Posts under: Corporations

8 Core Tax Concepts Every Entrepreneur Needs to Know

October 24, 2017 Business planning, Corporations, Small Business, Tax Planning Comments Off on 8 Core Tax Concepts Every Entrepreneur Needs to Know

Of the many virtues that entrepreneurs have, one such virtue is the desire and ability to get as much information and knowledge as they can by reading books, attending speaking events, researching on the internet, etc. However, ‘taxes’ aren’t one of the topics entrepreneurs seek out, and it’s for a justifiable reason.

Many believe the topic of taxes to be either too boring or overly complicated, and it typically is when presented improperly.  Yet, so many business owners are starving and anxious to learn tax and legal principles. Inspired by those teachers of tax and legal topics that make it truly interesting, I have tried to summarize in this article the top 8 Core Tax Concepts that every entrepreneur needs to know:

  1. The IRS treats different types income VERY differently. This principle is at the CORE of so much of our advising. For example, income you make in your operational business is NOT taxed the same as income you make in your rental real estate “business”. So as you read books, attend speaking events, etc., keep in mind that the principles taught (and the advice if you’re talking to your tax professional) are going to depend in large part on the TYPE of income.
  2. Corporate Income Tax versus Pass-through Entities i.e. LLC’s, S-corps, Sole Props, Partnerships. A pass-through entity is a business entity that does NOT pay income tax at the “entity” level but rather, the income tax liability is passed-through to the owner(s) of the business (hence avoiding the double taxation that is often associated with c-corporations). In other words, the manner in which income generated by an LLC taxed as a sole proprietorship or partnership is very different than a c-corporation. There are a lot of false assumptions that entrepreneurs have about their tax situation and a lot of that comes from internet research – not because the article was bad, but because they simply misapplied it to their situation. For example, if an entrepreneur whose business is taxed as a partnership comes across an article about business taxes is going to become very confused if the articles is referring to corporate income taxation, unless they REALIZE the article is not referring to “pass-through entities” such as theirs. The result would be that if that entrepreneur tried to apply the principles in that article to their business, it would be confusing and likely not helpful.
  3. There are all sorts of taxes – It’s important to keep them straight. If you regularly read books, attend speaking events, listen to podcasts, etc., and you hear taxes, don’t assume it’s ALWAYS about income taxes. For example, technically, self-employment taxes, which is discussed frequently, is different than income tax. And when you’re in the world of small business, real estate, estate planning, etc., trying to get as much “self-learning” as you can, there’s even more types of tax out there which may or may not apply to you. For example, there’s income tax, self-employment tax, estate tax, property tax, gift tax, payroll tax, sales tax, and many more. So always make sure you’re aware of which type of tax that author, or speaker, etc., is referring to.
  4. Generally, a tax-write off is whatever costs and expenses are customary and appropriate in your industry and helpful to your business. Actually, the verbiage in the tax code is “ordinary” and “necessary”, but thanks to the courts, those words have been defined to mean “customary” and “appropriate”. So if you’re a house flipper out genuinely trying to make money in your business and you have costs and expenses along the way, you’ll typically be able to write off any and all expenses that are customary and appropriate for someone in the house flipping business.
  5. Some business “write-off’s” must be amortized over time. With some exception, when you/your business buys equipment or assets, generally that cost IS deductible BUT will have to be spread out or amortized over multiple tax years based on the IRS schedule for that particular asset/equipment.
  6. Basis. One of the core principles of taxation is that your cost to acquire an asset is called your basis, and that’s important because when you decide to sell that asset, the tax consequences of that transaction will be determined “based” (bad pun) on the selling price of the asset/equipment over and above the basis (note: by the time you sell that asset, the basis will have adjusted and so it’s referred to as your “adjusted basis”). That excess amount, if any, is a capital gain and is typically taxed differently than your “ordinary” business income. Selling an asset in your business (or the business itself) can become quite complicated, but so long as you remember this core tax concept, it will help you when discussing transactions with your tax professional(s).
  7. Most tax deductions are “entity-agnostic”. Most of the tax write-off’s that a typical entrepreneur are going to have will be available to them regardless of whether they operate as a sole proprietorship, LLC, or corporation. For example, if you’re trying to claim expenses associated with your business that you incur in the course of traveling, meeting with clients, etc., those costs will generally be deductible regardless of whether you operate your business as a sole proprietor, partnership, s-corporation, or c-corporation.
  8. Don’t let the “tax tail wag the dog”. I’m not suggesting your business is a “dog”, but if your business doesn’t need a certain expense or you wouldn’t buy a certain expense otherwise, it usually doesn’t make sense to incur such an expense simply to claim another tax write-off. For example, it’s exciting when you read a book or attend a speaking event that mentions a certain tax write-off, but if you don’t need that expensive new piece of equipment, particularly if you’re just starting out in your business, that huge expense, notwithstanding the fact that it is deductible, could run your business into the ground.

In sum, keep reading, attending speaking events, listening to podcasts, but if you will keep these core principles in mind you’ll have much better success in implementing some of the strategies you read/learn about. This article is not intended as legal or tax advice. If you’re an entrepreneur or potential entrepreneur and have tax and legal questions, please contact our office.

Ask Your Attorney if a “Covfefe” Trademark Is Right for You

July 11, 2017 Business planning, Corporations, Law, Litigation Comments Off on Ask Your Attorney if a “Covfefe” Trademark Is Right for You

On May 31st, 2017, at 12:06 a.m. Eastern Time, President Donald Trump unleashed the following tweet: “Despite the constant negative press covfefe.” No one has been able to definitively crack the code (if there is one) as to what “covfefe” actually means. The President took down the tweet six hours later and replaced it with a tweet saying: “Who can figure out the true meaning of ‘covfefe’??? Enjoy!”

Predictably, the word “covfefe” immediately went viral on social media, with several twitter users encouraging their followers to “ask your doctor if Covfefe is right for you” and others thinking it’s what you’re supposed to say when someone sneezes. In the following days and weeks, covfefe has taken on a life of its own and become a bit of a cultural phenomenon. Late night hosts have debated whether President Trump had some sort of minor stroke or simply fell asleep when he typed covfefe, and Hillary Clinton was asked about what she thought it meant in a recent public appearance.

However, it’s not only comedians and 24-hour news channels that are making hay with covfefe. A Google search of “covfefe” reveals dozens of businesses ready to sell you apparel with hundreds of variations on the covfefe theme. To date, my personal favorites are “Make America Covfefe Again” and “What Part of Covfefe Don’t You Understand?”

A check of the U.S. Patent and Trademark Office (“USPTO”) databases shows that in the forty days since the covfefe phenomenon began, 34 trademark applications have been filed using the term. The products and services being tied to covfefe run the gamut from “advice relating to investments” to fragrances, toys, coloring books, and even sandwiches. As you might expect, four different companies have filed applications to use covfefe for beer.

However, easily the most popular application (there are about twenty of them) is to get protection for using covfefe on t-shirts, hats, and other apparel. One applicant for a covfefe apparel trademark even appears to have access to the inner circle of Trump advisors and confidants who know what covfefe really means – after all, its application is for: “COVFEFE – Carry On Vigilantly Fighting Evil For Ever.”

So, the question becomes: which of these applicants will win the coveted “covfefe” trademark for t-shirts? The answer from this trademark attorney is: very possibly none of them! Why? Because the USPTO will generally refuse an application as “ornamental” if what is submitted to the USPTO shows that the use of the mark is only decorative or ornamental. That is, if the use of the mark does not clearly identify the source of the goods and distinguish them from the goods of others – which is required for proper trademark use.

The USPTO’s number one example of “ornamental” use is when a quote is prominently displayed across the front of a t-shirt, such as “The Pen is Mightier than the Sword.” The USPTO’s position is that most purchasers would perceive the quote as a decoration, and would not think that it identifies the manufacturer of the t-shirts (the source of the t-shirts could be Hanes® or Champion®, for example, as shown by the neck-tag).

Other examples of “ornamental use” put out by the USPTO are:

  1. A logo on the front of a hat. When the logo is associated with an organization, like a sports team, which did not manufacture the hat.
  2. Stitching designs on the back pocket of a pair of jeans. Purchasers are accustomed to seeing embellishments on jean pockets and would not think this embroidery design identifies the source of the jeans.
  3. A floral pattern on tableware or silverware. A purchaser would likely see this pattern as merely decorative and would not think it identifies the source of the tableware or silverware.
  4. The phrase “Have a Nice Day” or a smiley face logo. Everyday expressions and symbols that commonly adorn products are normally not perceived as identifying the source of the goods.

While there is no definitive place to affix a mark to goods to avoid an ornamental refusal, the location, size and dominance of a mark have a big impact on how the public perceives it. The USPTO has offered the following examples of proper non-ornamental trademark use:

  1. Discrete wording or design on the pocket or breast portion of a shirt. A purchaser would typically associate the small logo on a shirt pocket or breast area with the manufacturer or the source of the shirt.
  2. A tag on the inside of a hat or garment. A purchaser would associate a logo on the tag with the maker of the garment.
  3. Logo on a tag above the back pocket of a pair of jeans. A purchaser would typically associate this mark with the manufacturer of the jeans.
  4. A small logo stamped on the back of a dinner plate or bottom of a coffee mug. Purchasers are accustomed to seeing a mark used in this location to identify the source of the tableware.

Another way to get around an “ornamental use” refusal from the USPTO is to show that the mark has “acquired distinctiveness.” Long-term use in commerce, advertising and sales figures, dealer and consumer statements, and other evidence can be used to show that consumers directly associate a mark with the source of those goods. While this probably won’t work for the covfefe applicants (since the term has only existed for about six weeks), it could be an option in your situation.

The final option for the covfefe trademark applicants would be to move their applications to the “Supplemental Register.” Registration on the Supplemental Register doesn’t provide all the same legal advantages as registration on the Principal Register, but it does provide protection if and when someone applies for a conflicting mark later. Also, after five years of continual use, you can apply for (and in most cases will be awarded) registration on the Principal Register.

If you feel like you have captured “covfefe-like” lightning in a bottle, and want to talk about how to protect your name and/or logo, please give me a call at 435-596-9366 or shoot me an email at jarom@kkoslawyers.com.

Business Succession: When Corporate Governance and Estate Planning Converge: Are You Setup Properly?

March 28, 2017 Business planning, Corporations, Estate Planning Comments Off on Business Succession: When Corporate Governance and Estate Planning Converge: Are You Setup Properly?

You may have heard in the news recently that there’s been some fighting among the ownership team of the Los Angeles Lakers. When Dr. Jerry Buss, the majority owner, died in 2012, his ownership passed to his six children via a trust, with each child receiving an equal vote/share.

His succession plan had his daughter Jeanie take over his position as the Lakers’ governor as well as its team representative at NBA Board of Governors meetings. This last month, there’s been a fight between her and certain of her brothers that has become a power struggle filled with plenty of contention and legal fees. They appear to have settled this particular dispute but there were a lot of moving parts to their particular situation especially because of NBA rules, etc., so in that sense, what happened with the Buss family is unique.

However, what is not unique is that every business owner faces the same dilemma that Dr. Buss faced before he died – how to pass their business to their loved ones properly and effectively through corporate documents and estate planning. We have many clients who are confronted with this. With that in mind, here are a few tips and items to consider:

  1. Make Sure You Have the Right Entity and the Right Trust. There are a number of different entity structures you might have for your business and there are just as many, if not more, different type of trusts. If you aren’t properly setup, it’s going to make your business succession plan very difficult. In the case of Dr. Buss, at least he had a trust, and what turned out to be a month long dispute might very well have turned into a much longer dispute but for the trust. However, just having a trust is not the end-all be-all, rather, you need to make sure it’s the right type of trust and also that it contains the appropriate provisions for your circumstances.
  1. Have Your Corporate Documents Reviewed and Amended if Necessary. This is critical especially when you have business partners. Hopefully you have something in place currently in terms of corporate governance documents, whether it’s an operating agreement, partnership agreement, bylaws, and/or a shareholder agreement. If so, don’t assume it covers this issue and/or that is covers this issue in the best way for you based on your circumstances. The provisions you’ll want reviewed include but are not limited decision-making, ownership rights, transfer of ownership, etc.
  1. Consider A Plan To Transfer Some or All of Your Business Ownership To Your Loved Ones During Your Lifetime. You can wait until you die to have your business ownership transfer to your loved ones, or during your lifetime, you can strategically phase the transfer of ownership in your business to your loved ones over time. There are pros and cons to both approaches. With the former approach, it could increase the likelihood of estate tax liability. With the latter approach, you can be directly involved in the transfer of ownership and if handled carefully, it can decrease the likelihood of estate tax liability. This is where meeting with a professional can help you make a good decision here.
  1. Don’t forget to plan for incapacity. If your estate plan and business documents properly transfer your ownership to your loved ones, then you’re ahead of the game, but that is only half the battle. You also need to plan for incapacity. Such an event, if not properly planned for, can have a devastating effect on your business. You may recall back in 2014 another NBA owner, Donald Sterling, of the Los Angeles Clippers was ruled mentally incompetent and it affected his rights as owner of that team.

In summary, don’t own an NBA team from Los Angeles, but if you do, or if you own any other business, make sure you have a coordinated set of documents in terms of the corporate documents that govern your business and your estate plan documents, and that you’ve addressed not only death in said documents, but disability as well.

You’ve worked hard to build your business and when your intent was for the business to provide peace and stability for your family, the last thing you want is fighting and instability. If you are a business owner, please call our office so we can assist with this critical topic.

Which State’s Law Applies in a Lawsuit?

February 14, 2017 Asset Protection, Business planning, Corporations, Law, Litigation, Real Estate, Small Business Comments Off on Which State’s Law Applies in a Lawsuit?

We frequently hear from clients who have been told by others that they should incorporate in Nevada (or other states outside of their home state) in order to take advantage of their favorable laws.   We have seen many individuals persuaded into incorporating in a state outside of their home, only to complain about the cost and complexity of the structure which ultimately had to be unwound.

This is not to say that incorporating an entity in Nevada or Wyoming should never be considered as part of an asset protection strategy. One primary reason for incorporating a Nevada or Wyoming entity is arguably due to their strong “charging order” protection.   The charging order is a concept protecting an LLC owner who is sued and held liable for something unrelated to and “outside” from the LLC from then being able go and take that LLC interest or the asset held by the LLC.   For example, if you’re cruising on the highway over the weekend and get into a major accident causing serious injuries, the charging order could prevent or hinder the injured plaintiff from seizing your assets held in your LLC.

However, the myth that we often hear from clients is that because states like Wyoming or Nevada have strong asset protection laws, they should take advantage by incorporating these entities into their structure even if they don’t own assets or do business there. What is often omitted from the conversation is whether Nevada or Wyoming law will actually be applied if there is no connection between the lawsuit and Nevada or Wyoming.

Since we are a union comprised of fifty states with different laws, there is an incentive to try and take advantage of states that have more favorable laws. Courts generally discourage this type of “forum shopping” where people try to use the favorable laws of one state even if they have no actual connection with that state.

One of the ways courts deal with these types of cases is by applying a set of rules called Conflicts of Laws. It is an area of the law that allows a state to determine which laws will apply to a case when the laws of multiple states could potentially apply.

For example, lets say a California resident is driving in Nevada on his way to Vegas and collides with a Colorado resident causing catastrophic injuries. Where should this type of lawsuit be filed and which of these three state’s laws should we apply? Because these types of circumstances can be so varied depending on the residency of the parties and the location where the events resulting in a lawsuit occur, it is sometimes difficult to predict where a lawsuit should be and what state’s laws should apply. This is further complicated by the fact that states have different Conflicts of Law rules.

Here are some general rules that courts will usually apply depending on the type of case. Examples include the following:

  1. Personal Injury or Fraud: Generally the law of the state where the wrongful act causing the injury or fraud occurred will be the law that should be applied. For example, if the accident or fraudulent conduct occurred in Nevada, that is an indicator that Nevada law should be applied;
  2. Personal Property (damage or theft): Where the personal property was located when the act causing the theft or damage occurred may determine which state’s laws should apply;
  3. Real estate: The state where the real estate is located will often determine which state’s laws will apply in a dispute relating to real estate;
  4. Contracts: Where the contract was entered or where the principal events necessary to form the contract occurs. Keep in mind that many contracts have provisions governing which state’s laws or courts will be used in the event of a dispute. These types of “forum selection” or “choice of law” clauses are often enforced by courts, unless there is no substantial or reasonable relationship with the chosen state. For example, if you are in California and you enter into a contract with someone else in California and all the activities relating to the contract occur in California, it is unlikely that a California court would enforce a provision that says Delaware law should apply even if you included such a provision in your contract.

These are just some very general guidelines as courts may consider additional factors in any given case. Hence, the outcome in any particular case is often difficult to predict with any consistency.

Therefore, before you decide to set up a structure that includes incorporating in a state which you have little or no connection with, make sure you understand not only the purposes for choosing that particular state, but perhaps even more importantly, its limitations.     Don’t assume that if you incorporate your entity in Nevada, that you will necessarily get the benefit of Nevada’s laws, especially if you do not live in Nevada.

Thinking About Starting a Business? Consider These Ten Tax Tips

November 21, 2016 Business planning, Corporations, Tax Planning Comments Off on Thinking About Starting a Business? Consider These Ten Tax Tips

As the end of the year is fast approaching and 2017 will be here soon, if you’ve been thinking about starting a new business, keep in mind that once you are self-employed, a huge portion of the tax code opens up and becomes available to you for tax write-offs.  Of course there are a lot of risks and rewards of starting your own business, but one of those rewards is the availability to take tax write-offs that you wouldn’t otherwise be able to take including dining, travel expenses, and entertainment.  Here are a few tax tips to give you an “eye in the sky” perspective of the tax landscape as you consider if and/or when you will start that new business:

  1. Keep Your Day Job (If You Want To). You can keep your day job / “9 to 5” career while you build your business on the side AND still take all of the tax write-offs that are available to someone who is building their business full-time.  For example, if you leave your day job for the day and meet a potential client of your part-time/side business for dinner that night, you can write-off 50% of that meal JUST LIKE the business owner sitting next to you who runs his business FULL-TIME and is likewise meeting with a potential client for dinner. It’s probably wise in terms of your budget to keep your day job while you start your business but I’m simply pointing out that you have full access to the tax code for business write-offs the same as the guy who is running his business full-time.
  1. Take a Tax Write-off for Business Start-up Costs. The IRS allows up to $5,000 of qualified “start-up expenses” as a tax deduction in the year the costs were incurred.  If you have more than $5,000 of qualifying start-up expenses then the rest is amortized / spread out over a fifteen year period.  For example, if you spend $7,000 of qualified start-up expenses in the year your business began then you can claim a write-off in that first year in the amount of $5,000 and the remaining $2,000 is spread out over 15 years.  If your business closes down prior to that, you can claim the rest as a deduction at that time. HOWEVER, you need to make a sale or receive income in your business in order to write off these start-up costs.  For example, if you had $8,000 of qualified start-up expenses in 2016 but you have no income from your business for 2016, you can’t write-off $5,000 of that for tax year 2016 – You need to have income for your business in 2016 in order to claim that $5,000 deduction for that year. ADDITIONALLY, not every expense qualifies as a “start-up expense”; however,  many expenses DO qualify such as consulting fees and fees for similar professional services, costs to organize your business, cost of travel to meet with potential customers, suppliers, distributers, etc., advertising costs to announce your business opening, and costs to analyze the market/industry in which your business will compete.  IRS Publication 535.  As a practical matter, once your business has received income, expenses after that are no longer “start-up” expenses and are analyzed under Tip #3 below. There are some other rules and caveats regarding start-up expenses but in sum, this is a powerful incentive to get your business started now!
  1. Understand Which Expenses are Tax-Deductible. With some exception, as a general rule, any business expense that is ORDINARY and NECESSARY is tax deductible, i.e., it’s a tax write-off.  The IRS has stated that the word “ordinary” means common and accepted in the industry of your business and the word “necessary” means helpful and appropriate to your business.  For example, if your business sells products online and it is common and accepted in your industry to pay advertising fees and such fees are helpful and appropriate to your business, you can write-off those fees as a tax deduction.  There are many deductions which need to be analyzed further particularly those in which the IRS has set forth specific rules and guidelines such as the home office deduction and the auto deduction but this gives you the general idea of what expenses are typically going to be tax-deductible and which are not.
  1. Keep Good Records. Good record-keeping is the key to claiming tax deductions.  You need to have records that substantiate the tax deductions that you claim on your tax return.  This includes receipts and bank statements as well as good book-keeping using a chart of accounts to track each item of income and expense.  A chart of accounts is also helpful for tracking your business assets and liabilities, which can then generate balance sheets, profit and loss statements, and other financial statements that may help with qualifying for loans, etc.  Quick Books or similar software can help with this.  If organization and record-keeping is not a strength of yours but you are otherwise very entrepreneurial and have many other skill sets to run your business, you may find it helpful to outsource some of these tasks.
  1. Most Tax Deductions are Entity-Agnostic. Almost all of the tax deductions that we discuss for the typical small business owner are available to claim as a tax write-off REGARDLESS of whether your business is a sole proprietorship, LLC, s-corporation, partnership, etc.  For example, with some exception, you can take advantage of many, if not, all of that low hanging fruit such as dining, travel expenses, entertainment, retirement plan contributions, paying kids in your business, health care expenses, home office, etc. and you can be a sole proprietor, an LLC, an s-corporation, etc., it generally does not matter!
  1. Don’t Let the Tax Tail Wag the Dog (Your Business). Be smart about what you purchase in your business.  Simply because an expense is tax-deductible doesn’t mean you should buy it.  Don’t let the tax tail wag the dog, i.e., make the decision to buy business related expenses based on the needs and circumstances of your business.  For example, even if you can deduct that very expensive laptop that might not be the best use of your business capital whereas it could be spent somewhere else in your business much more efficiently and a moderately priced laptop could be sufficient for your business needs.
  1. Some Business Expenses Must be Spread Over Multiple Years. When you purchase an asset in your business you generally cannot claim a deduction for the full cost of the asset in the year of purchase – rather, the cost generally determines the basis meaning when you sell the asset you only pay income tax on the sales price minus the basis.  Further, the cost is generally spread out over multiple years and allows you to claim a portion of the cost each year as a tax deduction, i.e., depreciation. For example, if you purchase office furniture for $8,000 – the cost is generally spread out over seven years (IRS Form 4562).  However, IRS Code Section 179 would allow you to make an election to write-off the full cost in the year of purchase.  Section 179 is a powerful tool for the small business owner!
  1. Consider an accountant/CPA. Once you begin working for yourself, even if only part-time, it pays off to hire an accountant/CPA to do your taxes.  It also pays off to get some training on bookkeeping using software like Quick Books or at least until you’re knowledgeable it may be wise to outsource that task to a competent bookkeeper.  Also, you probably primarily think of federal income tax – don’t forget state income tax, as well as self-employment tax, payroll tax, as well as potentially excise tax, franchise taxes, etc.  All the more reason to consider an accountant/CPA.
  1. There isn’t a legitimate “Pay No Tax Quick” Scheme.  Just like Get-Rich Quick Schemes are usually too good to be true, similarly, the “tax game” is one in which the winner is the one who is steady, aggressive (not too aggressive – remember pigs get fat but hogs get slaughtered), and utilizes sound strategies over the course of many years.
  1. Understand the Type of Income Generally Determines How It is Taxed. Income you make in your business (after subtracting all those tax deductions) is generally included with your other income such as W-2 income to determine what personal income tax bracket you’re in.  But not all income is taxed in the same manner.  For example, income you make in your business is generally subject to self-employment tax whereas other type of income, such as rental income, dividends, and capital gain income is not.  The more you understand how various types of income is taxed then you can learn to be strategic with how you spend your time pursuing some types of income over others.  This where your business can ultimately build wealth for you and your loved ones for many years.

There are many other tips I could give a potential new business owner including the hobby loss rule as well as specific rules regarding home office deductions, auto deductions, Rule 179 deductions, health care deductions, and self-employment tax savings, etc., but these Tips hopefully give a baseline starting point to consider.  Note: many specific tips on various tax deductions can be found at www.markjkohler.com and www.kkoslawyers.com.  If you need assistance with business and tax planning, please call our office at 602-761-9798.

What’s the Difference Between a Copyright and a Trademark, and Why Does It Matter?

March 29, 2016 Business planning, Corporations, Small Business Comments Off on What’s the Difference Between a Copyright and a Trademark, and Why Does It Matter?

At least once a month, I get a phone call or email from a client who says: “Jarom, my business is absolutely blowing up!  I need a copyright to protect my name and logo so some copycat doesn’t rip me off!”  These clients are absolutely right about needing protection.  What they are wrong about is what kind of protection they need.  If you file for a copyright to protect your company, product or brand identity, you will end up gravely disappointed about the protection you actually get.

This sort of confusion seems to be fairly rampant and understandable, given the relative complexity of the concepts involved.  This article will attempt to demystify the subject – at least a bit.  Copyrights and trademarks are certainly similar.  They are legal mechanisms designed to protect intellectual property.  However, they cover very different types of property in very different ways.

Let’s start with copyrights.  Copyrights protect “works of authorship” that have been tangibly expressed in a physical form.  We’re talking about things like books, songs, movies, and television programs (i.e. This telecast is copyrighted by the NFL for the private use of our audience. Any other use of this telecast or any pictures, descriptions, or accounts of the game without the NFL’s consent is prohibited.).

Staying with the example of an NFL broadcast, the copyright allows the NFL to control how the broadcast of a game, such as the Super Bowl, is reproduced, distributed and presented publicly.  A federally registered copyright also allows the NFL to sue infringers in federal court and prevent the importation of goods that infringe the copyright.  Copyrights typically last for the lifetime of the author, plus 70 years for individuals, and 95 years from the date of publication or 120 years from the date of creation, whichever is shorter, for works created for hire or under a pseudonym.

So, if the actual radio and television broadcasts of the Super Bowl are protected by copyrights, the term “Super Bowl” itself, as well as the Super Bowl logo and the NFL shield logo are protected by trademarks.  A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods or services of one party from those of others.  Technically, a “trademark” identifies and distinguishes the source of goods, while a “service mark” identifies and distinguishes the source of services.  However, the term “trademark” is often used to refer to marks for goods as well as services.

The “Super Bowl” trademark allows the NFL to prevent others from using that term in connection with live football games and television broadcasts, as well as things like stuffed animals, golf balls, and belt buckles.  Trademark protection can last forever, so long as the trademark owner continues to use the mark in interstate commerce and files the correct renewal forms when they come due.

While the example of the NFL and the Super Bowl is useful in explaining the differences between copyrights and trademarks, it is important to point out that you don’t need to generate billions in revenue in order for a copyright or trademark to be useful.  Large and small businesses (and even just people with a great idea for the next big thing) are granted registered copyrights and trademarks every day.  So, when should you get serious about filing a copyright or trademark application?  The guide below should help:

When Does Registering a Copyright Make Sense?

  1. You have created a “work of authorship expressed in a fixed in a tangible form” that you believe has value. Maybe you have written the great American novel, taken what will become the iconic photograph of this generation, or written the song no one will be able to get out of their head this summer.  If so, then a copyright will allow you to protect that work from being copied, stolen, or subject to other unauthorized use.
  2. Basic copyright protection exists from the moment your work is created. However, federal registration of your copyright has the following advantages:
  •  The copyright becomes public record and you receive a certificate of registration.
  •  You become eligible for statutory damages and attorney’s fees in successful litigation.

When Does Registering a Trademark Make Sense?

  1. You are using a particular name, logo, and/or slogan to market your goods and/or services, and you believe that name/logo/slogan is key to the success of your business. Building a brand is useless if a competitor can take that brand and use it to their advantage. Registering a trademark is a huge step in protecting the brand you have worked so hard to build.
  2. You are offering your goods or services on the internet, or beyond the borders of your local market. Common law trademark rights are limited in geographic scope.  When you register a trademark, you are protected nationwide.
  3. You are concerned about a potential competitor coming in and using your name and/or logo in your local market. Registering your trademark can be a powerful deterrent to possible competition.
  4. You haven’t quite started offering your goods or services yet, but your name and/or logo is so good, you’re afraid someone you have shown it to (or maybe someone else) might beat you to the punch. In the U.S., the first person/entity to use a trademark in commerce has the rights to that trademark.  However, before you actually use the trademark, you can file an “Intent to Use” trademark application that will give you roughly 12 months (including extensions) to use the mark in commerce.  If you can show the USPTO such a use within that time, your priority date for using the mark will be the date you filed your “Intent to Use” application. You will therefore be able to claim priority over anyone who began to use the mark in the interim.

Trademarks and copyrights can be powerful tools to grow and maintain the health of your business.  Please contact me to discuss what makes sense in your individual situation. For now, just keep in mind, that the reproduction of this article can only be used with the expressed written consent of its author, Jarom J. Bergeson.

5 Legal Tips to Start 2016 on the Right Foot

December 29, 2015 Business planning, Corporations, Estate Planning, Law, Small Business, Tax Planning Comments Off on 5 Legal Tips to Start 2016 on the Right Foot

As one might expect, the dawning of a new year presents many great opportunities for legal planning. In fact, many of us procrastinate quality legal planning during the year because of our hectic lives…not because we don’t value its importance. However, life comes at us fast and it’s truly difficult to step back and look at the trees and focus on the areas of our business that need some legal attention. Here are five legal tips to help make sure 2016 is a Happy New Year for you, your family and your business.

1) Review your business structure. Maybe your business was brand new in 2015 and you have been operating as a sole proprietor or maybe you bought your first rental in 2015 and decided to take title in your own name. Both of these are certainly reasonable reasons to do business without the help of an incorporated business entity. However, choosing the right business entity for the right situation (and incorporated or organized in the right state) can help protect your personal assets from the liabilities of your rental property or operational business and may end up saving you THOUSANDS in taxes. Moreover, some of you may have an entity you haven’t maintained properly over the years. Out of haste and other business matters you have ignored the corporate formalities of doing Minutes or updating your Operating Agreement or Bylaws. This is as perfect time of year to get that new entity or update your current business structure.

2) Plan for what happens when you’re gone. I’m not trying to be morbid, but no matter how young or healthy you are, it’s possible that 2016 could be the year you die. Nobody likes to talk about it, but death happens even to the best of us! What will happen to your assets or business if tragedy strikes and you don’t make it to my year-end article for 2017? More importantly, if you have minor or adult dependent children, who will take care of them when you’re gone? If you have failed to plan, the simple answer is that the state will decide. Even if you have a will, without a trust in place your heirs will likely need to file at least one action in probate court if you own any real estate at all. A little planning now can save your heirs the time, headache and worry of the probate process – not to mention thousands in legal fees.

3) Get it in writing. If you own your own business, you likely have contracts with dozens of people and/or business entities – vendors, customers, partners, etc. Many of these contracts may currently be verbal “handshake” type deals. I know we’d all like to imagine we live in a world where business can actually be done this way. Unfortunately, the reality is we live in a world where communication is imperfect and honest differences can exist (and disputes can arise) even when all parties are acting honestly. This is not to mention the sad reality that not everyone you have a business relationship with will act 100% honestly all the time. For these reasons, having specific written contracts detailing the actual nature of your business relationships is absolutely vital. Spending a few hundred dollars getting your contracts dialed in now can save you tens of thousands in legal fees over a business deal or relationship if litigation comes to bear.

4) Think about how you classify your employees. Whether you already have folks working for you or are thinking about hiring someone in 2016, how you classify the people that work for you is extremely important. Choose carefully between classifying them as employees or independent contractors. This is a fairly complex area of the law, and it probably makes sense to speak with an attorney if you have questions. Getting the classification wrong can have serious tax and legal consequences. Make sure you get good advice from an experienced attorney so you get this one right. Moreover, don’t forget we are right around the corner from issuing W-2s and 1099s. No matter how you classify your workers, there is important paperwork that needs to be completed by the end of January in order to keep you out of harms way with the IRS.

5) Protect your intellectual property. As your business expands and grows, it’s likely that your intellectual property is doing the same. Almost all businesses have trade secrets – things like customer lists and specific formulas and ways of doing business that are proprietary in nature. However, you lose any protections for your trade secrets if you don’t take steps to keep them, well, secret. It’s also possible that you have a name or slogan associated with your business that you’d like to keep others from using. If so, registering a federal trademark is the best way to protect those rights. Maybe you even have an invention or other idea you’d like to protect with a patent. The point is that as the New Year begins, you should be conscious of the valuable intellectual property you are creating, and should make sure you are taking the proper steps to protect it.

Again, I realize how busy life can be trying to juggle your business, family, health and finances, but it’s important to dedicate a little time to legal matters. In fact, the items above don’t have to take a lot of time or money if you delegate them to your legal or tax counsel over the next month and have a couple follow up meetings. Remember, the best way to eat an elephant is one bite at a time. Don’t get overwhelmed and make a plan over the next few months to consider these important planning points.

Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at jarom@kkoslawyers.com or by phone at (888) 801-0010.

What is a Fictitious Business Name or “DBA”?

September 22, 2015 Business planning, Corporations, Law, Small Business Comments Off on What is a Fictitious Business Name or “DBA”?

One may ask…”What’s in a Name”? Well, to a business owner it can be one of the most important assets for creating sales, branding and reaching that target market.

A Fictitious Business Name (also known as a “DBA” which stands for “Doing Business As”) is a name a person (or entity) uses to conduct business that is something other than his/her/ its legal name. It gives the business owner an opportunity to lock down the name and start branding it without the fear someone may steal it.

A DBA is also used by individuals or entities that want to use a more “professional” sounding name for marketing purposes, or individuals or entities that want to venture into new lines of business, but don’t yet want to incur the expenses of setting up an entirely separate entity. Essentially, the fictitious business name is a simple and cost effective way to get “your name out there” without significant up-front costs.

For example, suppose John Doe is a real estate agent. He can create a fictitious business name for his real estate agent business (e.g. Simply Marvelous Realty). He could create another fictitious business name for his escrow business (e.g. Simply Marvelous Escrow), and another fictitious business name for his mortgage business (e.g. Simply Marvelous Lending), all without the need to create separate entities for each business. In addition to having different names that are more appropriately associated with each line of business, John could have separate accounting and bank accounts for each of these business names

Both individuals and entities (e.g. corporation, LLC, LP, etc.) can have any number of fictitious business names associated with it. However, the key is that, although you may have different fictitious business names registered to an individual (or entity), that one individual (or entity) to whom the different fictitious names are registered is ultimately liable for the debts and liabilities for all the fictitious names registered in his/her/its name.

In other words, there is no separate liability or asset protection between different fictitious business names registered to a single person or entity. Therefore, in the example above, although Simply Marvelous Realty, Simply Marvelous Escrow, and Simply Marvelous Lending are separate DBAs with separate bank accounts, since they are all registered under John Doe, any liabilities or debts created in ANY of these businesses would ultimately be the responsibility of John Doe, and the funds in Simply Marvelous Escrow bank account could be levied due to a judgment relating to Simply Marvelous Realty or Simply Marvelous Lending.

If the fictitious business name is registered to an entity, although use of the entity will generally shield the individual owner of the entity from personal liability for the debts and liabilities of each business using a fictitious name registered to the entity, that one entity would still be responsible for all of the debts and liabilities for all fictitious names registered to that entity.

Therefore, do not think you can get separate liability protection by establishing multiple DBAs.   In general, the only way to separate out the debts and liabilities of different businesses would be to set up different entities for each business.

The rules and procedures for registering a fictitious business name varies depending on the county or state. Most of this information, procedures and forms can be found online with the county recorder’s office or state that processes fictitious business names. KKOS Lawyers can also assist you with filing and registering a fictitious business name.

Lee Chen is an associate attorney at the Irvine, California office of Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) and helps clients daily around the country with business planning and entity selection. He can be reached at lee@kkoslawyers.com or by phone at (888) 801-0010.