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Startup Professionals, Inc.

What do you consider a startup?        

A startup is a company that is still in an early stage of its life cycle (0-3 years since inception), that doesn’t have all the necessary resources to be self-sufficient. This includes anything from a two-person team with little more than an idea, to a rapidly growing company with a solid business model and many employees, that still is seeking investor funding to achieve it’s potential.   

 

Will registering my business protect its name?

Registering your business name as a sole proprietorship or a general partnership does not protect the name. You can protect your business name by setting it us as a corporation – Limited Liability Corporation (LLC), Subchapter-S Corporation (S-Corp), or a standard Corporation (C-Corp), or you can trademark the name.

 

What is the simplest and best way to establish a business?

A sole proprietorship or partnership is the simplest setup, and basically requires no legal forms. Incorporation as either an LLC or an S-Corp is more complex, but has the great legal advantage of limiting liability to the entity, away from personal assets.  A C-Corp is the most complex, but is required when you want multiple classes of stock, or have over 100 shareholders.

 

For income tax purposes, you can have a corporation taxed as a sole proprietorship, or vice versa (Entity Classification Form 8832, or Form 2553 Election by a Small Business). An LLC with two or more members (even husband and wife) will default to a partnership for tax purposes, and must file Partnership Form 1065, and report income through Schedule K-1. The tax election never overrides the legal considerations of the original entity above.

 

Does it make a difference which state I incorporate in?

It used to be true that “everyone” incorporated in Delaware due to its favorable cost terms, but most of the states have fixed these differences, so your first choice should be your home state, or the state where your startup resides.

 

There are still business considerations which might override. For example, if your business is likely to be moderate to large in size, have a significant number of shareholders, or go public, it might still be a good idea to incorporate in Delaware or Nevada due to these two states' more management-friendly laws.

 

If your business is likely to seek venture capital financing, Delaware's state laws still specify fewer situations that require the approval of all the shareholders of a corporation. This means that decision-making can be quicker and less expensive because the corporation does not need to solicit shareholder votes. Venture capitalists often deal with Delaware corporations because they want companies they are funding to go public sometime in the future.

 

Nevada's corporate code, like Delaware's, has been designed to favor corporate management to encourage businesses to incorporate in Nevada. For example, directors, officers and shareholders of Nevada corporations do not have to reside in or hold their meetings in Nevada, nor need they even be U.S. citizens.

I plan on working as a contractor or a consultant. Do I need to register or incorporate myself as a business?
If you plan to operate a self-employed business under your own name, without adding anything to your name, (e.g. John Smith), then there is no need to register the business with the corporate registrar. Keep in mind that in order to open a business bank account, most banks require proof that your business is registered either as a sole proprietorship, or as a corporation.

If you decide to add something to your name (e.g. John Smith Services), then you would need to register it. (Note that registering the name does not necessarily protect it.)

Depending on the kind of work you are doing, you may require a business license. It is best to check with your local municipality to make sure that you are fulfilling requirements.

How much should a startup worry about being sued for patent infringement?

Generally, it is worthwhile doing a preliminary patent search on your idea.  If it is already patented, you may already be too late in the market you seek, and you might as well deal with that before you spend a lot of time and money reinventing the wheel.

 

Patent suits are rarely the deciding factor in whether a startup succeeds or not. Founders should probably spend 100x as much time worrying about building something users won't want, because that kills many more startups than patent problems.

 

Until you're successful, you won't have to worry about random people suing you in the hope of getting money. And once you are successful, you'll probably have one of them to deal with, valid or not. So the right plan for these suits is to file your patent early to head them off. Some people worry about competitor suits trying to scare them off, but this is another reason to file your own patent early.

 

If you have nothing to patent, there may be little to stop competitors from overtaking you (low “barrier to entry”).  From an investor standpoint, this is a bigger reason to worry, as it makes your business more risky, and you may be rejected for funding.

 

Do I need to trademark my business name?

The actual business name is protected by incorporation, and does not usually need to be trademarked. But a trademark is required to protect specific words, phrases, logos, symbols, designs, images, or a combination of these elements that are important to your business.  Similar to the search required in registering your business name, you should conduct a trademark search to learn if these other specific terms have been trademarked by someone else.

 

A trademark is denoted by the trademark symbol, which is ™, or alternatively by the federal registration symbol, which is ® (a circled "R"), if an actual registration filing has been approved by the United States Patent and Trademark Office.  More >>>

Frequently Asked Questions (Legal)

 

Below is our list of questions with some generic answers which we believe will guide you in most situations.  Obviously, many of these questions have many individual complex legal and financial implications, so an attorney or accountant should be consulted to give you a definitive answer for your situation. Also feel free to contact us as well for additional discussion.