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ENTREPARTNER STREAMLINES BUSINESS FORMATIONS WITH ITS NEW ENTRE2GO SERVICE

ENTREPARTNER STREAMLINES BUSINESS FORMATIONS WITH ITS NEW ENTRE2GO SERVICE

Starting a business can be overwhelming. It requires you to wear many hats all at the same time and juggle responsibilities that in a larger established company would be delegated to a dozen department heads.  Sometimes lost in the shuffle are the key legal decisions that come with starting a business. These decisions can be confusing, but they ultimately can be some of the most important decisions you will make.

To help bridge that gap, EntrePartner has launched its Entre2Go website. Entre2Go’s focus is helping entrepreneurs and business owners easily navigate the process of starting a Minnesota limited liability company or corporation. Using a proprietary formulated process, our attorneys help business owners make key decisions about the management, operation and owners’ rights in the entity.  The service is especially useful for business ventures with multiple owners who want to protect themselves legally and establish a solid foundation for ownership and operation of the business going forward.

To keep the business formation process simple and predictable, through our Formation Package we offer these services on a flat-fee basis.   When you are Ready To Go with your new business venture, our business lawyers will form and structure your limited liability company or corporation in 3 easy steps.

HOW DO I FORM A PROFESSIONAL ENTITY IN MINNESOTA?

One of the primary motivators for operating a business through a separate entity is to insulate the owners of the entity from the liabilities of the business. Typically, a corporation shareholder (or a member of a limited liability or a partner of a limited liability partnership) is not personally liable for the debts of the business. In most instances, the most that a shareholder (or LLC member or LLP partner) will lose in an unsuccessful business venture is their initial capital contribution and time.

Practitioners of some professions, however, are prohibited by the ethics rules of their respective licensing boards from organizing their businesses in such a way to limit their professional liability towards clients.  A dentist, for example, cannot simply organize his or her practice as a limited liability company as a means of preventing patients from recovering damages for malpractice claims.

Are practitioners able to organize their practices in such a way, however, to limit liability for otherpotential claims against their business unrelated to the actual providing of services to clients?  Fortunately for practitioners in Minnesota, the answer to this question is yes. Under the Minnesota Professional Firms Act, Minnesota Statutes, Chapter 319B, practitioners of certain licensed professions may elect to be professional firms under any one of three different forms of organization: corporations, limited liability companies, and limited liability partnerships. Organizing an entity under the Professional Firms Act does not affect a practitioner’s liability for her or his own malpractice or other wrongful conduct directly arising from the provision of professional services, but it does permit the professional to limit their liability for other debts or obligations of the business itself to the extent permitted by the law governing the chosen form of organization.

The Professional Firms Act provides that members of the following professions may elect to be professional firms: medicine and surgery, physician assistant, chiropractic, registered nursing, optometry, psychology, social work, marriage and family therapy, professional counseling, dentistry and dental hygiene, pharmacy, podiatric medicine, veterinary medicine, architecture, engineering, surveying, landscape architecture, geoscience, certified interior design, accountancy, and law

To operate as a professional firm, a Minnesota entity must be formed under the chosen statute: the Minnesota Business Corporation Act (Minnesota Statutes Chapter 302A), the Minnesota Nonprofit Corporation Act (Minnesota Statutes Chapter 317A), the Minnesota Revised Uniform Limited Liability Company Act (Minnesota Statutes Chapter 322C), or the Minnesota Limited Liability Partnership Act (Minnesota Statutes Chapter 323A). Then, either as part of the original formation documents or as an amendment to those documents, the firm must include language stating that it (1) elects  to be covered by the Minnesota Professional Firms Act, and (2) acknowledges that it is subject to the provisions of the Act.  The documentation must also specify the profession(s) to be practiced by the firm.

Finally, the Professional Firms Act requires that the professional firm’s name reflect the nature of its limited liability structure. If it is a corporation, the firm’s name must include one of the following designations or abbreviations: Professional Corporation, Professional Service Corporation, Service Corporation, Professional Association, Chartered, Limited, P.C., P.S.C., S.C., P.A., or Ltd.  If the firm is a limited liability company, the name must include one of the following: Professional Limited Liability Company, Limited Liability Company, P.L.L.C., P.L.C., or L.L.C. If it is a limited liability partnership, the name must include one of the following: Professional Limited Liability Partnership, Limited Liability Partnership, P.L.L.P., or L.L.P.

WHAT ARE ‘OUTSIDE IN-HOUSE COUNSEL’ SERVICES FOR FRANCHISORS?

“How are you guys different from a typical law firm?”

We’ve answered this question several times recently in response to inquiries from franchisors about EntrePartner’s “Outside In-House Counsel” services. Thus, we’re including our response on our blog to help explain how we work with emerging, growing, and established franchised brands from a legal perspective.

Due to the nature of being in a regulated industry, every franchisor has ongoing and regular legal needs. This goes far beyond drafting an initial Franchise Disclosure Document and preparing annual updates. A growing franchisor is required to comply with ongoing regulatory requirements, as well as establish new systems for franchisee relationships and disputes, support its franchise sales program, comply with agreements, adopt new system standards and policies, and pursue additional growth avenues such as alternative growth structures and international growth.

Depending on certain factors, such as a franchisor’s size, industry, and growth trajectory, those legal needs can range from a standard set of projects, to a specified number of hours of legal support each month. For example, every franchisor will need a standard set of compliance documents to administer its franchise agreements, and ensure that the legal foundation to enforce those agreements against the appropriate people is in place. Additionally, a myriad of issues typically come up in day-to-day operations of a franchise program. Some specific requests that we have heard recently:

• What happens when a franchisee brings in a new partner?
• What do we do if a franchisee wants to sell or transfer its business?
• What if a franchisee wants to move its territory?
• What documentation do we need for a site approval process?
• What do we do if a franchisee misses its required opening date?
• What information can our sales team provide to a prospect?
• What terms should our vendors be required to adhere to?
• What disclaimers and terms should our ops manual and policies include?

Our team of former in-house lawyers provides the answers, and helps establish templates and systems to deal with these and other common recurring issues. Unlike most law firms, though, we provide these services through predictable flat fee arrangements or ongoing subscription agreements with discounted legal rates. Most of our clients that choose this model subscribe to a certain number of attorney hours per month at exclusive, reduced hourly rates. The more hours needed, the lower the hourly rate. While our clients appreciate the financial savings of this arrangement, equally important is the fact they get more in-depth representation. Our subscription clients may take advantage of unlimited emails and phone calls of 15 minutes or less, and a free, monthly client check-in lunch (or happy hour) meeting to discuss ongoing matters, business operations or other topics as necessary – which allows us to have deeper insight into our clients’ businesses.

We have found that this model can significantly delay the timeframe in which a franchisor needs to incur the payroll expense of a full-time general counsel. It also avoids the need to incur big firm legal rates for every question asked or document needed. Having represented many franchisors across various industries, our lawyers draw from a wide range of experience to solve both legal and business issues. Not only that – our lawyers have actually been franchisors AND franchisees, too! This allows us to offer insights beyond those provided from a purely legal advisor.

EntrePartner is founded on the belief that legal services can be provided in a different way. As entrepreneurs ourselves, we represent our clients the way we would want to be represented. First of all, we provide all services at a reasonable and predictable cost – whether that be subscription agreements, flat and capped fee arrangements, or proactive discussions with our clients about their legal budgets and corresponding value for services. In this manner, we focus on developing long term strategic alliances rather than maximizing legal fees.

Secondly, where we really excel is helping our clients translate legal advice into smart business decisions. We leverage our in-house and on-the-ground business experience to help clients avoid the common mistakes that many growing franchisors make, or reinventing the wheel with every issue. Whatever the issue, we’ve likely seen it or something like it (or are able to connect clients to the person who has), and have a first-hand awareness of where it should fall in your priorities list. We combine that actual business and operational experience with legal expertise to do what we do best: help you create, grow, and protect your franchise system.

WHAT DO PROSPECTIVE FRANCHISEES LOOK FOR IN THE FRANCHISE DISCLOSURE DOCUMENT?

All franchisors face one common business growth challenge:  how do I sell my franchise to quality prospective franchisees?  If you’ve forayed into the franchise industry to any extent, you know that a franchisor’s Franchise Disclosure Document (FDD) is a cornerstone of any franchise sales program, and – for better or for worse – every prospective franchisee will eventually receive this document and information regarding their prospective franchisor.  Some industry professionals may brush off the document as being ‘too legal’ or not helpful in doing true due diligence about a franchise system – however, we advise our clients that there are nuggets of information that can really shed some light about a franchised brand.  Whether you’re a prospective franchisee going through the due diligence process, or a franchisor that needs to be prepared to answer questions regarding its disclosures, it is important to note these items in order to dig deeper into the presentation of a franchised network.

Item 19 – Obviously!

Most prospects will flip directly to the Item 19 financial performance representation section of the FDD, which franchisors can use to present a financial picture of units in its system.  Outside of limited exceptions, this is the only place that financial performance information should be presented.  We won’t spend too much time here on this item as analyzing this section is an article in and of itself, however, it goes without saying that prospects will want to understand whether and how a franchisor presents unit financial information. 

Skip Right to Franchisor Financials

After paging to Item 19, the next thing many prospects review are the franchisor financials, which are required to be included as an exhibit, and except in some specific circumstances, are required to be audited.  Here, prospects can glean some key information – such as, whether the franchisor has enough capital to be able to meet its ongoing obligations, and invest in infrastructure, support, and other investments needed to grow and evolve a brand.  Franchisees can also find other important information such as alternative revenue sources to the franchisor, like supplier or vendor rebates, conference or training revenue, and amounts for the purchase of equipment or other supplies directly from the franchisor.  The footnotes to the financials also often contain interesting nuggets of information – including whether third party financing or debt exists, which may include obligations that the franchisor has to third parties.

A Story of Openings and Closures

Item 20 of an FDD requires a franchisor to present state by state information on unit openings and closures over the most recent three fiscal years, plus a list of franchise agreements that have been signed, but for which the unit is not yet open, as of the end of the last fiscal year.  Reviewing this information in detail can be the most important way to understand the evolution of a franchised brand.  Openings or closure rates alone only tell one part of a story, and can be used to create a list of questions based on the information presented.  For example, a franchisor might display a year or multiple year period of significant openings, which can lead to questions as to how the franchisor has capitalized itself and what systems have been created to support such fast growth.  The same can be said about a significant number of franchise units which have yet to be opened.  As another example, closures can sometimes be limited to a time period or particular geographic region – which may indicate an obstacle that a franchisor faced or results of one particular troubled franchisee – from which the franchisor has strengthened its systems accordingly.

After reviewing Item 20 charts, we also advise reviewing the associated information about franchisees that have left the system or otherwise not communicated with the franchisor within 10 weeks of the issuance date of the disclosure document.  This list will display contact information for franchised locations that were bought, but never opened, which invites its own list of questions as to what led to these occurrences.

It’s All About the Ad Fund

The franchisor’s use and management of a system advertising fund can be one of the most contentious points in a franchise system on an ongoing basis.  How a franchisor collects and utilizes this money is often of significant importance to franchisees who contribute a percentage or portion of their revenues into the advertising fund, and hope for a return on this investment.

Item 11 of the FDD requires a franchisor to break down how it made expenditures from its ad fund in its last fiscal year. Smart prospective franchisees will review this information to determine whether the ad fund was spent on true marketing initiatives, how much was spent on administrative amounts (i.e., internal salaries and costs), and to determine if funds have been kept in reserves rather than being spent in a particular year.

Supplies and Rebate Revenues

Item 8 of the FDD is designed to present information regarding suppliers to the franchise system, which is often another hotly debated and relevant part of any network.  Franchisors commonly either sell items and/or services directly to franchisees, or designate mandatory or preferred suppliers to provide items and services to franchisees.  A close reading of this section should help to paint a picture as to under what circumstances a required supplier is used (i.e., a mandatory software vendor), and under what circumstances the franchisor itself is the direct vendor.  One key sentence in this section is often the starting point for many conversations:  the required disclosure that a franchisor must make regarding the amount of revenue it receives as a result of franchisee purchases in its last fiscal year, displayed also as a percentage of its total revenues.  Reading this disclosure carefully in conjunction with the franchisor financial statements can create an important picture in the minds of prospects.

Fee Negotiations

Obviously, up-front initial franchise and other fees (Item 5) and ongoing fees (Item 6) are going to be carefully reviewed by any prospect.  However, outside of the list of current fees, franchisors are also required to disclose information about initial fees that they charged in their last fiscal year.  This information can be scrutinized to determine if the franchisor offered any discounts or reductions to its standard fees, and can many times be a negotiating point for new prospects entering into the system.  This disclosure should be carefully reviewed and understood prior to negotiating any particular discounts, as it can have a real effect on ongoing disclosures and negotiations.

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As lawyers, we feel that the entire FDD is important and riveting information, but this list is a starting point on where we direct our franchisor clients to pay attention to their ongoing operational decision-making that may have an effect on these disclosures.  We also direct our franchisee clients to these sections to help them evaluate the franchise opportunity presented.  Most importantly, we encourage all prospects to truly read and understand the information presented in the disclosure document itself prior to making an investment, as many times purchasing a franchise can be a life changing decision for all parties involved.

CAN I APPLY FOR A FEDERAL TRADEMARK REGISTRATION BEFORE I’M USING THE MARK?

When we are preparing a federal trademark application, one of the most important things we need to know is whether you are – at the time of the application – actively using the trademark in the marketplace.  If you are, we will file a use-based trademark application, also known as a section 1(a) application (corresponding to the section of the law that authorizes this type of application).  But in many cases, an entrepreneur wishes to register a mark before he or she has introduced the product or service that the mark represents. As explained below, it is possible to apply to register a mark that is not yet being used.  This type of application is known as an intent-to-use (“ITU”) application or a section 1(b) application.

Use-Based (Section 1(a))

We file a use-based application when you are already using the trademark “in commerce.”  Using a mark “in commerce” means a bona fide use of the mark in the ordinary course of trade. If the mark is used with goods, it will be deemed to be used in commerce when, for example, it is placed on the goods, on the containers of the goods, displays associated with the goods, or on the tags or labels. Use in commerce also requires that the goods be sold or transported in commerce of a type that can be regulated by Congress, which generally means in interstate commerce or affecting interstate commerce. (Strictly intrastate commerce will not provide a basis for federal registration.) For a mark associated with services, rather than goods, the mark must be used in connection with the sale or advertising of the services and the services must be rendered in commerce.  Determining whether a mark has been used in commerce can sometimes be a complicated analysis, we can help you sort it out.

Intent-to-Use-Based (Section 1(b))

If, on the other hand, you have sincere plans to use the mark in commerce but are not yet doing so, an ITU application essentially permits you to reserve the trademark for your exclusive use in your field.  You must actually use the mark in commerce, however, before a registration ultimately will be issued.  Reserving a mark with an ITU application can be a good option since developing an brand can take time. If you are creating a brand from scratch, you may need time to design logos and packaging, order raw goods and supplies, produce the product to be sold, create a website and the like.  An ITU application provides the comfort that some other party will not be granted the rights to your mark while you are hard at work launching your business.

With an ITU application, once the trademark office “allows” your mark, we will have six months to file a Statement of Use, which is a declaration by a trademark applicant that the mark is currently being used in commerce. A governmental filing fee will also be required.  Should your mark not be used in commerce by the due date to file a Statement of Use, we can file various requests for six-month extensions of time to file the Statement of Use; a request for a six-month extension can be filed every six months, for up to three years.

For more information about trademark registration, visit our EntreTrademark site.

IS MY BUSINESS RIGHT FOR FRANCHISING?

One of the most common questions we get from business owners is whether their business is right for franchising.  On its face, franchising can seem like an excellent way to expand utilizing the capital and talents of qualified third parties.  And for those that do it right, it is!  That said, entering into franchise relationships takes a considerable investment in time, talent, and money, and we initially have many conversations with our clients about whether they are willing to invest accordingly.

Here are some of the questions we go over with our clients when we help them consider whether franchising is the right growth strategy for them:

1.  What is your stickiness factor? We believe this is one of the biggest threshold questions that needs to be answered.  Take a moment to consider a typical franchise relationship.  A franchisee is considering getting into business, but doesn’t necessarily have the know-how to do it on their own. The franchisor teaches the franchisee everything they know about the business up front, and the franchisee thereafter pays a royalty throughout the entire term of their relationship in exchange for operating as part of the franchise system.  As years go by, it is a common feeling for franchisees to feel that they are paying a royalty for things they already know, since it has been taught to them from the start.  The best franchise systems have a common proprietary element that operators cannot get somewhere else and continues to tie the network together past the initial “honeymoon” period – whether it be a literal secret sauce (or proprietary recipe), a technology platform that allows the business to operate and is not available elsewhere, a product or series of products that have been developed for the system, or some other proprietary element.  Consider whether, outside of the brand name, your business has this stickiness factor and if not, whether you can develop one before launching!

2.  Do you have a proven model? Brands often develop as they learn over time.  Many business owners launch their first location with a set of ideas and assumptions, that they later learn may or may not have been correct.  Most entrepreneurs that we work with tell us that if they knew when they started what they know now, they would have _______ (fill in the blank: leased a bigger space, leased a smaller space, added a different service element, simplified their menu, worked with different vendors, offered a different pricing model).

This experience is exactly what franchisees are paying for when they enter the system.  That said, a good franchisor will actually build-out and test what they consider to be the actual franchise “model” location.  The model is, in a vacuum, the ideal set of circumstances that a business under the brand should have to operate – size, location, services, pricing, etc.  Although companies aren’t required to have a model location actually established to begin franchising, it certainly helps franchisors provide relevant information to their franchisees, and also have a showcase location to show and train franchisees and prospective franchisees.

3.  Industry Trends and Competition.  Piggybacking off of the idea of having a proven model, good franchisors also have a brand that is differentiated in its market and poised for growth.  When considering whether to buy a franchise, franchisees will ask the franchisor why they should buy into their brand.  Whether it’s a new type of offering in the industry, or whether the franchisor has a new approach to go to market, franchisors should consider what makes them different and worth buying into.  And, since a big part of a franchisor’s success is the long-term success of a franchisee, the franchisor should also feel confident that their concept has the staying power to be successful in the marketplace, despite industry trends and changes in the competitive landscape, through the long-term franchise relationship.

4.  Are You Willing to Get Into the People Business? Franchising is about relationships. Although a contract ultimately governs the legal obligations of the parties, the majority of the relationship between a franchisor and franchisee is established by trust, communication, processes, and problem resolution.  Without these elements, franchisors are rarely successful in getting buy-in from their franchisees, and ultimately, selling new franchises.

Before franchising, the company is `first a business owner and expert in the industry in which they operate.  Their customers are the people who buy their product or service.  Many franchisors are required to shift their way of thinking to focus on their new customers – their franchisees – and concentrate time and effort on managing franchise relationships.

5.  Are You Up For Investing Into Your System? As we hopefully have hammered home in the above, launching and growing a franchise system does take an investment of capital, know-how, and talent.  In order to properly establish appropriate systems, technology, and support structures, most start-up franchisors are required to hire team members and bring on new technology and systems that come at a cost.  At a minimum, we recommend that franchisors, either internally or externally through vendors, have a plan for the following functionalities: executive leadership (overseeing and adapting the brand), franchise sales and development, marketing and advertising support, compliance, and business coaching and support.  Some of these roles may be played by the same individuals at first, but we do recommend that the franchisor establish a plan to cover these needs with individuals with the appropriate skill sets.

6.  How Is Your Endurance? Franchise agreements are typically longer-term agreements, as franchisees want to ensure they have time to obtain a return on their initial investment in establishing their business.  Common agreement terms are between 5 to 10 years, with rights to renew the agreement for ongoing additional 5 to 10 year periods.  Once a franchisor signs one of these agreements, they are contractually obligated for the long haul.  Although there are always exit strategies that franchisors can pursue, absent divesting, a franchisor will be tied to the system and the brand for the long-term.  We often counsel our clients to consider this and where they are at in their career, goals, and personal lives – and ensure that they have the stamina and energy to lead the system and perform their obligations as may be required.

SHOULD I TRADEMARK MY BUSINESS NAME, LOGO, OR BOTH?

Whether you have a new or established business, trademarks can be an essential part of protecting what often becomes a company’s most important asset:  Its brand and goodwill.  At the startup stage, entrepreneurs often are looking for guidance on how to get the most protection without having to file multiple trademark registration applications with the U.S. Patent and Trademark Office.  So, we are often asked whether a business should register its name, logo, or both.

As a preliminary matter, it’s important to note that it’s not necessarily your company name that you are registering for trademark protection.  Rather, it’s the name used to identify you as the source of goods or services in the marketplace. Simply using a business name that identifies a corporate entity, but that doesn’t indicate the source of goods or services to a consumer, won’t cut it.

Faced with the question of whether you should register simply the word(s) associated with your goods or services (a word mark) or a logo associated with your goods or services (a design mark), the answer will almost always be a word mark, for a number of reasons.

When you register just your name, it’s considered a “standard character mark” and you’re protecting the name itself, apart from any coloring, font, or other styling of the word(s).  From a legal standpoint, registering a word mark tends to offer the broadest protection, since it prevents others from using your name, in any format or way.  So, for example, a competitor can’t use your name, but in a different style than how you use it. It’s the words themselves that are protected.  You have the exclusive right to that name in your commercial space, and you can prevent others from using the name in any manner – or  anything confusingly similar to it.

On the other hand, when you register your logo, your protection is more limited, since it covers the exact shape, stylization, orientation, and sometimes colors in that logo. Your logo may or may not include your name, but ultimately what you’re preventing others from using is your logo, or something that looks confusingly similar, not your name.

So, while generally speaking, a word mark offers more protection than a design mark, there are circumstances where it will make more sense to register a design mark than word mark. Most commonly, you may be unable to obtain a word mark for a number of reasons, including:

  • – The name is descriptive
  • – The name is geographically descriptive or deceptively misdescriptive
  • – The name is a surname
  • – The name is common or creates a likelihood of confusion with another mark

When one or more of these factors are present, posing a challenge to registering a word mark, a design mark can be a good fallback option to at least protect the logo or other important aspects of the mark.

If your budget allows it, the best strategy usually is to register both your name and logo. Every situation is unique, however. If you have more questions about this topic, we’d love to hear from you. You can contact us here or tell us more about your mark through our EntreTrademark service.

DO I NEED AN ATTORNEY TO FORM A COMPANY IN MINNESOTA?

One of the most common questions that we get from our clients, contacts, family, and friends, is whether they should engage an attorney to help them start their company. There are some firms that tell their clients, no matter what, that they should engage an attorney to form their limited liability company or their corporation, and often at a high price.

At EntrePartner, we always strive to help our clients find ways to save on legal fees when the situation warrants it and the risk is low.  So, here’s the honest answer we would tell our dearest relative to steer them in the right direction.

If you are a solo entrepreneur, starting an entity primarily for local operation (within the State of Minnesota, for example), and don’t plan to conduct any external fundraising, you can file an application for your entity yourself through an online process.  The Minnesota Secretary of State provides a relatively simple to use online process that will guide you through the process.  To do so, you will need to determine whether to form a limited liability company (LLC) or a corporation (or s-corp). In this scenario, 90% of our clients form an LLC, but this can be quickly confirmed through a quick call to your accountant.  You will also need a business address within the State of Minnesota to receive notices and where third parties may serve you with documents, if the need arises.

If you go this route, you will need to visit the Minnesota Secretary of State’s website and do a quick search with the intended name of your entity, to make sure there isn’t anything confusingly similar that exists already.  It is a good idea to search different variations of your proposed entity name, including specifically searching each word that is part of it, and variations on spelling, to make sure that you find all existing options.  Once you come up with the appropriate name, you can answer the online questions and pay the initial entity filing fee right on the website.

All of that said, if your entity has more than one owner, we do recommend that you utilize the services of an attorney.  You will want to ensure that ownership is properly issued to each party, and that an operating agreement is put into place that outlines the rights and responsibilities of each owner as to one another and to the company.  For example, many typical scenarios involve a financial partner and a sweat equity partner – and the organizational documents of the entity should outline the rights and responsibilities of each role to ensure that the company has the proper capital promised and that the sweat equity partner delivers on their obligations in exchange for ownership.  We have helped many clients who did not have a proper agreement in place with their partner from the start, and who later found that there were significant miscommunications or lack of follow-through on the obligations of each partner causing significant stress to the company and to the partnership.

In addition to the above, an operating agreement covers the following:

– How will decisions for the entity be made?

– How are majority, or minority, owners protected?

– How are monetary and capital requirements of the company handled?

– How will distributions be made?

– How and when can an owner transfer their interest to a third party?

– What happens if an owner dies or becomes disabled?

– Is insurance appropriate for future business planning?

– Should owners be subject to a non-compete?

None of the answers to these questions are standard for all parties, and as such, an attorney should help you ensure your particular needs are considered and addressed.  EntrePartner offers a complete formation package for entrepreneurs who need help with setting up their entity properly, and you can learn more about that package here. We’d love to hear from you!

IS A FEDERALLY REGISTERED TRADEMARK WORTH IT?

Starting a new business can seem like an overwhelming and never-ending series of decisions and expenditures.  So any savvy business owner will, of course, look to prioritize the “needs” from the “wants.”  One of the most common questions we hear from clients – especially those at the start-up stage – is whether federal trademark registration is worth pursuing.

New business owners often spend a great deal of time finding the perfect name for their business, not to mention making a monetary investment in a good design for their brand.  Entrepreneurs often have a vague sense that a registered trademark can be important, but are not always familiar with the underlying reasons.

It is worth noting that certain trademark rights arise just from using a trademark “in commerce” – which essentially means you are legitimately doing business under your name and logo. These automatic rights are known as common law trademark rights, and they result from your use of a name and not from any statute, rule, or registration. Common law trademark rights have been developed under the judicial system (rather than by a legislative body) and are governed by state law.  The great thing about common law rights is that they are automatic and you gain them simply from using your mark in commerce. The drawback is that common law rights are limited to the market where you actually do business. So, someone in another state could use your business name and you may have no recourse.  This can get to be sticky when you are marketing your goods or services through the Internet.  To claim rights in a certain location, you may need to prove actual ongoing sales to customers in that area or otherwise show penetration of that market.

Because of this limitation of common law trademark rights, we often recommend that our clients federally register their trademarks.  One of the most important advantages to a federally registered mark is that it gives the owner an exclusive nationwide right to use that mark.  Other advantages of owning a federal trademark registration are:

– the right to use the federal registration symbol ®

– public notice of your claim of ownership of the mark, so others can learn about your rights before they use your name in a way that would violate your rights

– the ability to bring an action concerning the mark in federal court, and the ability to recover damages, lost profits, attorney fees and costs that result from the trademark infringement

– the use of the U.S. registration as a basis to obtain registration in foreign countries

– the ability to record the U.S. registration with the U.S. Customs and Border Protection (CBP) Service to prevent importation of infringing foreign goods

The bottom line is that trademark registration is an investment.  The initial cost (and hassle) is relatively minor, but the protections that come with registration can be invaluable down the road as your brand accumulates goodwill.  If you are an entrepreneur considering registering a trademark and you have questions or want further information, we’d love to hear from you. You can contact us here or tell us more about your mark through our EntreTrademark service.