Vail Law: Entrepreneurs’ hard work requires a legal playbook to help with success
October 24, 2017
So you want to start a business? Good for you. Every business, large or small, starts with a dream. But as the American soul band, the Chambers Brothers, observed in their 1968 hit, "There are things to realize."
Here are some of those things, a legal starter kit, if you will, for the mogul in the making.
First, you have to have a name. While it may seem like no big thing, it is. Besides the nasty marketing bits — does the name sing? Does the name say what you do? — there is also the legal part. Is anyone already using that name? Does anyone already have the rights to it? If so — if you have not done your due diligence — then you may be facing an infringement suit right out of the blocks. To avoid that is a simple matter; before you find yourself ankle deep, have someone who knows what they're doing check it out.
Once you've got a name, reserve it. The Colorado Secretary of State's office is your place to do so.
Next, there is the matter of entity. How will you operate? Will you be a limited liability company, a corporation, a limited partnership, a limited liability partnership or some other type of entity of limited liability? Will you go naked and face the mean world of business and potential liabilities as a sole proprietorship? What is right for you? Which form meets your needs?
Down to the nitty-gritty
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Then there are some nits and grits to deal with. There are letterhead, business cards and bank accounts to establish in order to declare (and protect) the new you. Better see to that, pronto. You need to declare to the whole world — or at least whoever will listen — that the new you is, henceforth, not really you, but is instead, the brand-new legal "person" of your entity. Your failure to do so — to at all times hold out the entity to be separate from you — may one day invite litigation alleging that the new you of your entity is really you wearing a different fedora.
This sort of argument is known in law as a "piercing" argument (think of the Great and Powerful Oz behind the velvet curtain) and will try to pin liability on you personally for the acts and liabilities of the entity. This, of course, defeats the whole purpose of setting up an entity in the first place. But wait, there is an easy cure which I, if not the law, refer to as the "Quack Like a Duck Cure."
Once your entity is set up and in place, it must at all times look, like a duck, act like a duck, and quack like a duck. So long as the entity at all times holds itself out to be legally distinct from all involved, at all times represents itself to the world to be separate and distinct from you and anyone else who may have an interest in it, and otherwise quacks like a duck, you should be good to go.
Besides the shiny new LLC or corporate name, do you need to secure any trade names? Will you be Widgets Inc. doing business as Lemonade Stand of the Rockies? If so, then you will want to secure the trade names you will use. Is there anything to copyright or trademark? Is there anything unique about your business or its operations that you will want or need to protect? Will a state trademark suffice or is federal mark more apropos to your grand design?
What's a trademark?
What exactly is a trademark and how is one different from a copyright? A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. A copyright protects original works of authorship including literary, dramatic, musical and artistic works, such as poetry, novels, movies, songs, computer software and architecture.
Easy-peasy. But then there are service marks — what? — and patents (yikes) — which may be respectively defined as a word, phrase, symbol and/or design that identifies and distinguishes the source of a service rather than goods. Some examples include: brand names, slogans and logos and a limited duration property right relating to an invention, granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention. Patentable materials include machines, manufactured articles, industrial processes and chemical compositions. Better get thee to a lawyer to sort out this menagerie.
Then there are contracts. Will you lease or buy the space in which your new empire will grow and thrive? Do you need to contract with contractors, vendors or suppliers? What about employees? If there are employees, then you will need to secure Worker's Compensation Insurance (better get an insurance agent on your team).
You will also want an employee handbook that lays out to your employees what the rules of their employment with you are. While we're on the subject of employees, will your employment contracts include non-compete provisions and/or non-disclosure provisions? If so, then you need to make sure that such provisions are commercially reasonable and legally enforceable. And on the subject of confidentiality and non-disclosure, do you need similar agreements with potential investors and/or vendors?
What about investors?
If investors are to be considered, then do you need securities agreements or their waiver? What type and form of investor agreements will be required?
Now let's dip our legal toes into the issue of licensing. Will you be engaged in a business that requires a professional license? Will you be operating in a regulated business — sale or production of liquor or marijuana products for example — where municipal, county, state or federal permissions or licensing is required? On the subject of marijuana, have you been property counseled as to the legal (and perhaps criminal) tension between state and federal law?
My, my, there is a lot to do and a lot to think about. And the foregoing is just the tip of the Qassimiut iceberg that sank the Titanic. But all is not lost. With a bit of planning, good advice and a little temperance before jumping in with both feet, empire awaits you and may reward you for your diligence.
Ours has always been a nation of dreamers. But to be a doer, one must take the time and make the effort to do it right.
Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices of counsel in the Vail Valley with the Law Firm of Stevens, Littman, Biddison, Tharp & Weinberg LLC. His practice areas include: business and commercial transactions, real estate and development, family law, custody and divorce and civil litigation. Robbins may be reached at 970-926-4461 or at either of his email address at Robbins@SLBLaw.com.