Forming your corporation is the first step to limit your personal liability and to ensure the protection of your personal property. However, we are often asked, “Is forming a corporation sufficient to achieve such protection?” or “Is it sufficient to resolve any issues that may arise between me and my partners down the line?”

The short answer is – NO.

After forming a corporation, there are several considerations that startup founders should take into account to mitigate their risk and to adopt a corporate structure that is in line with their expectations.

The below summary describes the initial documents necessary to ensure your corporation is legally compliant and to create effective asset protection mechanisms. Note: many of these principles can be applied to LLCs as well, but for the purposes of discussion here, we are focusing on corporations.

Director Resolutions

Director Resolutions are how you make important decisions for your corporation during the meetings of the Board of Directors. The basic initial resolutions include:

  • electing Directors and appointing Officers, such as the CEO, CFO, and Secretary;
  • approving Bylaws and Shareholders Agreement (discussed next);
  • obtaining authorization to open a separate bank account for your startup; and
  • issuing shares to shareholders of your corporation, etc.

Following such corporate formalities is essential to prevent your business creditors from reaching your personal assets. In the event of an audit or lawsuit, it provides evidence that you keep your personal and business assets separate, treat your corporation as a distinct entity, and cannot be personally liable for corporate actions.

Bylaws

Bylaws provide a governance structure and procedures for your startup. Adopting Bylaws is mandatory in California and many other states. The Bylaws address the following questions:

  • how to manage the corporation, and elect the Directors and the Executives;
  • how to make important decisions, such as approving major transactions; or
  • how to accept new investments or investors into your business, etc.

Adopting and following your Bylaws regularly is crucial in shielding shareholders’, directors’ and executives’ personal assets from corporate liabilities. This is why you should have well-structured Bylaws for your corporation that is is easy to understand and follow.

Shareholders Agreement

A Shareholders Agreement is helpful when your business has more than one founder or new investors join your startup. This Agreement memorializes the understandings and intentions of shareholders and can introduce significant protections for you and your partner(s), such as:

  • the right to buy existing shares before non-owners (Right of First Refusal);
  • the right to sell your shares back to the corporation (Put Option/Buy Back);
  • the right to buy newly issued shares before non-owners (Pre-emption Rights); and
  • the right to buy other owners’ shares in case they breach their duties (Buy-Sell Rights).

Having those provisions in place will allow you to tackle finance and governance disputes efficiently without impairing your regular business operations.

At Carbon Law Group we can help you to negotiate, draft, and incorporate these documents into your new business structure. This will shield your personal assets from your business creditors’ claims and will set clear paths for dispute resolution between you and your partners.

If you have any questions about how to draft governance documents for your startup or need assisting with setting up your corporation, do not hesitate to reach out to us. You can use this link to schedule an appointment to speak with an attorney today.

This blog article is published for educational purposes only. Its sole purpose is to give you general understanding of the law and not to provide specific legal advice. By using this website you understand that no attorney client relationship has been established between you and the publisher. Please contact an attorney licensed in your state for competent legal advice.

8.-Products-and-technology

My business holds a federally registered trademark, but someone else owns the “.com” domain containing my mark. Sound familiar to you or a “friend”? Domain names are arguably the most sought-after online property because of the ease and quickness by which any web user can acquire a domain name from popular hosts like GoDaddy. The common sense approach to this problem would be to search for the owner of the domain and reach out to them directly, but the likelihood of your receiving any response is small – with any action taken being even smaller. Fortunately, after having successfully filed hundreds of trademarks for our diverse group of clients, we have been able to identify and utilize effective means to obtain a domain name held by a “cybersquatter,” including the governing laws providing the grounds for our clients to obtain their rightful intellectual property.

 

What is “cybersquatting”?

Cybersquatting is the increasingly common practice employed by opportunistic individuals and entities of purchasing domain names in the hope of staking their claim to a popular company name idea or title. More often than not, attempting to access the domain through a web browser yields no result primarily because there was never any intent to utilize the domain for any commercial purpose. Fortunately, for federal trademark[1] owners and small businesses finding themselves having to pay lots of money for the domain name best associated with their mark, there are two routes that people or companies affected may take to combat this problem: (i) the Anticybersquatting Consumer Protection Act (ACPA)[2], and (ii) through the Uniform Domain Name Dispute Resolution Policy (UDRP) provided by ICANN[3].

 

(i) Understanding the Anticybersquatting Consumer Protection Act (ACPA)

Under the ACPA, cybersquatting is the “practice of registering, using, or selling a domain name containing language that is identical or similar to a current trademark owner’s mark with a bad faith intent to profit from the domain name.” Critical to this definition are the factors a court may use to determine if a domain name transaction is conducted “in bad faith”, counting for and against.

A domain name transaction is unlikely to be considered in bad faith if:

  1. the registrant herself has any trademark or IP rights in the name;
  2. the domain name contains the legal or nick- name of the registrant;
  3. the registrant used the domain name in connection with the good faith offering of goods and/or services; or
  4. there is lawful non-commercial or fair use of the mark in a website under the domain name.

On the other hand, a domain name transaction is likely to be considered in bad faith if:

  1. there is intent to divert a site that could harm the trademark owner’s goodwill-either for commercial gain or with intent to tarnish by creating likelihood of confusion as to source, sponsorship or affiliation, or endorsement of the site;
  2. there is an offer to sell the domain name without having used, nor having an intent to use, the domain in the bona fide offering of goods or services, or there exists a prior pattern of such conduct;
  3. the registrant intentionally provides misleading contact information in the domain name registration application, or has a history of such conduct;
  4. there exists a warehousing of multiple domain names that appear to be identical or confusingly similar to distinctive marks or dilutive of famous marks, without regard to the goods or services being provided; or
  5. the mark (not the domain owner’s mark) is particularly distinctive or famous.

Some of these factors are actionable under the Lanham Act, but that a softer qualification for purchasing or registering a domain is that there be a bona fide intent to launch goods, services, or a business – even if those plans never come to fruition. However, per subpoint D above, if a domain registrant sits on a mark that he or she knows to be famous and tied to another’s validly registered trademark, a claim for “bad faith” becomes stronger.

 

(ii) Understanding the Uniform Dispute Resolution Process (UDRP)

The UDRP administered by ICANN currently applies to the top level domains (TLDs) of .biz, .com, .info, .org, .net, and a few country code domains like .ac, and .mx. The definition of cybersquatting provided by ICANN is a “bad faith registration of another’s trademark in a domain name,” so traditional trademark rules related to unregistered “common law” and federally registered trademarks apply.

One of the big differences between the UDRP and ACPA is that the entire dispute resolution proceeding is conducted online, is generally resolved within 60 calendar days of the first filing, and is mandatory for TLDs contracted with ICANN (including “.com”). Once you or your counsel determine that a UDRP action is appropriate or necessary depending on the responsiveness of the current domain owner, the process begins by filing a complaint and sending a copy to the respondent (the current domain holder). The UDRP is generally lauded for its effective and timely dispute resolution process, and we have found that our trademark clients value its efficacy.

 

For more information and personalized guidance based on your circumstances, or if you are ready to commence an action through the UDRP, please speak with our technology attorneys by emailing us at [email protected] or call our office at (323) 543-4453 to schedule a consultation.


[1] Note that unregistered or “common law trademark” holders may be able to assert similar claims, but that their rights are limited to the outcome of dispute resolution (with little basis in codified federal law).

[2] 15 U.S.C. §1125(d) under the Lanham Act

[3] For more information, see this link.

As any entrepreneur or business owner knows, building a website or online storefront to advertise, promote, or sell goods or services can be a detailed, time-consuming, and expensive process. The goal of attracting even the most discerning consumer on the internet makes those extra hours and expense worth it, especially when general marketing and branding goals include repeated visits, contact, and impressions to finally engage a customer or user. All successful businesses similarly understand that protecting the logos, content, design, functionality and, most importantly, the integrity of the website. An attorney-drafted “Terms of Use” or “User Terms and Conditions” page is extremely important because it provides, among other benefits, a mechanism 1) to prevent competitor copying or intellectual property infringement, 2) to legally bind users of the website, 3) to limit the business liability in certain contexts, and 4) to comply with federal law.

1. Prevent intellectual property infringement.

Valuable dollars and hours are spent building a website for goods or services, but the failure to secure or enforce proprietary intellectual property rules can nullify all of that value. A valid Terms of Use will enumerate the myriad of intellectual property present on the business website, and will make it clear to all users (guests or registrants) that the copying, stealing, scraping, or unauthorized use of proprietary information is grounds for termination of any user account, a claim for breach of contract, and claims of copyright, trademark, or trade secret infringement, and any other remedy available at law to the business. While the deterrent impact of a Terms of Use may be debatable, failing to have a Terms of Use removes any enforcement mechanism for a business owner against a rogue user.

2. Legally bind users of the website.

Having a Terms of Use section on the business website is not required by law in the United States, but consider that it has been (and may solely be) a binding agreement enforceable by a court between any user or abuser on the internet and the business (even if no transaction of money for goods or services occurs). Because the website is the property of the business, businesses may set user standards for use of the site as well as the penalties for failing to comply, including to terminate a user account or ban future use. Having this ability is extremely important for any online business to ensure smooth user engagement and process management.

3. Limit the business liability.

A legally binding contract may include disclaimers against liability – and in certain cases, even where liability would normally be imputed by law. This includes common issue situations like outdated or incorrect marketing materials (especially those quoting prices or fees), governing the interactions between users (especially in the context of harassers or trolls), and updating the features or functionality of applications or other products. Note that by failing to disclaim against liability in these scenarios, a business may become an easy target for traditional lawsuits over small errors.

4. Compliance with privacy laws and the “privacy policy.”

If the site collects personal data that may identify an individual (e.g., a user’s email address, first or last name, physical address, or social security information), legislation like the Americans with Disability Act (ADA), Children’s Online Protection Act (CIPA), and more mandate privacy policies according to these Federal Trade Commission guidelines.

From our experience, while every business and proposition is unique, businesses should consider the following broad issues when either self-drafting or having an attorney draft the Terms of Use:

  • Privacy policy (if collecting personally identifying information)
  • How the user accepts the Terms of Use
  • Account security
  • Intellectual property rights (trademarks, copyrights, licenses)
  • User-posted content and content standards
  • Infringement
  • Social media integration

For more information or guidance on your online business practices, or if you are ready to prepare a terms of use and privacy policy, please call our office at (323) 543-4453 to schedule a consultation and speak with our savvy attorneys.

Every so often the question arises, “how much of a copyrighted work can I use? I heard if it was less than 30%, I am okay.” I am sure I am not the only attorney who has heard this and I am sure it makes us all cringe–if only the law was so simple. The […]

For too long the law has spoken over its users, caught up in promoting its own self-worth to the detriment of the general public. No one should sign an agreement they don’t understand due to its poor formatting and complex language.

At Carbon Law Group, we pride ourselves on building a team with a dynamic background ready to think creatively about problems. Our lawyers and staff have a background in graphic design, music production, and product development. This gives us a unique perspective on how design can be used as a tool to make our contracts more accessible and user-friendly.

I have seen simple design fixes such as shortening sentences or using a better font can make a world of difference in the lives of the users. Inspired by the work of leading design-thinking practitioners such as Matthew Butterick and his work on typography in the law as well as Margaret Hogan, Director of the Legal Design Lab and lecturer at the Stanford Institute of Design (the d.school), we are constantly looking for new ways to improve the legal experience for our clients and users of our work-product.

This effort will be on-going. But, recognizing a problem is the first step towards solving it.

Most entrepreneurs look at legal issues as an expensive and burdensome cost of doing business, but with the right guidance you can use the law as a tool to further your goals and position your business for success. You can ensure your entrepreneurial dreams don’t hit any roadblocks by avoiding these five common legal mistakes.

  1. Picking the wrong (or no) corporate structure

By choosing the corporate structure that best serves your company’s individual needs, you can take advantage of different benefits like minimizing your tax liability and protecting your personal assets from any liabilities incurred by your business. Many entrepreneurs whose businesses are a one man shop skip out on forming a corporate entity all together because it looks like an unnecessary and confusing obstacle, but even solo entrepreneurs have a lot to gain from forming a corporate entity.

  1. Forgetting the importance of IP

So much goes into building a new company from scratch, and for many entrepreneurs, Intellectual Property (IP) isn’t their top priority. But what entrepreneurs need to remember is that IP isn’t just about protecting your own brand and product, it’s also important to check if someone else has IP protection for similar work. After all, what would happen to your business if one day you found out someone had already trademarked the product or brand you have put so much time into developing.

  1. Not defining key roles and responsibilities

If you have any business partners it may seem like you’re all on the same page, but if you don’t clearly define the roles each of you has in the company, it’s a recipe for conflict. You and your business partners should have a written partnership and shareholder agreement that makes everyone’s rights and obligations clear.

 

  1. Not having an exit strategy

How you and your partners would go about a business breakup probably isn’t the first thing on your mind as you start your company. But all too often business partners grow apart or have different goals as the years go by. Knowing how and when you and your partners can sell your stakes in the business is crucial, and having your attorney prepare a buy-sell agreement that addresses this up front will make for a much easier transition in the event anyone wants to leave the business.

  1. Tackling legal issues on your own

As an entrepreneur, it may feel natural to take things into your own hands when it comes to your business. Don’t let the seemingly easy DIY legal forms temp you into being your own lawyer. Filling in the blanks on some preprinted forms doesn’t take care of your specific needs and can leave you with a number of problems that could have been avoided had you had the help of an experienced small business attorney.

If you are looking to learn more about protecting your new business, feel free to email us at [email protected] or set up an appointment.

 

Marijuana Bill Ballot

After the voters of California said “Yes” to Proposition 64 and the legalization of marijuana last November, enhanced regulation of the marijuana industry became a top priority. On March 7, 2017, Los Angeles is holding a special election for residents to repeal and replace Proposition D, which restricted the number of legal medical marijuana dispensaries, raised taxes on dispensaries, and failed to mandate testing of marijuana for pesticides sold at dispensaries. While there are two measures on the ballot, Measure M and Measure N, the backers of “N” abandoned their measure (at too late a date to remove from the ballot) and backed Measure M.

Measure M is sparse on details, but here’s what we know:

  • it would give the mayor and the City Council permission to repeal Prop D and replace it with a new and improved set of laws covering all aspects of the industry;
  • clarify where marijuana businesses can operate;
  • establish rules on hours of operation; and
  • determine how they may market their goods.

Measure M was written to be flexible, giving city leaders the tools to regulate LA’s newest industry–recreational marijuana.

For entrepreneurs trying to break into the marijuana business, Measure M will make things significantly easier. As of now, state regulators take previous marijuana arrests into consideration when awarding permits for dispensaries, but if Measure M passes that won’t be the case. Additionally, Measure M will increase the number of dispensaries allowed, making it easier for new cannabis shops to get the permits they need.

If you are looking to learn more about how Measure M will affect your business, feel free to email us at [email protected] or set up an appointment.

 

Trademark Copyright Intellectual Property

  1. Know the different trademark symbols and use them properly.
  • If a mark is not federally registered, use the “TM” or “SM” designation with the mark until it achieves registration.
  • Once a trademark registered, use the “®” designation next to it.
  • If you use the mark in a textual sentence, place it in all caps, surround it with quotations, and use the proper designation to the right of it. By doing this, everyone who sees it will know that you claim trademark rights and others should choose a different mark.
  1. Keep your trademarks up to date.
  • Many registrations end up being cancelled by the United States Patent and Trademark Office due to inaccurate information and not following the necessary requirements during application, registration and post-registration process. Before filing any paperwork at the Trademark Office, be certain that all information is accurate and current.
  1. Keep copies of all relevant information regarding your trademarks.
  • If your mark is ever challenged, it will be helpful to have evidence of use and records relating to the first use date for each of the associated goods/services.
  1. Protect your trademarks.
  • Eventually you may find yourself in a situation where competitors try to imitate your company’s name, the name of your product, or your company logo and branding. It is important you take action in these instances, which we can help you with.
  1. Consult a trademark attorney prior to use.
  • Consultation with a trademark attorney can prevent you from using a trademark that may already be in use, ensuring you are protected from
If you are looking to learn more about protecting your intellectual property, feel free to email us at [email protected] or set up an appointment.

business-man-and-woman-handshake-in-work-office-picjumbo-com

  1. Job information.
  • Key information regarding the employee’s role at the company should be the first thing included in any employment contract. This should include the job title, direct supervisor/team reporting to them, and an explanation on how performance will be evaluated.

 

  1. Compensation.
  • The compensation package should be outlined in detail. This should include salary, bonuses, incentives, and information on when and how raises are determined.

 

  1. Benefits.
  • Benefits are not always required but if you decide to provide them make sure to specify the specific benefits provided, such as medical, dental, eye care, life insurance, etc. and what percent the employer pays and what percent the employee pays.
    • Also include information about the 401(k) plan, stock options, and any fringe benefits if offered.

 

  1. Time off, sick days, and vacation policy.
  • Include a detailed account of the time off and vacation policy. Include information about how many paid vacation days are accrued per pay period, whether vacation days increase with long tenure, and explain your expectations regarding sick days, family emergencies, or unpaid leave.

 

  1. Employee classification.
  • Define whether the new hire is an employee or contractor to ensure tax and insurance compliance.
  • Avoid misclassifying your employee as a contractor. Generally speaking, if you are controlling when, where, and how the employee works, they cannot be a contractor. Penalties are harsh for employee misclassification.

 

  1. The schedule and employment period.
  • The contract should include whether the employee is expected to work certain hours and what those hours are.

 

  1. Confidentiality agreement.
  • Protect sensitive information like business trade secrets and client data by having the employee sign a confidentiality agreement within the contract.

 

  1. A technology privacy policy.
  • Clarify what is acceptable regarding the use of social media and email on company property. If you don’t want employees saying anything negative about work on social media, include it in your employment contract or employee handbook.

 

  1. Termination terms and conditions.
  • Explain what is required for either party to terminate the relationship, including the amount of notice required and if it should be written.

 

  1. Requirements after termination.
  • The contract should include any restrictions or mandates on an employee after leaving the organization. For example, including a non-solicitation or non-circumvention policy can help protect your business and its clients. Remember, when it comes to employees that non-compete agreements are per se invalid in California, so use such provisions sparingly.

Business Licenses

The first thing you will need to acquire is your business license.   When you file your license application, the city planning or zoning department will check to make sure your area is zoned for the purpose you want to use it for and that there are enough parking spaces to meet the codes.

If you’re planning to start a business in your home, you should investigate zoning ordinances carefully. Residential neighborhoods can have strict zoning regulations preventing business use of the home.

 

State Licenses

In many states, people in certain occupations must have licenses or occupational permits. Often, they have to pass state examinations before they can get these permits and conduct business. States usually require licensing for auto mechanics, plumbers, electricians, building contractors, insurance agents, real estate brokers, and anyone who provides personal services (i.e., hair stylists, cosmetologists, doctors, and nurses).

 

Federal Licenses

In most cases you will not be required to obtain a federal license. However, there are a few types of businesses that do require federal licensing, including meat processors, radio and television stations, and investment advisory services.

 

Sales Tax License

If you are selling any taxable goods, before opening your doors for operation it will be important to obtain any necessary sales tax licenses. It’s important to know the rules in the states and localities where you operate your business because, if you are a retailer, you must collect state sales tax on each sale you make.

 

Fire Department Permit

You may need to get a permit from your fire department if your business uses any flammable materials or if your business will be open to the public.

In some cities, you have to get this permit before you open for business. Other areas don’t require permits, but will schedule periodic inspections of your business to ensure you meet fire safety regulations.

 

Air and Water Pollution Control Permit

Many cities now have departments that work to control air and water pollution. Environmental protection regulations may also require you to get approval before doing any construction or beginning operation.

 

Sign Permit

Some cities and suburbs have sign ordinances that restrict the size, location, and, sometimes, the lighting and type of sign you can use outside your business. Make sure to check regulations and secure the written approval of your landlord before you invest in having a sign designed and installed.

 

County Permits

County governments often require the same types of permits and licenses as cities. If your business is outside any city or town’s jurisdiction, these permits may apply to you.

 

Health Department Permits

If you plan to sell food, either directly to customers (i.e. a restaurant) or as a wholesaler to other retailers, you’ll need a county health department permit. The health department will want to inspect your facilities before issuing the permit.

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