Why You Should Form an LLC (Explained in 45 Seconds)

form llcRegardless of the industry, when starting a new business, project, brand, or venture, the first step is to determine the proper legal structure. This typically becomes a choice between a corporation or a limited liability company.

The purpose of this post is to give you a broad strokes overview of a few legal structures so you can have an informed discussion with your attorney, accountant, or other professional advisor.

My goal is to explain the most important points for each in less than a three minute!

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Below I have 3 items for you that quickly give you a rundown on the most important points.

  1. A Infograph that shows the difference between LLC and Corporations.
  2. A video on why you should form an entity.
  3. A table breaking down the differences between LLC and Corporations.

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Infograph: Differences Between an LLC or a Corporation?

differences between llc and corporation

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Video on Why You Should Form an LLC or Corporation

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Table on Differences Between LLC and Corporation

LLC Explained – Corporation Explained

Different Forms of Business Entities

Entities Characteristics Limited Liability Company (LLC) Corporation
Ownership Rules Unlimited number of members allowed Unlimited number of shareholders; no limit on stock classes
Personal Liability of the Owners Generally no personal liability of the members Generally no personal liability of the shareholders
Tax Treatment The entity is not taxed (unless chosen to be taxed); profits and losses are passed through to the members Corporation taxed on its earnings at a corporate level and shareholders are taxed on any distributed dividends
Key Documents Needed for Formation Articles of Organization / Certificate of Formation; Operating Agreement Articles of Incorporation; Bylaws; Organizational Board Resolutions; Stock Certificates; Stock Ledger
Management of the Business The Operating Agreement sets forth how the business is to be managed; a Member (owner) or Manager can be designated to manage the business Board of Directors has overall management responsibility; Officers have day-to-day responsibility
Capital Contributions The members typically contribute money or services to the LLC and receive an interest in profits and losses Shareholders typically purchase stock in the corporation, either common or preferred

4 Common Mistakes People Make When Running An LLC

reality tv pitch misakes

Every business, project, and even personal brand needs to be properly structured for legal and tax reasons. There are a few different structures that our attorney or accountant may suggest, such as a corporation, an s-corporation, or partnership, but this post focuses on my favorite small business structure, the Limited Liability Company, or LLC. It has taken about 30 years, but LLCs are starting to get the respect that they deserve.

For over 20 years, I have set up hundreds of LLCs for client ventures in real estate, music, television, film, technology, brand management, media collaborations, and as a structure to protect client’s intellectual property and other assets. I’ve always been a fan of LLCs from a legal perspective because, if formed and managed properly, this entity offers the best of both worlds…limited legal liability (which you don’t get with partnerships) and fewer formalities to deal with in comparison with running a corporation. For example, if you are a partner in a partnership and it gets sued, then your personal assets (i.e., house, cars) are vulnerable if the plaintiff wins. On the other end of the spectrum, if you are a shareholder in a small corporation and it fails to comply with certain legal and tax formalities, then your personal assets may also be at risk (i.e. the plaintiff may be able to “pierce” your corporate protection).

An LLC is an entity that falls somewhere in the middle of partnerships and corporations. Check out this short (45 second) video and the associated blog post for a quick explanation on this subject or more about LLCs.

Despite the ease of forming an LLC relative to a corporation, the members need to properly set-up the operations to avoid issues. Below are 4 Common Mistakes for you to avoid when running your LLC.

  1. LLC Members Do Not Have A “Deadlock Provision” In the Company Operating Agreement

A deadlock provision (or more formally called Impasse Resolution) is a method specified in the Operating Agreement that governs what happens when members with equal ownership disagree on a decision. A common scenario is when an LLC with only 2 equal members are at odds on a decision which results in a 50/50 deadlock (i.e., one member votes to get a bank loan; the second member votes not to get a bank loan). If the Operating Agreement states that all decisions must be made by majority vote, then what happens? Exactly! Without language in the Operating Agreement indicating how a deadlock is resolved, the company business could be adversely affected. I’ve seen unresolved deadlocks result in very bad outcomes, including members suing other members, businesses failing due to lack of management unity, and Courts ordering lucrative businesses to dissolve!

Be aware that many form Operating Agreements found on the Internet, or provided by LLC formation companies, do not include a deadlock provision. Make sure your Operating Agreement has a deadlock provision!

  1. The Company Operating Agreement Is Outdated

As you may be aware, California completely re-wrote its LLC law in 2014 and made some additional revisions in 2015. The governing law is called the California Revised Uniform Limited Liability Company Act. If your company was formed before 2015 and you have not amended or revised your operating agreement, you need to update it immediately.

In general, the previous LLC law provided members with flexibility when drafting the company’s Operating Agreement. This allowed the Operating Agreement to govern operations and the old law supplemented what may not have been covered in the agreement. The new law takes the opposite approach. It defines specific default laws that automatically apply if the company’s Operating Agreement does not address a certain issue.

For example, the new law states that an LLC is member-managed (it takes a vote of the members to approve something) unless the LLC (1) has filed articles of organization stating that the LLC is manager-managed (approval is allowed by one or more managers); and (2) has a written operating agreement expressly establishing management by a manager. Many existing manager-managed LLCs formed under the previous law may not comply with both of these provisions since it was not a requirement, so the new law may have automatically converted these LLCs to member-managed entities, which means the current manager no longer has the authority to make decisions. Imagine what would happen if a dispute occurs based on one of those unauthorized decisions! I recently saw this issue result in a company losing a lawsuit.

Make sure your company is operating under an updated Operating Agreement.

3. The Members Do Not Properly Document LLC Activity

This is a common scenario. You form an LLC through one of those cookie-cutter companies and eagerly start to hold yourself out as a formal business. A few years later, you engage an attorney for some reason (to discuss a lawsuit against the company, the company wants to apply for a bank loan, someone wants to buy the company, etc.) and you give the attorney your nice-looking LLC record book. When the attorney opens the book, the only things in it are the filed Articles of Organization and a bunch of unsigned template documents!

This scenario happens frequently so don’t feel embarrassed. Many people are in love with the concept of owning a company but ignore the work that is required to properly form it and maintain records. Don’t be that person.

There are many reasons why you need to keep your records up to date. The following are a few examples:

  • To Prevent “piercing” of your legal protection. If you are in a lawsuit, the first thing an opposing party will do is try to discredit the existence of your LLC and get to your personal assets. If your paperwork is not in order, you are helping the other side.
  • To Memorialize membership percentages. It is critical that each member’s ownership interested is documented in a signed Operating Agreement! I once had a client who believed that he was a 50% owner based on an unsigned Operating Agreement. After he was sued by the other members, the Court ruled that he only owned 1/3 of the company. He lost a lot of money because of this ruling.
  • To define the scope and limits of management. Whether your LLC is member-managed or manager-managed, everyone needs to be clear on how decisions are made. Usually, there are some decisions that can be done without everyone’s participation, but major decisions, like whether the company will be sold, should require unanimous approval. Any limits should be spelled out in the Operating Agreement.
  • To Document Member Contributions and Member Loans. Almost every company deals with funding issues at some time. Usually, members will transfer money and property to and from the LLC, which is normal, but these transfers need to be properly categorized and documented! It is different if you contribute money to the LLC in exchange for membership interest vs. you loaning the LLC money that you expect to be repaid. If you don’t document your transfers, the IRS or a Court may do so however they see fit. I don’t suggest you let this happen.
  • To Properly Purchase or Transfer Assets Into The LLC’s Name. Members who purchase assets or register IP with the intent that the LLC be the owner need to properly assign and transfer the transfer in writing. Failing to do so can result in a rude awakening during a significant Company event, such as a lawsuit, bankruptcy, or company dissolution.
  1. LLC Members Commingle Company Funds With Personal Funds

This is another very common mistake. The most important rule when operating an LLC is to not commingle funds! This includes things like a member cannot pay personal bills with LLC money and vice versa. All LLC income must go into the LLC bank account and all expenses must come out of that account. Even small things like your monthly web domain charges. If the LLC is short of cash, the members should deposit money into the LLC account, pay the expense, and properly document the transfer of funds as either a capital contribution or a loan.

If a member needs money and the LLC has excess funds, the LLC should pay the member and the LLC will reflect on its books that the payment is either a return of capital, distribution of profits, or repayment of a loan.

I see many more mistakes but these are probably some of the most costly.

Until next time!

Richard Jefferson, Esq.

4 Agreements Your Brand Needs Before Working With A Social Media Influencer

 

social media influencer agreements

 

The landscape of the digital world with respect to promoting brands, products, and services is constantly evolving. The early years where “anything goes” are now long gone as more laws have taken effect.

Activities that were completely acceptable a few years ago are now being regulated (even though many people try to ignore these regulations).

For example, remember when you could pay a bunch of celebs to freely post a promotion on their Myspace pages (took you back, huh)?

Well, nowadays the FTC requires individuals to disclose paid endorsements or face steep fines.

 

It is important for companies to comply with the changing laws, but it is just as critical for companies to translate the legal safeguards that it applies to traditional advertising, marketing, and promotional activities, to its digital campaigns.

So if a company or brand would instinctively enter into a solid agreement with a traditional marketing person, why is engaging a social media influencer (SMI) any different?

The answer is…there is no difference. Yet, in my experience, it seems like some traditional company owners still think that using social media is merely an informal pet project with no consequences. This is completely wrong.

 

Instead of going into a boring summary of each area of law that is involved with engaging an SMI, let’s break it all down with a real life example (the culprits shall remain nameless).

Here we go!

 

Brand A sells women’s hair spray. Brand A finds the perfect SMI on YouTube. The SMI’s audience fits the demographics of Brand A’s hair spray perfectly and she has well over 10 Million faithful subscribers.

Brand A reaches out to SMI and they do a loose agreement over email with some basic terms. Things go well for a month and Brand A can see a direct correlation in sales and its appearances in SMI’s videos.

Brand A has also cross promoted SMI and she now has subscribers that have migrated from Brand A’s social media.

 

In the second month of the Brand A-SMI relationship, Brand B (Brand A’s competitor), which sells hair gel, notices Brand A’s success and reaches out to SMI to see if she will promote its product for a generous fee. SMI says, “sure” and her next video contains both Brand A’s hair spray and Brand B’s hair gel.

 

Brand A is furious and, in so many words, tells SMI “You Can’t Do That!”, and demands that she stop promoting Brand B. SMI becomes irate and tells Brand A “I don’t have any restrictions on my life…go suck on your hair spray and leave me alone!”, and she not only refuses to promote Brand A anymore, but she also says some unflattering things about Brand A’s hairspray to her audience.

In addition, Brand A continues to promote its hairspray using SMI’s videos that feature the product without her consent.

 

Ultimately, they all get their lawyers involved and what happens?

Brand A alleged breach of contract, defamation, trade disparagement, tortious interference with prospective contractual relationships, and unfair competition…I could go on.

SMI alleged copyright and trademark infringement for the continued unauthorized use of her videos, which include her trademarked name and logos, and she alleges unauthorized commercial appropriation because Brand A continues to use her name, likeness, voice, etc.

Brand B demanded its money back because of the distraction.

 

Who won? No one. They all wasted their money fighting each other merely because they did not have a clear understanding of the relationship up front.

 

My point is that engaging a SMI to elevate a company’s brand, product or service is an important relationship that needs to be clearly defined. It involves many legal issues, such as contractual obligations, intellectual property rights, and right of publicity law.

Don’t be a Brand A, Brand B, or SMI in this example!

Side Note:

If you need legal agreements for a deal with a Social Media Influencer I put together this affordable package of Social Media Influencer Templates exclusively for my Blog readers!

 

This Infograph is a quick summary of the important points in this article.

Below that is a full article on the 4 key Social Media Influencer Agreements with more details.

Infograph: 4 Social Media Influencer Agreements

 

social media influencer contract sample

 

 

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The following are four essential agreements that companies, brands (and SMIs) should have in their toolbox before initiating a campaign:

 

  1. ENGAGEMENT AGREEMENT

The most important agreement that a company or brand will make with a SMI is the Engagement Agreement. This agreement should be carefully customized to fit the specific situation.

First, it is important to note that the agreement itself does not dictate whether a SMI is classified as an employee or an independent contractor.

Just because you call someone an independent contractor does not mean that the law considers them one. This classification depends on many factors, including the treatment of the person and the amount of control that the worker has over their work.

 

Some other key points to consider include:

 

  • Who Will Dictate Creative Control of Content? If content (i.e., videos, pictures, copy) is being created, who creates or selects it? Will there be minimum requirements for the appearance of trademarks, mentions of the brand’s name, tracking links, and/or promo codes? Will the brand provide copy points that the SMI puts in his or her own words?

 

  • Who Will Own The Content? Does the brand’s payment to the SMI include a buyout of all rights to specially created content, or is payment intended to merely to secure a license for the brand to use the content? If it is the latter, is that license exclusive or non-exclusive? Is there a holdback period (i.e., Is there an exclusivity period or, to a lesser extent, a period or place where the influencer cannot post the content)?

 

  • Is There An Approval Process? Will there be pre-approved posts (i.e., photos, topics) or does every post need to be approved beforehand?

 

  • What Does Each Party Expect? What are both parties expectations with regards to message, deliverables, campaign and posting schedules, platforms, accounts/channels within certain platforms, etc.?

 

  • Are There Competitor Restrictions? Who is SMI restricted from entering into an agreement with or mentioning (i.e., direct competitors) during the contract period;

 

 

And, of course, payment structure and schedule should be determined.

 

Some of the points above may also apply to the agreements below.

 

 


  1. BRAND AMBASSADOR AGREEMENT

This is a specific type of engagement agreement for when a brand uses a SMI to endorse and promote the brand, or its products/services using his or her social media influence.

The scope of this agreement is limited and the relationship is more likely considered that of an independent contractor.

As noted above, control over content, ownership, approval requirements, party expectations, and competitor restrictions are important to work out.

 

 

  1. SPONSORSHIP AGREEMENT

This is an agreement that should be put in place when a brand sponsors an event that is hosted by a SMI. From the brand’s perspective, the most important point is whether the relationship is exclusive, exclusive within a certain industry, or non-exclusive. An exclusive sponsor means that no other brand names are mentioned in promotions or during the sponsored activity.

Usually the sponsoring brand pays a large fee to secure this right. Exclusivity by industry means that the SMI is allowed to have other sponsors in industries that are unrelated to the brand’s industry. So, if the main sponsoring brand is an apparel company, then the SMI is allowed to secure a beverage sponsor.

A non-exclusive sponsorship means that there are no restrictions on the SMI to engage other sponsors, even with competitors. This is usually the case where the sponsors pay a low fee or just provide product for the event.

Other typical points in sponsorship agreements include defining the use of trademarks, payment and product display specifications, and the parties promotional obligations, such as social media campaigns and other cross promotional activities.

 

 

  1. Promotion and Product Placement Agreement

This is an agreement that sets forth the terms and conditions related to a brand’s placement of its product or services within a SMI’s content (i.e., video), which will be promoted to the SMI’s and brand’s audiences.

Other points that need to be specified in this agreement include the exclusivity issue discussed above and the specify visibility of trademarks and products.

For example, a brand will want to know how many close up shots it will get in the content so that their trademark is clear.

 

What’s the risk of NOT having the right agreement in place?

The risks are obvious once you understand the potential issues. For example, what if you don’t have a non-disparagement clause in your agreement (a clause that says that the SMI cannot bad mouth the company or brand) and a dispute arises. Can you imagine the damage to your brand if the SMI goes on a rant on their platform?

 

Remember, you purposely sought out the SMI because of their amazing following!

 

If you can’t afford to hire an attorney to draft these agreements for you (which is always my first recommendation), we offer an affordable and proven package of Social Media Influencer Agreement Templates that you can check out!

 

The agreements are drafted from the perspective of looking out for the company or brand, but they could also be helpful for a Social Media Influencer so that he or she can see the issues.

 

Until next time!

 

Tips on Giving Great Media Interviews That No One Ever Tells You – With David Mitchell

media interview tipsDo you ever notice that some people in the public eye give numerous interviews but still seem to always trip over their own tongue, fumble their words and use “um”, “ah” and “like” a lot?

On the other hand you will also see people in the entertainment industry who give clear, concise interviews and always seem to be right on point. It’s almost like the people who excel at interviews have been coached?

Well I’m telling you right now that from my experience most of the people who give great interviews have had some coaching or training in how to do just that!

When your in the Entertainment industry perception is everything! You don’t want to come off as a mumble mouth or people might not take you (or your client) seriously.

That is why in today’s interview I am talking to media coach David Mitchell of DAM Media Group. He is also the producer of Amalgamation Magazine, a industry quarterly magazine.

David helps people prepare for their interviews with the media (television, radio, online, etc.). That can include helping an artist, an actor, or an entertainment executive.

He is going to give us some good tips on how to prepare for interviews, what you should say…and probably more importantly what you should not say.

So lets get right to it. Here is the video of our chat with the full text underneath.

Richard

David, welcome to LawyersRock.com.  Lets jump right in. What does a media coach do?

David

Typically I get hired by publicists from the labels, managers, or attorneys. They usually call me in to assist their artist with interview preparation.

Whatever type of media, whether it is an interview for radio or TV or pre-interview or an online interview, I try to help them define their talking points, to get their message out, and to basically streamline that message within so many seconds or so many minutes; and to discuss their new album, film or some particular project that they are out there promoting at the time.

Richard

It sounds like you should be in high demand.  How you did you get your start?

David

Well, I actually question whether it is a high in demand career.  I don’t get nearly enough customers, and even some of my mentors don’t get nearly the amount of clients that they used to get.

I think at this stage of social media, people are trying to, I guess you can call it, “keeping it real”, they don’t want to get their artist too polished.  They don’t put in their budgets the type of development that they need.

I got into this, and I’ve been working for, Urban Network for 16 years and then I published my own magazine for the last 5 years.  I’ve done well over a thousand interviews, and I can really see the good interviews from the bad interviews. I thought, “hey I think I can come in here and help a few artists and maybe even some executives” and so I made a few calls to my contacts, and people are happy with the results.

Richard

And that is a perfect lead into my next question.  What are some common mistakes you see the artists making in interviews?

David

Wow! Common mistakes, I guess it depends on the artist.  Some artists tend to ramble.  You also get those artists that get those filler words, like “uh uh” and “you know what I’m saying”, and “like and like”, or the over gesture, or they don’t filter themselves during the interview, or they just lose track of their talking points.

Those are big things that we really try to concentrate, and narrow in on, when I am working with the artist.

Richard

What if you are in an interview and you get that “gotcha” question, or you just don’t want to talk about something?  What is a good way to address that?

David

Well one of the things I try to reinforce during my coaching is always be in the moment.  I know that is very Oprahesque, but listen closely to the questions that are being asked to you.

Try not to allow your mind to drift and when you do get those questions that you are asked that maybe you are uncomfortable with or that are not part of, lets say the agenda that was given prior to the interviewer by your publicist, I try to teach artists how to pivot, you know there are those pivot answers that you can give; that can kind of get you out of those uncomfortable questions.

Also remember why you are there in the first place, what is it that you are initially selling, I mean to discuss my album, film project or  next week’s game. Those are the things that we want to focus on, and I think that there are subtle ways in which you can pivot out of those uncomfortable questions or awkward moments. I teach artists how to do that.

Richard

It sounds like preparation is important.  What are some tips you can share with the audience that would help them prepare for an interview?

David

Well, I always tell artists you know, when that interview is being scheduled for you, ask your publicist or your manager, who am I speaking with, what kind of interview, is it a television interview, because that is going to be treated differently that if it were an online interview or a radio interview where you may spend you know 20 minutes on the phone talking to an audience, or you may spend 20 minutes in the actual studio talking to an audience and it becomes theater of the mind.

There are  just so many different facets to good interviewing and I really take this course that can last six to eight hours over 2 or sometimes 3 days depending on the attention span of the artist.

Richard

All great points David, thank you.  Well before you go, tell us a little bit more about yourself, how to get in contact with you, and how did you come up with that name “Amalgamation” for your magazine?

David

Well I chose a pricey word to name the magazine, amalgamation, meaning unification or blending many different elements and you can find me at amalgamationmag.com, it is a wonderful site, we ask people to come and visit us, I put out an actual printed magazine quarterly and this year I am partnering up with the Urban Network Digital to host a music conference, Back To Basics: The Music & Entertainment Summit 2014.

I was part of Urban Network for 16 years and we are bringing back the music entertainment so I am in.  It is going to be May 1st through the 4th at the Four Sheraton in San Diego, California.

Richard

Thank you David for the interview, very good information.

For more information on DAM Media Group and Amalgamation Magazine, follow this link.

What did you think of what David had to say? Do you think that we are headed towards a trend of people in the public eye “keeping it more real” and using media coaches less and less? Do you think the public prefers our celebrities unfiltered or does it open up a PR nightmare?

Look forward to your opinions, just add to the comment section below.

If you found value in this post I hope you will take a moment to share by clicking one of the social media buttons.

Cheers!

The Top 5 Legal Tips Entrepreneurs Need To Succeed

Hello everyone! I’m excited to post my first article of 2014, and launch my newly branded site.

Over the past year I focused primarily on Reality TV, but I wanted to expand to cover more areas of the Entertainment Industry since I also receive many questions about the music business, indie films, branding, and entrepreneurship. If you want to find out more about what we will be blogging about you can go here.

So on to today’s post! Today’s post is for all entrepreneurs because pretty much anyone in Entertainment who doesn’t work in-house at a studio, network, or label is a true entrepreneur.

I have put together the Top 5 Legal Tips Entrepreneurs Need To Succeed so that you can start the year off right.

 

I hope you found this information helpful, please subscribe to my newsletter and leave me a comment to let me know.

If you would like more details please see the following written post below.

All the best, Richard.

The Top 5 Legal Tips Entrepreneurs Need To Succeed

I have worked with hundreds of entrepreneurs over the years and many of the same issues pop up over and over again. The tough part is that if they had known what to look for at the very beginning when starting their company or project they could have avoided many of these issues.

In this blog post and video I am going to give you my top five legal steps that I think every entrepreneur should take while in the start up phase of the business. If you follow these 5 steps you will probably avoid many major pitfalls that I have seen over the years…and likely save a lot on legal and accounting fees.

 

All right, so here is the list. Let do this backwards like a countdown since it is the New Year, Number 5.

 

5.  Always Use Written Contracts (Avoid Oral Contracts)

 You are running a business, so don’t depend on an oral contract to protect your interests.  I know people say, “aww but an oral contract is enforceable”.  Yes, it is, but try to prove an oral contract in court! Trust me when I tell you that it’s very hard.

So, I don’t care if it is an email or pieces of paper, you need to get everything down in writing so you have a “meeting of the minds” documented and can’t be sabotaged by someone’s selective memory.

Think about it from the standpoint of what position you want to be in if there is ever a dispute. If it comes to that, it means you have a disagreement and probably two different sets of facts. If it is just your word against another person’s word, then there is a lot left up to chance. On the other hand, if there is a written contract that states what you two agreed on, it will be much easier for a third party to see where each of you are coming from.

Again, even if it is just an email between parties detailing what you both agreed to, that is better than nothing!

 

4.  Properly Categorize Workers (Independent Contractors Vs. Employees)

 Properly categorize your workers.  I know everybody wants to make everybody an independent contractor so they don’t have to pay taxes, but in reality if you have a contractor acting as an employee…then they are an EMPLOYEE. The law will come down on you hard if you miscategorize a worker, so it just makes sense to do it the right way from the start and avoid any problems.

I have seen a number of companies go out of business because they had miscategorized workers. The workers became disgruntled (with the help of an opportunistic attorney) and they won a Labor Board hearing, which classified the workers as employees and awarded missed meal time and overtime pay. If you have not been paying your workers properly, you will possibly also have to pay penalties, plus you are going to have to pay legal fees to defend against the law suit that you are probably going to lose.

Remember to keep this in mind with regards to interns as well. As Fox Search Light Pictures found out last year in an intern lawsuit that they lost in 2013, you have to be extremely careful about how you are using your interns. It is just not worth it to save a few bucks for the total devastation to your business that could possibly come later.

A very simple but inexpensive way you can help protect yourself from an employee lawsuit is by getting some really well written and comprehensive employee handbooks. If you have employee handbooks it does not necessarily mean an employee cannot bring a complaint against you but it is far less likely.

3.  Register Domain Names For Your Business (Names that Identify Your Business Brand)

 Register a few domain names that contain the name of your brand that you are trying to build.  There is nothing worse than building a brand and finding out that a cyber squatter has bought your name and plans to extort you for a large amount of money before he or she will turn it over.  Be proactive. Register and maintain those domain names early.

Most experts will advise entrepreneurs to not get ahead of themselves and spend to much money early on, but it becomes a cost/benefit analysis. Domain names are relatively inexpensive. You can register most available domain names for as low as $9.99 at places like GoDaddy.com

 

2.  Register Your Trademark

 A trademark is the legal basis of any brand, it basically is the logo or the name associated with the product or service you are offering. Registering your trademark protects you from having no recourse if someone uses a similar mark for the same product or service without your permission. Initially, protecting your brand may not be a big concern, but the point of all your work is to one day be successful and build a brand. When that happens then there will be people coming out of the woodwork trying to associate themselves with your brand.

For example, if you are a recording artist and are selling music, then your name would be in a certain class (likely Class 9 or 41) and you would register your trademark in that class. You don’t want to continuously do all that work to build your brand and have another artist come along and use a name that is similar to yours. You can’t stop people from doing bad things like this, but you can prepare your response if it does happen.

Also, note that there is a way that you can reserve your trademark while you are building your brand. That is a pretty smart way to start because initially you may not have the evidence needed to secure a trademark registration.

 

1.  Create an Entity

Drum roll please….The number one legal step I think you should consider when setting up a new business is to create an entity. That means forming a limited liability company (LLC) or incorporating (forming a corporation) for your business.

The main reason for this is that you want to keep things separate – ALWAYS keep your personal assets separate from your business assets!

Imagine someone sues you for a business matter and they end up winning a judgment against your business and you personally. They would be able to collect from your personal assets, like your bank accounts, home, car, etc. It’s one thing to lose business assets in a lawsuit, but its much more devastating if you lose personal assets. That could affect your personal and family life. You don’t want a judgment holder from a business lawsuit to be able to collect from your personal assets, and vice versa.

There are other valid reasons, like fundraising, worker issues, and tax benefits, but essentially the main reason why you setup an entity is to separate your personal and business lives.

So there you have it! If you would like a convenient PDF of my Top 5 Legal Tips For Entrepreneurs you can download that here.