So, you want to start a business, but all the associated expenses, like forming a business entity, opening a business bank account (hello fees), hiring a bookkeeper, getting your contracts in order, and the costs of a trademark for your name, has you wondering what costs you can cut. It might be tempting to put off investing in your business in the form of building a solid legal foundation, but while all of those things do cost money, investing in them now will undoubtedly save you so much more in the long run. There are three big legal moves to consider when it comes to your new business.
Let’s tackle them one at a time:
Forming Your Business Entity
There are a number of reasons individuals choosing to start a business would want to form an official business entity (LLC, Corporation, S Corp, etc.). Most think it’s strictly for tax benefits. But there are legal benefits which translate to economic benefits that can potentially save you money in the long run. For example, by setting up an LLC as opposed to operating as a sole proprietor, you are proactively shielding yourself from liability related to your business. If someone chooses to sue your business, they will sue your LLC and not you personally. That means all of your personal assets, like your house or car, are protected from becoming part of such suits. Obviously, not losing money or personal assets is a financial benefit.
One thing to note is you can’t just form your LLC and hope for the best. You have to show that your business dealings do not operate as part of your personal dealings. Make sure you separate your business and personal finances. No fund commingling!
Trademarking Your Name
Truthfully, the application and hiring an attorney to walk you through the process is expensive. But you know what is more expensive? Not trademarking. Here’s why:
A TM is an asset that increases the value of your company. For example, if you ever wanted to sell your business, not having federal protection for your name, logo, and tagline may reduce the overall valuation of your company (goodbye future coins).
Without a TM, you have no *exclusive* brand protection to operate (and dominate!) your market. You would not be able to prevent other companies from using your name, logo, or tagline and profiting from that use (for the same or similar goods/services). You lose those customers, that other company makes the money. It gets worse, folks.
If you don’t perform the appropriate searches to find out if the name you want is already taken, you could be inadvertently using someone else’s trademark. Which means you’ll have to head back to the drawing board. Depending on where you are in your business journey, the costs of rebranding could be steep if you have to source and produce new packaging, a new logo, a new website, and new marketing materials.
Lastly, and possibly the worst-case scenario, if you are accused of using another company’s name, you may have to defend any legal actions taken against you by hiring an attorney. Not only is hiring an attorney costly, but the legal actions could also result in you being ordered to pay damages to that company. Yikes!
Having the Right Contracts in Place
As an experienced contract attorney, my job is to essentially be a doomsday prepper. I have to think of all the possible ways a relationship can go wrong, so I can properly and financially protect my clients via a contract. A properly drafted agreement should, in general, lay out the rules for what happens if someone doesn’t (or can’t) keep up their end of the bargain and the effects on both parties financially to remedy that. I know we all want handshake deals or perhaps, we’re afraid to put things in writing because maybe that heightens our responsibilities. But I promise you, it is in everyone's best interest to have it all in writing.
It also shouldn’t be a contentious situation. Not all contract terminations arise from a fight to the death, sometimes one party just isn’t able to continue based on circumstances beyond their control (hi, pandemics). Whatever the reason, you would not want to lose money because you weren’t properly protected under your agreement.
With that in mind, you can see how ensuring your business has the right legal protections in place can actually save you loads. As you continue your business journey, take stock in your dealings and consult with an attorney to make sure you’re adequately protected.
Any information provided in this article is intended for general informational purposes and is not intended to be, and shall not be relied upon, as legal advice. Pamela Rosario, LLC ©
Pamela Rosario is an attorney licensed in New York. Her current offerings include Trademark searches & filings, contract review, and business entity formations. For more information on how to build a solid legal foundation for your business, you can find her here.