1.  Should I start a company or operate as an individual?

See Video 1 - Entity at: 00:16.

Every entrepreneur should start a legal entity to operate their business, even if it is just one person. By creating a legal entity, you create legal protection for yourself for the actions that occur within the business. If you do not have a legal entity, you could personally be held liable for any liability caused and your personal assets, retirement, and income could be exposed.

A business entity must be treated as a company and not as your personal piggy bank. If it is not treated truly as a company, it is possible to “pierce the corporate veil”. If you do not use company funds for company expenses, or at least expense funds to the business, you could become personally liable even with a business entity in place.

You can create an LLC, an S Corporation, or a C Corporation, which are discussed each separately.

2.  What is the difference between and LLC, an S Corporation, and a C Corporation?

See Video 1 - Entity at: 1:23 (LLC); 06:22 (S Corp); 09:06 (C Corp).

Each of the companies provide liability protection for you.

LLCs provide flexibility for the owners of the company, including deciding who can vote, distribution of profits, and running the company. The draw back is that you can’t go public and raising capital can be difficult. In an LLC you can choose to be taxed as a partnership or as a company, like an S Corporation or C Corporation. Generally, LLCs choose to have pass through taxation, so the entity is not taxed, only the members are taxed for their respective profit. LLC owners receive “Membership Interests,” not stock.

S Corporations have less flexibility and generally require a board of directors, board meetings, company minutes, and stock. If those are not kept, it is possible to pierce the corporate veil. Owners can only get common stock with no priority and distributions are based on the amount of shares. All shareholders must be US citizens or residents. Raising capital can be difficult. S corporations also have pass through taxation, so the entity is not taxed, only members are taxed for their respective profit. S Corporation owners receive common stock of the Company.

C Corporations are great if you plan to go public someday. Different classes of shares are possible, including preferred stock. The requirements of C Corporations are high, including a board of directors, board meetings, company minutes, and stock issuances. C Corporations are required to be taxed twice. The company pays tax at a company level, and then the shareholders are taxed for their individual gains. This is the major drawback of C Corporations. C Corporation owners receive stock of various classes as created and issued by the Company.

3.  Which agreement do I use depending on the type of Company I have?

See Video 1 - Entity at: 18:30; 01:11:30.

For an LLC, you will use an Operating Agreement. This Business Law Mastery Course provides a template Operating Agreement that you can fill in as needed. No bylaws are required. The Operating Agreement defines the rights and responsibilities amongst the owners of the company as it relates to their interest in the company.

4.  What do I need to begin my business?

See Video 1 - Entity at: 02:14; 04:47.

To start your business with a good legal foundation, you should create your business entity through your state’s Secretary of State or Corporation Commission. The state websites have template forms to submit. The members/owners of a business are identified on the Articles of Incorporation or Articles of Organization. You typically need to also state a business address, business phone number, business email, and registered agent. A registered agent is a person or company that is listed on your business to accept service if someone needed to file a lawsuit against your company or if the government needed to reach you for any reason. You can hire a statutory agent if you need one, and you can use their business address. A list of the state websites for filing a new business are included on the State Appendix to this course with hyperlinks.

If you get stuck in filling out and submitting your application for the business, contact our good friends at Prime Corporate Services, which helps entrepreneurs with their initial entity filings. Their website is primecorporateservices.com. Prime Corporate Services also can act as your statutory agent if needed.

In addition to needing to file for the new entity, you will also need to get a Tax ID number, or EIN. This can be done directly through the IRS website. You do not need to use a third party service to get a tax ID number. The form is called an SS4 application, and the link can be found in our State Appendix to this course with a hyperlink.

5.  How do I decide my company name?

See Video 1 - Entity at: 02:58.

When deciding your company name, you first need to do a tradename and a trademark search. The tradename or business name registries can be found in each state and links to each state can be found in our State Appendix to this course.

You should also simply Google the business name and see what is online. Although someone else may not have registered the name, if they are using the name, or a similar name in business, they will have “common law” rights to the name and could defeat your use of the name, even if you registered it later. Registering a name generally provides you with presumptive rights to the name, but which can often be rebutted by someone else that can show a prior use of the name.

You should also search the business name with the US Patent and Trademark Office. The USPTO uses a Google-like system to search for trademarks and tradenames called the TEAS system. Search within the TEAS system for names and marks that resemble your ideal name. Remember to not just search exactly your name. Think of variations of the name and search for things that are similar. If you are looking for exact wording, using quotation marks around the words. A link to the TEAS system is also provided in the State Appendix.

6.  How do I form the actual entity?

See Video 1 - Entity at: 02:14.

See our answer to Question 4 above.

7.  How do I get a tax ID number/EIN?

See Video 1 - Entity at: 04:47

See our answer to Question 4 above.

8.  How do I open a bank account?

See Video 1 - Entity at: 05:53.

To open a bank account, you will need your entity created and you will need to bring your Articles of Incorporation or Articles of Organization. You will also need your Employee Identification Number/Tax ID from the IRS. Some banks require that you also bring an Operating Agreement because they want to know how the rights and responsibilities of the Company are handled internally.

9.  How do I make sure the business is kept separate from my personal assets?

See Video 1 - Entity at: 03:33.

Document all expenses. Use a simple business expense tracker like QuickBooks. If you use a personal debit or credit card, make sure to expense those costs to your business with a reimbursement.

Also, when you hold company meetings, make sure to document the meetings by taking minutes and saving the minutes. This is especially important if your company is an S Corporation or C Corporation. Also, whenever a decision is made by the members or shareholders of the company, make sure to document that as well. We have included Member and Shareholder consent forms as part of the documents to this Course, particularly Documents 2 and 5.

Operating Agreement

1.  What is the purpose of the Operating Agreement?

See Video 1 - Entity at: 03:33.

The purpose of the Operating Agreement is to dictate the rights and responsibilities of each member of an LLC. It does not typically break down the day-to-day responsibilities of each person in the company. Rather, it dictates what rights, obligations, and responsibilities each member has as it relates to their ownership of the company. It also dictates how the members of the company make decisions for the company, how the members get paid, how capital is raised, how members sell their interests, and how new members are brought in.

2.  Who controls the decisions for the LLC?

See Video 1 - Entity at: 26:39; 39:39.

Decisions are made within a business typically by voting rights and a Manager. In the Operating Agreement, the Manager is given various abilities to make decisions. You get to decide what decisions the Manager has the ability to decide without approval from other members. The Manager can be a current member of the company or someone outside of the company. If it is a current member, the company is called “member managed.” If it is by someone outside of the company, it is called “manager managed.” The same decision making authority can be granted to those individuals regardless of whether they are members or managers, and the members get to decide what authority that person has.

Section 3 of the template Operating Agreement provides more details about the management of the Company and the limitations on other members to make binding decisions for the Company. Again, each of these responsibilities can be edited as the members see fit.

Section 1.7 in the template Operating Agreement gives you suggestions on the types of decisions that generally the Manager does not make alone, but instead makes with the other members, whether by unanimous vote or by majority vote or super majority vote as the members see fit.

3.  What do I do if there is a tie in voting?

See Video 1 - Entity at: 01:04:42.

If there is a vote that requires more than just the Manager’s decision and requires a majority or super majority, you have a few options. You could just let ties not move forward. For example, if two members are 50:50 and they disagree with each other, maybe one member doesn’t want to force the other’s hand, or it could get uncomfortable for a small company. So, ties might not get resolved and the company just moves forward.

Alternatively, you could elect to have a third party neutral person or entity make the decision for you when there is a tie. You could identify an employee, a trusted advisor, a mediator, or someone else to be the decision maker if you end in a tie. But be careful with this option because it can be binding and you could be stuck with a decision you may not be happy with, even as a 50% owner of a company.

4.  Does everyone have to put money into the business to receive equity?

See Video 1 - Entity at: 34:03.

In an LLC, no. Section 2 of the Operating Agreement template defines the rights and responsibilities as it relates to capital contributions. Then the capital contribution amounts are identified in Exhibit A of the template Operating Agreement.

Additionally, a member can contribute Non-Capital Contributions, which also need to be listed in Exhibit A. The Non-Capital Contributions are basically “sweat equity”. If the Members of the Company want to give away a portion of the Company to someone to do the day-to-day work, or some expertise regarding some aspect of running the Company, you could consider Non-Capital Contributions.

5.  How do I add a partner to my business?

See Video 1 - Entity at: 55:57.

Generally, adding a partner requires the unanimous vote of all Members per Section 1 regarding Major Decisions. To add a partner, the Members would need to vote. To show the acceptance of a vote, use a Membership Consent Form (Document 2) to show that the appropriate vote was had. If the appropriate vote (majority, super majority, or unanimous consent) is achieved, you will then take your existing Operating Agreement and change Exhibit A to show the new allocation of Membership Interest. If the new Member is also adding capital to the Company, you will need to update Exhibit B to the Operating Agreement.

You need to also consider that when you add a partner, you have two options: You could either sell current Membership Interest or add a new partner by diluting the prior members. Effectively, those are the same though. When diluting Membership Interest for a current Member, the unrealized receivables and inventory items have likely increased, so the current partners when becoming diluted will recognize a taxable gain. Consult with your accountant about adding a new partner to understand tax implications.

Beyond using an updated Operating Agreement, you should also use a Membership Interest Purchase Agreement (Document 9) to show that Membership Interest is being assigned.

Lastly, many states require that when a new partner/member is added to a business that the Articles of Organization be updated with the Secretary of State or Corporation Commission. You will need to submit an Amended Articles of Organization with the new Member’s information. Each state has different online forms. The link to the various State’s websites to complete those forms are included in the State Appendix.

6.  How do we raise capital for the business?

See Video 1 - Entity at: 34:03: 48:12.

If the business wants to raise money from the beginning or later down the road, as an LLC, you can give equity to a Member for a Capital Contribution or Non-Capital Contribution. That would be reflected in the Operating Agreement template and in Exhibits A and B to that agreement.

If the current Members of the Company want to raise money from the existing Members, you can do a “Capital Call” for “Additional Capital Contributions”, which is essentially a demand for money from existing Members. For a new Company, asking for funds from Members can be difficult. You get to decide in Section 2 of your Operating Agreement how Additional Capital Contributions are handled. You can choose to make those contributions mandatory or permissive. If you make them mandatory, where a Member is required to pay the money when a Capital Call is made, if that Member is unable to pay the funds, generally, the Member’s interest in the Company will be reduced by the overall percentage of the Capital Call compared to the total investment to that point in the Company. Essentially, the Member loses equity when they cannot pay the Capital Call. The alternative is to make Additional Capital Contributions voluntary. When that happens, a Member may, but is not required to, pay funds to the Company to keep it going. When that happens, the funds paid by any Member are treated as a loan to the Company. Loans, and interest on Member loans, are paid back first before distributing profit of the Company to the Members. The distribution schedule needs to be updated if you choose this, which is found in Section 6 of the templates.

7.  How do owners of the business get paid?

See Video 1 - Entity at: 43:09; 48:12.

The Operating Agreement can define whether Members receive a salary or draw automatically just for being Members of the Company. This is reflected in the template Operating Agreement at Section 3.6. Normally, Members do not receive a salary or draw just for their role as a Member. Typically, Members receive distributions of profit after payment of expenses. Distribution of profits needs to be defined in the Operating Agreement. Section 6 of the template Operating Agreement provides an example.

8.  Can someone sell their interest in the Company?

See Video 1 - Entity at: 51:25.

The ability to transfer one’s rights in the Company depends on what you choose in the Operating Agreement. The Members can restrict the sale of the Membership Interest. Generally, each Member will want to have the right to sell their interest. However, the other Members will want to be able to limit the transfer to people that the other Members actually want to do business with. To accomplish this, we generally include a Right of First Refusal to the existing Members. Transferability is laid out in Section 8 of the Operating Agreement template.

9.  What happens if I want to sell my interests, can I force others to sell as well?

See Video 1 - Entity at: 53:05.

Members that want to sell can sometimes force other Members to sell their ownership with them, often if you own a majority share of the total Membership Interest in the Company. To force someone into a sale, it is called a “Take Along” or “Drag Along” right. The terms for that are included in the template Section 8.4.

Conversely, if you are a minority shareholder and the majority wants to sell their Membership Interest, you can be granted a “Tag Along” right, whereby you can force inclusion into the sale, so your interest is also sold to the buyer at the same rate the majority is selling. That is also spelled out in the template Operating Agreement in Section 8.5.

10.  What happens if someone dies?

See Video 1 - Entity at: 56:30.

You went into business with a specific person, so when that person dies, you do not want to be stuck with that person’s heirs, estate, or spouse. Nothing against those people, but you didn’t go into business with them. We’ve seen situations where someone dies and the business is now run by estranged family members, and it’s not pretty. Therefore, you can consider requiring a Member that dies or becomes disabled to sell that interest automatically to the other remaining Members. You can set the valuation of the company as the value of an insurance policy, the value of a multiplier of your profit, or EBITDA, or based on a third party valuation of the Company.

11.  What happens if someone gets divorced?

See Video 1 - Entity at: 56:30; 01:08:14.

Similarly to someone dying, you can force the current Member to buy a spouse’s interest upon divorce such that the spouse is not suddenly a part member of the Company with voting rights. To accomplish this, you need to have the current spouses agree to sell their interest in the spouse’s company upon divorce. A spousal consent form is included in the Shareholders’ Agreement (Document 3) and can be adapted for the LLC Operating Agreement as well.

12.  What happens if someone does not perform well as an owner, can they be kicked out?

See Video 1 - Entity at: 57:55.

It is wise to consider an expulsion clause in the Operating Agreement or Shareholders’ Agreement because sometimes things don’t work out with partners. This is not to say that one partner should just try to kick the other one out when things are going poorly. That would be a surefire way to initiate litigation. But, if there are genuine problems and a member/partner is not performing well, you will want a mechanism to “divorce” that business partner. The expulsion language is in the template of the Operating Agreement at Section 9.5. You can consider different or more reasons for expulsion. Upon expelling someone, you will want to document the vote through a consent form (Form 2), and also document the reasons for the expulsion. If it becomes litigated, you will need proof of why the expulsion is occurring. It will be the burden of the expelling member to show why the expelled member was kicked out.

13.  Can we restrict an owner from working for other companies that are competitive to this Company?

See Video 1 - Entity at: 44:22; 01:00:25.

You can. You could choose to make the requirements of being a member that the member can only work for this Company. You could also choose not to. That is generally identified in Section 3.7 of the template Operating Agreement. You could also consider whether to prevent members that sell their interest, and no longer act as members, from competing with the company after the sale/transfer/expulsion. That is contemplated in Section 9.6 of the Operating Agreement. Note, the question of restricting an owner from competing with the Company is a different conversation than restricting an employee from competing. Many laws are not favorable to restricting employees from competing with a company post-employment. That is because many states, and the federal government, want to allow and encourage people to work in their given field, and restrictive covenants can prevent that. And the balance between companies and their employees is often quite a large difference. But owners are different. If an owner sold his company and was not restricted against competition, he/she could set up shop next door and compete with the prior company. That simply does not seem fair, so the laws are much more permissible for restricting owners from competing with a Company.

14.  How do we document ownership interests?

See Video 1 - Entity at: 01:08:14.

Exhibit B to the template Operating Agreement is a Capital Table showing the membership interest breakdown for the LLC. If interests ever change, follow the mechanism outlined in the Operating Agreement and document it using a Consent Form (Document 2) and Membership Assignment and Assumption (Document 11).  

15.  How do we document voting rights?

See Video 1 - Entity at: 42:30.

Voting rights typically follow the percentage of Membership Interest that a Member owns. That can generally be altered though if you would like. However, that does make things quite confusing for voting. Section 3.5 of the template Operating Agreement provides an example dictating voting rights. Exhibit B to the Operating Agreement template shows the percentage of ownership.

16.  How do we document changes to any of the terms of the Operating Agreement?

See Video 1 - Entity at: 01:10:44.

1.  What is the difference between employees and contractors?

See Video 2 – Employees and Contractors at: 00:27.

The difference between employees and contractors is a big question. Employees work for the employer, have their schedules set by the employer, receive tools and reimbursement from the employer, can cause liability to the employer for the employee’s actions, receives benefits, received a salary or fixed compensation, receives management, and is trained. In contrast, an independent contractor works for themselves and does a specific contract for another company. The contractor sets their own schedule, provides their own tools, is not reimbursed generally, does not generally cause liability for the contractor’s actions against the company, does not receive a salary but instead gets paid by the job, and does not receive oversight or training.

Employees are more expensive to the employer but are also more predictable. Employers have to pay taxes and benefits for the employee, whereas the contractor pays their own taxes and benefits.

2.  How do I know if the people that work for me are employees or contractors?

See Video 2 – Employees and Contractors at: 00:27.

The basic question is whether the employee or contractor is controlled by the company. Factors include whether the company can control the timing, scope, frequency, and cost of the work. If the person works for more than one company, sets their own hours, provides their own materials, tools, and training, and the work is not permanent but irregular, contingency based, or unique to a specific trade or skill, that person is likely a contractor.

3.  What happens if I misclassify someone as a contractor when they are actually an employee?

See Video 2 – Employees and Contractors at: 05:20.

If you misclassify an employee as a contractor, there are penalties for unpaid payroll taxes, interest, and penalties for simply misclassifying. Uber recently paid $100,000,000 for misclassifying drivers.

1.  When and how to use an Asset Purchase Agreement?

See Video 3 – Contracts at: 20:46; 23:19.

See Document 8 in the packet for a template Asset Purchase Agreement. When buying or selling a Company, you are selling all of the assets, both physical and intellectual, of the Company. Typically, the Company is owned by LLC Members, Shareholders, or a Separate Entity. We encourage buyers to assume the Company assets into a new LLC to completely disconnect from the prior entity. There is a new EIN for the new entity and new bank accounts are created. It allows for a clean break and a clear timeline for tax purposes of who owned what. The trade names, assets, website, accounts receivable, etc. are assigned through the Asset Purchase Agreement.

Make sure to include a Bill of Sale (like Document 10) for any specific assets and an Assignment and Assumption Agreement (like Document 11) that shows what is being sold and what interests are being assigned.

One of the most important aspects of a deal is actually not the price. It is the representations and warranties regarding the sale. Be very clear when buying or selling a business to get all of the information about the business. For example, make sure to review financial records, tax reporting, projections, leases, past and present lawsuits, intellectual property ownership, land ownership, investments, ownership interests, etc. You want to ensure that what is being told to you about the business is accurate. This process is often called “due diligence.” Due diligence is when the buyer goes through the process of reviewing the internal records of the seller to ensure that what the seller is saying about the business actually holds up. If the seller gives you all of the correct information and after buying the business, the company goes south, it likely means you ran it poorly or the markets changed. However, if after a sale, the company does not perform as well as the seller reported it would or promised it would, or if things pop up from the past that were not disclosed, you can actually unwind the deal or claw back money. So, be very cautious about what is being reported. If you have any concerns during this process, build in a claw back provision typically in Section VII of the template Asset Purchase Agreement, whereby you do not have to pay all the money for the business or you can get your previously paid money back. And protect yourself from things coming up about the business that happened before the buyer took over by having an indemnification provision. That protects you so you are not liable for the damages once you take ownership for things that happened prior to ownership.

Also, in the Asset Purchase Agreement, consider including a non-compete or non-solicitation agreement as part of the sale. Unlike employees, it is common to restrict prior owners from competing with a business when they sell it. Otherwise, companies could sell and open up shop next door.

2.  When to use a Bill of Sale when buying or selling a Company?

See Video 3 – Contracts at: 20:46.

A Bill of Sale is used to show the actual assets purchased in a transaction, such as equipment, vehicles, inventory, accounts receivable, etc. It also includes the intellectual property sold, such as trademarks, patents, websites, logos, etc. This is generally used with an Asset Purchase Agreement.

3.  When to Use an Assignment and Assumption Agreement?

See Video 3 – Contracts at: 30:04.

When you are buying or selling a company, you are likely not just selling assets but also membership interest in the LLC. Therefore, you need to assign that interest in the LLC to the new buyer. Typically, the interest is assigned to the new purchasing entity, so basically the new company owns everything that the prior company owned. Use the template Assignment and Assumption Agreement (Document 11) in your packet.

4.  When to use a Membership Interest Purchase Agreement?

See Video 3 – Contracts at: 20:46.

Instead of selling the assets of the Company to a different entity that takes over everything, a Member or Shareholder of a Company can sell their membership interest or stock in the Company. This is typically done through a Membership Interest Purchase Agreement. A template agreement is included in your packet as Document 9. The sale of membership interest in a company is generally governed by the Operating Agreement (Document 1) or Shareholders Agreement (Document 3). Make sure that when you are selling or buying that the sale is approved by the other members or shareholders of the Company. If not, another member or shareholder could argue that the deal was not legitimate, and you could be left chasing money against someone who did not have the right to sell their interest/stock to you. Use a Membership Consent Form (Document 2) or Shareholder Consent Form (Document 5) to show that the proper approvals were done before the sale.

5.  When and How to Use a Promissory Note?

See Video 3 – Contracts at: 40:32.

A promissory note is simply a loan agreement between private parties. See Document 12 in the packet. If the seller is financing the transaction instead of using a bank loan, you will use a promissory note. The note simply details the amount of money owed, the interest rate charged, and the timing of when payments are made. It also explains what happens if the buyer fails to pay. Typically, you can force the full payment to be due if there is a default – a failure to pay. An alternative to accelerating the note is to allow the Seller to regain equity in the company that was sold (a Clawback) so that the Seller can resell the Company to someone else. If you choose to allow the Clawback, you will likely need to include a credit for amounts paid by the first Buyer if they later lose control of the Company for failure to pay.

6.  When and How to Use a Security Agreement?

See Video 3 – Contracts at: 42:39.

A Security Agreement, like the one included in Document 13, is a complicated document that may require the help of an attorney. When you take a loan, generally you want the person receiving the loan to give collateral. Like a mortgage, the home is collateral if the homeowner fails to pay. In a business setting, when a buyer takes control of the Company, the Seller may want to put a Security Agreement in place, which is like a lien on a home. This prevents the Buyer from selling the assets without first satisfying the lien. Then if the Buyer fails to pay and the full amount of the debt is accelerated and called due, you can sell the securitized assets to pay off the loan. The challenge of a security agreement is that the agreement and assets need to be recorded with the UCC to ensure the lien is recorded. This can be a difficult process, and we suggest engaging a lawyer if you are going to securitize the debt.

7.  When and How to Use a Non-Disclosure Agreement?

See Video 3 – Contracts at: 06:08.

An NDA, like the one included in Document 14, is a simple form that prevents the recipient of information from running away with the information. This protects the owner of the ideas, content, confidential information, and allows the owner to share it without concern. Typically, the NDA also includes an intellectual property assignment. This means that if someone receives confidential information, not only can the recipient not share it with others, but they also can’t develop something to use for themselves based on that information. Anything derived from the disclosure of the confidential information is then owned by the original owner of that information. It protects people to allow them to begin contemplating working together.

8.  When and How to Use an Affiliate Marketing Agreement?

See Video 3 – Contracts at: 12:05.

If you are going to sell someone else’s products or if they are going to sell theirs, you will need an Affiliate Marketing Agreement, like the one in Document 15. You will need to identify how much you will make, whether the arrangement is exclusive to each other or if you can have other affiliates, and how to terminate the agreement. You also need to be cautious of assuming responsibility for someone else’s product or service. While you may sell something, it may not end up working out for the end consumer. So, the affiliate seller needs to disclaim warranties so that the end user doesn’t come back after the seller if it doesn’t work out. This puts the legal responsibility on the creator of the product. In the same way, a defense and indemnification clause is recommended to ensure that if a dispute comes up, the creator of the product has to protect the seller.

1.  How can I determine if the name or logo is available for use?

See Video 4 – Brand at: 03:46.

First, it is important to understand that there are differences between State and Federal law when it comes to trademarks, logos, and company names. If you are using a mark only in your state, then you only need to check your state registry. However, if you put something on the internet and sell a product or service over the internet, it could be deemed interstate commerce, which then becomes federal law. So, a state trademark only protects you in your state, but you could possibly be infringing on someone else’s federal trademark in your state if they are registered federally.

To determine if a name is available, first Google it! If someone is using the name or similar mark, go a different route. Remember that trademarks don’t have to be identical to be confusing or infringing. And, if someone is using a similar name, they have “common law” rights to the name or mark. Even if you tried to register a mark after someone used it, they can contest your mark later arguing that they put it into commerce first.

Further check your state registry for similar names and marks. A link to the state registry is provided in the State Appendix.

Then check the United States Patent and Trademark office. A link is provided in the State Appendix as well. They have a system that is called the TEAS System that allows you to search for word and marks. In looking for similar marks, remember that only marks that are in the same Class of trademark are generally protected. For example, you can have McDonalds as a restaurant and also McDonalds as a lawn care company because they are in different classes. Check for your mark.

2.  What happens if I use someone else’s trademark or tradename?

See Video 4 – Brand at: 10:47.

If you intentionally or accidentally use someone else’s trademark or tradename and it creates confusion in the marketplace, you could become liable for damages, including the owner’s lost profits, damages caused to their business or brand, costs of the action, and more. The owner of the mark can also bring an action against you not only for monetary damages but for an injunction to prevent your further use of it. Again, you may be required to hire lawyers and incur costs and expenses, and even pay the other side’s costs.

3.  What happens if someone else uses my trademark or tradename?

See Video 4 – Brand at: 10:47.

If someone else intentionally or accidentally uses a trademark or tradename and it creates confusion in the marketplace with your marks, they could become liable for damages, including lost profits, damages caused to the business or brand, costs of the action, and more. You can also bring an action against the other party not only for monetary damages but for an injunction to prevent further use of the mark. Again, you may be required to hire lawyers and incur costs and expenses, and even require the other side to pay your attorneys’ fees and costs when you win.

4.  How do I apply for a trademark?

See Video 4 – Brand at: 01:49.

Once you have determined that you can use the mark, you can register it with the state and/or federal government. For the state-by-state links of where to register your mark, check the State Appendix. Additionally, if you are going to file federally and you have determined that the name is available, you will need to determine which Class the mark will be used in. A trademark does not provide protection for every type of use – the trademark is limited to a specific subset of the economy. For a list of the trademark classes, check the State Appendix or go to Goods and services | USPTO.

5.  How do I apply for a copyright?

See Video 4 – Brand at: 12:34.

Applying for a copyright, it is very simple, you need to submit an application directly to copyright.gov/registration. The application is straightforward but is specific to your type of project. The US Government has a Preregistration Information website that can help you decide how to identify your specific type of project and submit the application.

6.  How do I apply for a patent?

See Video 4 – Brand at: 14:30.

Patents are very unique and specialized. A lawyer or patent agent is required to pass a separate bar exam to prosecute patents before the USPTO. There are also different kinds of patents, such as design patents, utility patents, plant patents, etc. If you have an idea to be patented, you will need the assistance of a patent attorney or patent agent. We have patent agents and patent lawyers in our Questae Law network, so schedule your free call.

1.  How do I force someone to stop doing something I believe is not legal?

See Video 5 – Litigation at: 01:28.

Before you hire a lawyer or file a lawsuit yourself, you might consider trying to have someone stop doing something that you believe is illegal. First, you can consider sending a Cease and Desist Letter. A template Cease and Desist Letter is included in your contracts (Document 16). The Cease and Desist Letter is mostly just all “bark” though and no “bite”. If someone fails to abide by a Cease and Desist Letter, that does not create more or less legal liability. It is essentially them just saying no to your letter. The “teeth” to a Cease and Desist Letter comes when you sue for damages or sue to prevent them from doing a certain action and have a Court issue an order forcing them to stop (think of a gag order). A Temporary Restraining Order or Permanent Injunction is a mini trial that happens early after filing where you seek a Court order to prevent the other side from doing some action. You will have the burden to prove that you are more likely than not going to win the argument at trial and that the failure to enter into the Temporary Restraining Order or Injunction would cause you more harm than it would cause the other side when stopping. Remember, a Temporary Restraining Order or Permanent Injunction is different than a criminal proceeding where you are asking a judge to prevent someone from being near you. That is not what we are discussing here.

2.  How do I apply for a civil restraining order or injunction?

See Video 5 – Litigation at: 09:30.

A Temporary Restraining Order or Permanent Injunction is a mini trial that happens early after filing a lawsuit. You have to also file specifically for a civil temporary restraining order or permanent injunction where you seek a Court order to prevent the other side from doing some action you believe is illegal. You will have the burden to prove that you are more likely than not going to win the argument at trial and that the failure to enter into the Temporary Restraining Order or Injunction would cause you more harm than it would cause the other side when stopping.

3.  How do I prepare a demand letter before suing someone?

See Video 5 – Litigation at: 04:19.

A demand letter specifically states the factual and legal reasons why someone else owes you something. Generally, in law, you will have to prove Duty, Breach, Causation, and Damages. So, when preparing a demand letter, make sure you identify each basis as to why you are right. If they decline your demand, you will then have to move forward with a lawsuit, and the lawsuit will have to prove each of those things, so you should get it all put together before you even send the demand. In your demand, include each of the elements listed below, like we have identified in the template demand in your document packet (Document 18).

•   You have the right to make a claim against the other party, like a business relationship, a contract, or an incident like a car accident or you slipped while at someone’s building (standing). And you have to prove that the other person/entity owes you something. Like a contract, or they owe you a duty of safety when you are driving on the road. Without a legal duty, you cannot sue someone else.
•   You will have to prove that the other person/entity breached the duty that they owed you. They violated it somehow and that negatively affected you.
•   Not only do you have to prove that a person/entity has a duty to you and breached it, but you have to prove that the breach is what actually caused your injury or concern. For example, if you get in a car accident, the other driver owes you a duty of safety while on the roads. They breached that when they turned left in front of you or sped too fast. When you get injured, you have to prove that the other side’s actions caused your injuries. If you had a bad back for years and years, and the accident made your back continue to hurt but did not increase the injury, then the accident and the other side may not have actually caused your damages. Therefore, you need to prove that your damages were caused by the breach of the duty from the other person/entity.
•   You have to have actual damages from someone else’s actions. It can’t just be that you don’t like it. You actually have to be harmed. Being mad is not being harmed. The person that owes you a duty and breached it has to cause injury to you and that injury has to cause actual damages. If you cannot prove actual damages caused by the other side’s action, your case will likely be dismissed.

4.  I want to sue someone. What do I need to prepare?

See Video 5 – Litigation at: 05:28.

To sue someone, individuals do not need a lawyer. You can sue on your own behalf, called “pro per” or “pro se”. However, if you have an entity, generally, you need an attorney unless there are small claims or justice courts that allow companies to represent themselves. Check your local rules for whether your business needs a lawyer to sue.

You need to prepare a “Complaint”, which is the actual lawsuit. In the Complaint, you will need to identify the same legal basis for Duty, Breach, Causation, and Damages. States differ on the exact way you need to plead (articulate the allegations and basis for the complaint). In addition to the Complaint, you will need to prepare Summonses to the people/entity that you are suing. The business generally will have a statutory agent. To find the statutory agent for a business, check the state business registry, links to which are included in our State Appendix.

•    You have the right to make a claim against the other party, like a business relationship, a contract, or an incident like a car accident or you slipped while at someone’s building (standing). And you have to prove that the other person/entity owes you something. Like a contract, or they owe you a duty of safety when you are driving on the road. Without a legal duty, you cannot sue someone else.
•    You will have to prove that the other person/entity breached the duty that they owed you. They violated it somehow and that negatively affected you.
•    Not only do you have to prove that a person/entity has a duty to you and breached it, but you have to prove that the breach is what actually caused your injury or concern. For example, if you get in a car accident, the other driver owes you a duty of safety while on the roads. They breached that when they turned left in front of you or sped too fast. When you get injured, you have to prove that the other side’s actions caused your injuries. If you had a bad back for years and years, and the accident made your back continue to hurt but did not increase the injury, then the accident and the other side may not have actually caused your damages. Therefore, you need to prove that your damages were caused by the breach of the duty from the other person/entity.
•    You have to have actual damages from someone else’s actions. It can’t just be that you don’t like it. You actually have to be harmed. Being mad is not being harmed. The person that owes you a duty and breached it has to cause injury to you and that injury has to cause actual damages. If you cannot prove actual damages caused by the other side’s action, your case will likely be dismissed.

5.  I just got sued. What do I do now?

See Video 5 – Litigation at: 14:28.

This is very important! If you get sued and do not respond in time, the other side will just win! In most states, if you fail to defend a lawsuit/complaint, the other side will apply for a “default” or the court will automatically enter a default, which means the other side wins. The document to file in response to a Complaint is typically an Answer, where you admit or deny the things alleged. If there is no legal basis for the lawsuit, you can file a Motion to Dismiss, which can be fairly legally complicated.

If you got sued, check to see if you have insurance that might cover the lawsuit. Insurance covers not just the damages you might have to pay, it often also covers the defense to the lawsuit, so your insurance company will hire a lawyer and pay for them directly so you are not out of pocket at all.  

6.  What happens if I don’t respond to the lawsuit?

See Video 5 – Litigation at: 15:22.

If you get sued and do not respond in time, the other side will just win! In most states, if you fail to defend a lawsuit/complaint, the other side will apply for a “default” or the court will automatically enter a default, which means the other side wins.

7.  What happens if someone I sued does not respond to the lawsuit I filed?

See Video 5 – Litigation at: 15:22.

If someone you sued does not respond in time, you might just win without a fight! In most states, if someone fails to defend a lawsuit/complaint, the other side will apply for a “default” or the court will automatically enter a default, which means the other side wins.

8.  Can I represent myself in a lawsuit?

See Video 5 – Litigation at: 00:34.

If you are sued personally or want to sue personally, generally yes. However, if a company is sued or you want to sue through your company, most states require that the company have a lawyer. There are some exceptions to that so double check your state rules. Also, there are some lower courts, like small claims courts and justice courts that allow businesses to sue without a lawyer but just through a company representative.

9.  How long do lawsuits usually take?

See Video 5 – Litigation at: 24:07.

Lawsuits unfortunately take a long time. Typically, once you file a lawsuit, you then serve it. Then the other side has to file an Answer. Then discovery begins. During discovery, the parties try to recreate a moment in time through documentary evidence and testimony. Written questions called “interrogatories” are sent between the parties to ask about certain information about the case. Then “requests for production” are sent to ask and share documents. Also, subpoenas are sent to people and companies outside of the case. Each part of discovery has timelines to respond, typically 30-40 days after receiving the request. Further, after written discovery begins oral discovery, where the lawyers can ask the other side formal questions in person or over zoom. The questions and answers are recorded and could be played to a jury later. The process to acquire all of the information regarding a case can take months and even years. Then, once all the information is gathered, expert witnesses are engaged to testify about their opinions on what all the documents and testimony mean to your case. There are experts on both sides. They produce an expert report, and then also may go through a deposition of questions and answers. Finally, the Court then has a chance to review all of the information and decide whether the side that filed the Complaint has proven that there is something for the jury to decide. If it is too one-sided and no reasonable jury could disagree, the case could be dismissed at that point. If it moves forward, you then proceed to trial. Trials can also take a long time. Then after trial, the jury will issue an award. From beginning to end, it can take years.  

10.  What happens when I win the case and get a judgment?

There are two parts to every legal case: First, you have to win the case to get a judgment. Second, you have to collect on a judgment. This is a common misconception that is not understood about lawsuits and the Court system. When you win at trial, the other side does not just automatically open their checkbook and pay you. If the loser does not have enough money, they could be “judgment proof”, meaning a large number on a piece of paper will not actually turn into dollars in your account because they may not have anything. Further, the loser might want to try to appeal the case because they think the Court made a legal error during the case. This is not a factual decision-making mistake by the jury, but a legal mistake. To collect on a judgment, typically a party has to “garnish” the assets of the now debtor. This can include going after bank accounts, wages, assets, etc. This typically requires a separate lawsuit for garnishment.

11.  How do I collect on a judgment?

To collect on a judgment, typically a party has to “garnish” the assets of the now debtor. This can include going after bank accounts, wages, assets, etc. This typically requires a separate lawsuit for garnishment. Be careful about going after someone that does not have insurance or assets because a big judgment does nothing for you if you can’t collect.

12.  Can we appeal a judgment?

See Video 5 – Litigation at: 28:51.

Often, yes. The loser might want to try to appeal the case because they think the Court made a legal error during the case. This is not a factual decision-making mistake by the jury, but a legal mistake. Appeals are typically required to be heard by appellate court above the trial court but not by higher courts above the appeals court. To get to a higher court, the Court generally has to approve the case to go to the higher court.

13.  Can we settle the case before getting to a final judgment?

See Video 5 – Litigation at: 29:54.

Yes, you can settle the case at any point along the way. This could be at the very beginning demand phase or even after a trial and verdict. We have seen cases settle on the day the trial starts and the day before an appellate court renders a decision. Whenever there is an argument to be made, make it, because it could save you money or you could collect more.

14.  How do we document the settlement?

See Video 5 – Litigation at: 31:53.

When you settle a case, you settle it forever. Be very cautious that when you settle the case, you cannot come back for more even if there are problems that arise later. Typically, a settlement agreement also includes a “release” of claims. The release means that the party bringing the claim releases the ability to ever bring that claim again against the party that is settling. Make sure that if a claim is made against you that you never pay anything unless you get a release. If you pay without a release, they can come back for more. A template settlement agreement and release is included in your document packet (Document 17).