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When starting a business, there are many things to think about, things to
consider and things to ask yourself. We've listed a few important factors
to consider when starting your business.

Steps to Take so Your Business is a Legal Entity

Forms of Business Ownership

• Your vision regarding the size and nature of your business.
• The level of control you wish to have.
• The level of 'structure' you're willing to deal with.
• The business's vulnerability to lawsuits.
• Tax implications of the different ownership structures.
• Expected profit (or loss) of the business.
• Whether or not you need to re-invest earnings into the business.
• Your need for access to cash out of the business for yourself.

Sole Proprietorships

Advantages of a Sole Proprietorship include:

• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may make
  decisions as they see fit.
• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship include:

• Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity
  to own a part of the business.
• Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Federal Tax Forms for Sole Proprietorship:   (only a partial list and some may not apply)

• Form 1040: Individual Income Tax Return
• Schedule C: Profit or Loss from Business (or Schedule C-EZ)
• Schedule SE: Self-Employment Tax
• Form 1040-ES: Estimated Tax for Individuals
• Form 4562: Depreciation and Amortization
• Form 8829: Expenses for Business Use of your Home

Partnerships

Advantages of a Partnership:

• Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal tax returns.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
• The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership:

• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnerships that should be considered:

• General Partnership
  
  Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there's a written agreement that states differently.
   
• Limited Partnership and Partnership with limited liability
  
  'Limited' means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.
   
• Joint Venture
  
  Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.

Federal Tax Forms for Partnerships:  (only a partial list and some may not apply)

• Form 1065: Partnership Return of Income
• Form 1065 K-1: Partner's Share of Income, Credit, Deductions
• Form 4562: Depreciation
• Form 1040: Individual Income Tax Return
• Schedule E: Supplemental Income and Loss
• Schedule SE: Self-Employment Tax
• Form 1040-ES: Estimated Tax for Individuals

Copyrights and Trademarks

Copyrights ©

A copyright is an exclusive right granted by statute to the author of an original work for a limited period of time to make multiple copies of the author's work. Works that may be the subject of copyright include literary, musical, choreographic, pictorial, graphic, sculptural, software and audio/visual works.

Rights of a Copyright

Section 106 of the Copyright Act generally gives the copyright owner certain exclusive rights.
These rights include:

• Reproduction of the copyrighted work.
• Preparation of derivative works.
• Distribution of copies.
• Public performance of the copyrighted work.
• Public display of the copyrighted work.

Copyrights cover only the "expression" of the author, meaning the work itself. Copyrights do not protect the ideas included therein. Copyright protection arises as soon as the work is created and fixed in a tangible medium. The copyright is owned by the author. The copyright lasts for the lifetime of the author plus 50 years after the author's death. An author may also transfer his copyright interest to someone else. These works, referred to as "work made for hire", last for 75 years from publication or 100 years from creation, whichever is shorter.

Registration of a Copyright

A copyright can be registered with the US Copyright Office in Washington, DC. If you have a 'work' to protect, then you should register a copyright - a registration provides many advantages. For example, the owner of a registered copyright may be able to collect his or her attorney's fees from an infringer. Applying to register a copyright is relatively easy and low cost. The US Copyright Office online website provides very useful and very easy-to-understand information. If you prefer to call their office, they can be reached through (202) 707-3000, or toll-free at 877-476-0778. The Forms and Publications Hotline is available 24 hours a day, seven days a week at phone (202) 707-9100. Use this number to request application forms for registration or informational circulars if you know which forms or circulars you want.

Employees

The law generally provides that works created by a true employee in the course of employment and for the benefit of the employer are works made for hire and therefore owned by the employer. However, companies often deal with independent contractors to develop computer programs or do other work for the benefit of the company. It's important that the company have a written agreement with the independent contractor/author providing that the deliverable product is work made for hire owned by the company.

Notices and Fair Use

Once you have a copyright work, it's best to place a notice of copyright on the work. The notice should include the word 'copyright' or the '©', and the year of publication, followed by the name of the author or other owner of the work. For example: Copyright 1994 Acme, Inc. With software, the notice should be placed on the physical media and in an early screen, if possible.

The copyright owner's exclusive rights have some limits. The law provides that someone else may make "fair use" of copyright materials without infringing the owner's interest. Fair use includes limited usage in connection with criticism, news reporting, teaching and research.

Be aware that many publishing companies take a very aggressive approach to enforcing their copyrights. For example, many companies, large and small, purchase periodicals, journals and reports for their employees' use. It is not usually a 'fair use' to make multiple copies of these publications to circulate among employees. Companies engaging in this practice may sometimes be surprised to find they have been sued for copyright infringement because of this practice.


 

Trademarks ^TM, ®  and Servicemarks (sm)

What is a Trademark and a Servicemark?

A trademark is a word, name, symbol or device, or a combination of these, which is used with goods to distinguish them from the goods sold by others. For example, "Snickers" for a candy bar. Servicemarks are like trademarks, except they identify services, such as "Burger King" for restaurant services.

Trademark Rights

Trademark rights are obtained through use of a trademark on or in connection with the goods or, by displaying the servicemark in the sale or advertising of services. Because the rules for both kinds of marks are basically the same, we can refer to both trademarks and servicemarks as simply "trademarks". Ownership in a trademark exists as soon as you use it properly, subject to the rights of any other person using the same or a confusingly similar trademark.

Trademark rights last forever, as long as the mark is not abandoned and does not become generic.

Selecting a Trademark

Selecting the best trademark for your business is important. These symbols can be strong or weak. The strongest trademarks usually have the following characteristics:

• They are unique. A similar trademark should not be used by anyone in another line of business.
   
• They are often arbitrary or fanciful. That is, they often have no logical connection to the goods. For example, "Mustang" seems to have nothing to do with cars.
   
• They are often suggestive. If the trademark conjures up a good image or impression, it is helpful.
   
• They are usually not descriptive. Terms like "car", "TV Repair" or "Hi Fi" are not good to use with those products and services, because they can't be used exclusively.
   
• They are rarely surnames or geographic names. While some well known trademarks use surnames, it's rare. It takes a great deal of time and marketing dollars before consumers first think of your name as a trademark (or icon), rather than the identifying owner of the business.

After selecting a trademark, it's a good idea to search for any prior conflicting uses. Here you have several options. You can use the US Gov website to perform a free trademark search using TESS. Or you can hire a trademark lawyer or search firm, both will charge you a fee to search public records and determine if others are using a similar mark. While a search is not absolutely necessary, it's almost always a good investment to help avoid problems.

Registering a Trademark

If you haven't yet used a trademark, but you intend to use it, it's possible to obtain the trademark rights by filing a trademark application with the U.S. Patent and Trademark Office (USPTO). Although your registration will not be issued until you actually use the mark and file proof of use with the USPTO, the application establishes a priority date. This protects your rights in the trademarks against others that later use it.

A trademark can be registered with the USPTO and most of the 50 states. Because trademark rights exist automatically as a matter of law, it's not absolutely necessary to register a trademark. However, there are many advantages to registration. If you register your trademark with the USPTO, it will help to make sure you can use it as you expand your business throughout the U.S.. Registration with a state office provides benefits for use of the trademark only in that state. It also makes it more difficult for someone else to later use or register a similar trademark.

Protecting a Trademark

Once you've established a trademark, it's important to take steps to protect it. First, if your trademark is registered with the USPTO, be sure to use the ' ® ' sign with your mark. Second, if anyone infringes on your mark, immediately take action to stop the infringement. This can sometimes be done with a "cease and desist" letter. At other times, a lawsuit is necessary.

Make sure your employees, customers and associates report any potentially infringing use to you. Many trademark owners employ a professional service to keep track of activity in the USPTO to identify potentially confusing marks that have been published. Infringement can exist when there is likelihood of confusion in the marketplace between the goods with your trademark and the goods of the infringer.

Protect your mark against dilution. Dilution can occur when others who are not your direct competitors use your mark. The value of the mark is watered down, or diluted, affecting its strength and selling power. For example, use of the mark "Cadillac" with wristwatches could conceivably lead to dilution of that trademark. For dilution to occur, your trademark does not have to be famous, it only has to be distinctive.

Don't let your mark become generic. A trademark can become generic when it becomes recognized by the public as the common name for a product, rather than an indication of the source of the product. For example, Shredded Wheat, Thermos and Super Glue are all former trademarks. Notify anyone using your mark in a generic sense to cease and desist.

Small Business Q & A

Why Should I Incorporate My Business?

The bottom line? If you're sued by a client or customer - your personal assets will not be seized or accessible.
Incorporating your business protects your house, and any personal property you own.

The main advantage of incorporation, is the liability protection it provides its owners or shareholders. Liability is limited because the corporation is a legal entity that is separate from its shareholder owners. As a separate legal entity, the corporation has a perpetual life. Also, as a separate legal entity, the corporation is liable for its own debts and can only be held liable to the extent of the corporation's assets. Most small businesses find that an LLC is the best corporate identity for them. When you're ready to incorporate, you can painlessly file at BizFilings.com, one of the oldest and most trusted online incorporation sites.

When do I need a Federal Tax ID Number [EIN]?

You don't need to obtain an EIN (federal tax ID or Employer Identification Number) from the IRS if you're a sole proprietor without employees. You can open your business bank account with your DBA name using your social security number (SSN), however, if you want to keep your social security number and personal information confidential - get an EIN.
 

What's a DBA?

DBA is an acronym for "Doing Business As" (also known as a "Fictitious Name."). Most states require that sole proprietorships and partnerships who are conducting business under a name other than the owner(s) must file for a DBA certificate in the county where business is conducted. The DBA certificate is generally obtained at the Clerk of Court of the county in which business will be conducted.
 

Do I need a Business License and if so, where do I get one?

Depending on the type of business you're starting, you may be required to obtain local, county, State or Federal licensing. It's important to determine which of these will be required before you start conducting any business since heavy fines are usually associated with conducting a business without proper licenses and permits. Most small and home-based businesses will only require a local business license or permit.

First call or visit online your city or county Department of Revenue. If you intend to operate a business from your home, be sure to also check local zoning requirements as well as any property covenants. Zoning requirements are those laws that regulate how property can be used and in some cases, some activities may not be allowed.
Certain businesses and professions will also require a State license. Examples include attorneys, barbers, contractors, dentists, most businesses serving food, and social workers. Each State has an agency dealing with these types of businesses.

For a very few businesses, Federal licensing is required. Examples would be a business that's engaged in providing investment advice or dealing with firearms. In general, Federal licensing is required if the business is highly regulated by the government. It's best to consult an attorney in these cases.
 

How do I get certified as a Women-Owned business?

This process is usually administered through each states individual State's Economic Development Council. Contact your local SBA office or visit the SBA.gov website for additional information.
 

Can a husband and wife be a Sole Proprietorship?

No. Technically a husband and wife can't jointly own a business as a sole proprietor; they can't split a sole proprietorship and file two Schedule C and two Schedule SE. To avoid being classified as a partnership, a husband and wife team operating a business together should treat one spouse as an employee and the other spouse as the owner.
 

What's the difference between a copyright and trademark?

Copyrights and Trademarks are often misunderstood and confused with each other.
Here's some basic information:

• A copyright protects a "form of expression" such as writings, designs, and works of art. A copyright is automatic in that anything you write, design, or otherwise conceive, is protected by the copyright laws. This protection generally lasts for your lifetime plus 50 years.
   
• A copyright may be registered with the US Copyright Office. Having your copyright registered can help if and when you need to defend its use by others.
   
• A trademark is a word or series of words, a design or graphic that relates to your product, service, or company.
   
• A trademark must be registered with the Patent and Trademark Office.
  Click here to search a trademark, at the US Patent & Trademark Office website.