees• >120 days per year

• 50-99 FTEs – starts in 2016

• 100+ FTEs • 70% of FTEs in 2015• 95% of FTEs in 2016

• $2000 penalty per FTE for not covering

• No mandate for smaller companies

Building & managing a team: the Affordable Care Act (2/2)

The other magic number = 25 Incentives• Small Business Health Care Tax Credit

• <25 FTEs• Up to 50% of company contribution to employee premiums

• Company must pay at least 50% of premiums• Avg. employee salary <$50,000

Exchanges• Marketplaces for health insurance coverage

• Many states have their own, others use the federal exchange• Small Business Health Options Program (SHOP)

• For companies <50 FTES• Companies up to 100 FTEs (in 2016)

Wage and hour laws

Minimum wage• Federal minimum wage is $7.25

• States range from $7.25 to $11.50 (District of Columbia)

Tipping• An employer may pool tips, but managers and the employer cannot

receive any portion

Taxes: online taxes

Same state sales

“Nexus” – physical in-state presence (e.g. warehouse, employee)

Taxes: employment taxes

Payroll taxes• Paid by employer and employee

• Must remit and withhold• 15.3% of employee’s income

• 16.2% for high wage earners• Social Security and Medicare

• Social Security 6.2%• Medicare 1.45%

• Social Security tax maxes out at first $117,000 of income• No max for Medicare tax

• Penalties for failure to pay

Social media policies

Why?• Protect company• Set expectations for employees

What?• Set limits for company-related social media

posting• Protect company information• Maintain intellectual property rights• Cannot restrict free speech rights

• Mainly applies to rights around labor, not general speech

• Policies for passwords

Who?• All employees• Especially those with access to corporate

social media accounts

Yelp and the law

Fake reviews• FTC prohibits undisclosed paid endorsements• State attorneys general are getting aggressive• Yelp is more vigilant

Retaliation• Anti-disparagement clauses in terms of service• Outlawed by California in 2014• More states following

A word of caution

Hiring a lawyer: When is it worth it?

No, really, lawyers can be helpful• Can help you create customized contracts that protect you and your

business• Can ensure that you are complying with the law• Can help you think through issues and weigh the risks of different

paths

Always hire a specialist• Lawyers are more and more specialized, so you should leverage

expertise• Issue expertise (i.e. trademark lawyers)• Industry expertise

Hiring a lawyer: When is it worth it?Get a lawyer when… DIY when…

Business Formation

Co-Founder Equity Paperwork

Employee Offer Letters

Patent

Trademarks

Stock Option Plan & Agreements

Copyrights

Raising Money

Vendor Agreements

Customer Agreements

Consulting Agreements

Real Estate (Lease Review)

Terms of Use/Privacy Policy

You have co-founders/will raise $ Single Founder & no complications

Always

Preparing multi-use template Filling out a customized template

Preparing multi-use template Filling out a customized template

Always

Always

Always

Most times unless critical

Always

Preparing multi-use template/critical Filling out template/non-critical

Preparing multi-use template/critical Filling out template/non-critical

Website will collect any user info Website only presenting info

Work-sharing/month to monthTerm of 1 year or more

Thank you!

Please reach out with any questions.

Dan Devoe: dan@legalhero.com

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