Posts

Business Entity Choices

/in , /by

Biletsky Law - Start your businessDeciding which type of entity is right for your business can be a tough decision. There are many factors to take into consideration such as costs, taxes, liability, and legal fees. With the different choices that are available to you, it can sometimes be daunting to try to figure out which entity type is ideal for your business.

But don’t worry, you’re not alone. While entity specifics do vary from state to state, there are general similarities and differences between the states. This article will provide you with a brief description of some of the different entity types that are available to you. Although this article will give you a breakdown of the common characteristics of each type of entity, it is always best to consult a business or corporate attorney to help you decide on the best entity type to choose.

Sole Proprietorship

Regardless of the reasons that you may choose to go solo, a sole proprietorship is certainly the easiest business entity to set up in that you are the company. If you are operating your business using your last name, the process is even more simple. This is because you will only need to file a Doing Business As (DBA) of Ficticious Business Name with the county if you are using a name in which the owner is not easily identifiable. While the cost and ease of a sole proprietorship is alluring, one of the biggest downfalls is that there is no protection from personal liability. Since you are the company, there’s nothing to shield you from liability.

Partnership

A partnership can come in several different forms but the most common is a general partnership. One thing that you may not know is that although a partnership agreement is highly recommended, there does not need to be any kind of agreement between the parties for a partnership to exist. Rather, partnerships can be implied based on the actions of the parties (such as the sharing of profits and losses). General partnerships do not provide protection from liability for the partners, however there are several types of partnerships which do offer such protection. Without going into too much detail, there are limited partnerships where there is a general partner who is subject to liability and the rest of the limited partners who are shielded from liability. Depending on the state, there are also limited liability partnerships, and limited liability limited partnerships. The important aspect of each type of partnership is that there are two or more parties who are working together and either dividing profits, losses, or workload in such a way that a partnership can be implied.

Another aspect of a partnership is the manner of taxation. Partnerships have a “pass-through” taxation structure in that they are treated as disregarded entities and you will only be taxed once. This is in comparison to some forms of corporations where there is a double taxation, which will be discussed more in the corporation section below.

Limited Liability Companies

Recently, one of the most common entity choices are limited liability companies (LLCs). LLCs are attractive entity types because they offer the protection that a corporation offers, but also offers more flexibility in the structure of the company than what is possible to do with a corporation. LLCs are also unique in that you are able to elect how the LLC is taxed. This means that you can either be subject to double taxation, like a corporation (see below) or you can be taxed as a partnership or disregarded entity would be taxed.

Other forms of flexibility that an LLC has is the structure of the company itself. LLCs can be structured or managed in a variety of ways which helps the business be controlled in a customized manner that is best for the company.

Corporations

Corporations are generally divided into two different types of entities a C-corp and an S-corp (there are other types of corporations, such as a B-corp, but this article will focus on these general types). C-corps are generally used by larger corporations and do not have the certain limitations that an S-corp has. With an S-corp, you are limited to only 100 shareholders and can only have one class of stock. Whereas a C-corp does not have such restrictions. An S-corp further has some characteristics which are similar to LLCs. Such charecteristics include the option of being taxed as a partnership and therefore having single taxation. C-corps do not have the option of receiving pass-through taxation and are subject to double taxation. Double taxation means that those earning revenue from the corporation are taxed both at the corporate level and then at the personal level.

In addition to the taxation aspect, corporations are generally seen as the most favorable busines entity by investors and shareholders. One of the reasons for this is because of certain formalities that the corporation needs to follow in order for the corporation to retain its liability barrier.

There are many different charactersitics of each entity that is not discussed in this article and it is important to be aware of all of the nuisances of each before deciding on an entity. While the decision of which entity to form is certainly very important, choosing the wrong entity and figuring that out early enough can be a saving factor as many states allow conversions between entity types (for a fee).

For help with your business entity formation needs, contact Biletsky Law.

Terms and Conditions

/in , /by

Biletsky Law - Terms of UseAlthough you may not be aware of it at the time, by visiting or using many websites and applications you may be agreeing to specific terms and conditions set by the website or application that you are using. These agreements may have different names such as Terms of Use, Terms and Conditions, Code of Conduct, User Agreement, and so on. Despite the different names, each of these agreements are meant to set the conditions for your use of the service and to also provide the owner with protection from liability.

So what’s in these agreements? Besides the names of these contracts, these agreements come in many different variations of length and complexity. Generally speaking, the more interactive the website or application is, the more terms that will be contained within the agreement. Also, what type of content the website or application hosts heavily influences the terms that will be in the agreement.

Keep in mind while reading these sections that the purpose or content of the provisions in these agreements are usually written to completely prevent any kind of liability on the owners part. In some cases, these agreements can be so over broad that they may end up being unenforceable. Regardless of the validity or enforceability of these provisions, some basically throw in the kitchen sink hoping that the agreement will be enforceable.

Introducing the Parties

Often, these agreements start out by defining who you are and who they are. Some of these agreements will use “We” and “You” while others will use more formal language such as “User” and “Company.” Regardless of the way that they state the party names, they are separating themselves from the rest of the world and considering anyone who uses or accesses the website or application to be considered the other party.

Also, there are certain services where access is based on a subscription. For these websites or applications, a further distinction between the mere user and a member may also be brought up.

What You Can’t Do

Another provision of these agreements limit what you are allowed to do on the website or application. These lists can go on for pages and include everything from refraining from posting malicious or illegal content to prohibiting hacking, spamming, soliciting, and other actions. These provisions help the owners to have the argument that regardless of the kind of content that you posted, they had previously prohibited such content and should therefore not be held liable.

Disclaimers

A section that could go on for pages are the “Disclaimers” sections. Depending on the use of the service, these disclaimers attempt to reduce or eliminate the owner’s liability for pretty much everything. Some provisions will disclaim any kind of “warranty” that the product or service may come with while other provisions limit what type of remedies you may be entitled to.

Further Protection from Liability

Depending on what type of product or service the website or application is offering, users may have the ability to post any type of content. This can pose a major problem for these websites as everything from stolen property, defamation, child pornography, and malicious content could be posted.

When the laws and regulations surrounding the internet were first evolving, certain laws  such as Section 230 of the Communications Decency Act of 1996 were passed which aimed to protect certain service providers from liability. In order for these kinds of services to be able to be protected, service providers must meet certain requirements. Some of these requirements allow the owners of certain content to be able to contact the owner in order to remove content that is being used without permission or that which is offensive.

And More Boilerplate

These types of agreements can sometimes be filled with endless legal jargon and repetitive clauses meant to ensure that the owners are protected. While at first glance these agreements may seem to limit any hope you have of getting out of the agreement, that may not be the case. Although within the mountains of boilerplate there may be “severability clauses” which allow the rest of the agreement to be enforceable if something is found to be invalid, the terms which are often found to be invalid are usually the most one-sided ones.

For more information on Terms and Conditions documents or to have one prepared for your website or application, contact Biletsky Law.

Where to Incorporate

/in , /by

IMG_0464When the topic of what state to form your business in comes up, most people immediately say Delaware. In certain situations, this may be the right answer, but the state of Delaware is often thrown around as the answer more than it should. There are many issues to take into consideration when determining which state is the most ideal for your business to be formed in. We will go through a few of these important considerations below.

Where are you located?

Chances are it’s not in Delaware. Delaware certainly has its’ advantages when it comes to the cost of running a business as well as taxes, but it is often forgotten that you will also likely be subject to the fees and taxes of the state that you operate in. For example, a business that is incorporated in Delaware but that is doing business in California will likely need to register as a foreign company in California and will then likely be liable for California fees and taxes. However, Delaware does makes it easy for most small businesses in that if you are registered in Delaware, but are not doing business in Delaware, you will likely not need to pay any Delaware taxes (although certain fees may still apply).

What about the other states?

Delaware has long been held as the state that most people think of when it comes to where companies are from (especially corporations). There are many reasons for this, but one that sets it apart from the other states is called the “Court of Chancery”. Although it’s certainly a fancier name than your normal “Superior Courthouse”, this court’s main focus is business. Cases and controversies that go through this court enjoy expedited case times and are presided over by judges with particular experience in business issues. But at this point, this court is probably not what is convincing you to incorporate in Delaware.

Low and behold, other states saw Delaware’s success in attracting businesses with their low costs, no taxes, and discrete reporting and those states decided to jump on the bandwagon. The two other states who have made a name for themselves as the favorites amongst businesses are Nevada and Wyoming. These states offer similar low or no cost fees and don’t require certain reporting such as shares issued or who the directors are (this can be a big advantage when someone doesn’t want the world to know that they are the owners of the corporation for whichever reasons).

Nevada and Wyoming have even upped the ante with Delaware in that neither state instills any personal tax on a corporation owner and has no annual franchise tax. This is a substantial advantage in particular for other states which do have annual franchise taxes, such as California. California requires that an entity pay a minimum of $800 regardless of whether the company is even running or is operating at a loss. Having no such franchise tax in states such as Nevada and Wyoming is a great advantage unless you run into the issue that I mentioned above…where you still may be subject to the fees and taxes from the state you operate in.

So what does this all mean?

States such as Delaware, Nevada, and Wyoming have been designed as being very business friendly in the hopes of attracting your business to incorporate there. Often, many people will recommend one of these states as the state of incorporation. But the biggest issue that tends to be forgotten is that forming your company in another state does not necessarily leave you free and clear from having to pay the state that you operate in.

For more information on what state to incorporate in, contact Biletsky Law.

 

Cuba Trademarks

/in , , /by

Biletsky Law - CubaFor the last 50 years, Cuba has been an almost unreachable destination for U.S citizens. Sure, there were loop holes and ways to get there, but for the majority, Cuba was an off-limits territory. This all changed in December of 2014 when U.S President Obama declared the easing of the embargo that has placed restrictions between the U.S and Cuba. With this announcement came a whole slew of new issue involving U.S and Cuban relations including visitation, immigration, telecommunications, and of course business.

Now that the trade lines between the U.S and Cuba are starting to resurface, there is a new realization of the untapped market that lies just 90 miles from the Florida coast. Cuba, which is home to over 11 million people, has not been saturated by any U.S companies for the last half century and as businesses start to pour in, there are several vital issues to take into consideration. One such consideration is the protection of intellectual property and, in particular, trademarks.

Cuba is a “first to file” jurisdiction where the first individual or company to file a trademark will be entitled to the use of that trademark. This is in contrast to the U.S which has a “first in use” policy which makes it that whoever used the mark first is the one that is entitled to continue to use of the mark. Now that U.S companies are permitted to obtain Cuban trademarks, it is essential that companies evaluate whether steps need to be taken in order to protect their intellectual property.

So what does this mean? Well, it doesn’t necessarily mean that without action that your trademark will be taken, but if you are in an industry where there is some likelihood of a cross-over between markets, then it might be a good idea to secure your trademark.

As of now, there are two ways to secure your trademark in the Cuban territory. Which way is appropriate for you depends heavily on your circumstances and it is best to consult an attorney before taking either step. One way to secure your trademark is to register your pre-existing mark with the World Intellectual Property Organization (WIPO) under the Madrid Protocol Treaty. Another way to secure the trademark is to register the mark with the Oficina Cubana de la Propiedad Industrial (OCPI), which is the Cuban equivalent of the US Patent and Trademark Office (USPTO). The new developments in the U.S – Cuba relations also allow U.S companies to pay filing fees, obtaining Cuban registered agents, and to litigate to protect their intellectual property.

For more information on how to protect your intellectual property in the U.S and abroad, contact Biletsky Law.

 

Biletsky Law Video Blog Introduction

/in /by

Hello everyone,

I am proud to re-introduce myself as I begin a new series of video blogs, or “vlogs”. My name is Joshua Biletsky and I am the founder of Biletsky Law. I am an attorney based in Hollywood, California and provide legal services to clients in the entertainment industry as well as to entrepreneurs and businesses. In each vlog edition I will be discussing legal issues and events in various areas of entertainment law, intellectual property law, and topics concerning start-up businesses. The blog content will be the same quality you’ve always enjoyed, but will now be accompanied by a short video to go along with the content of the blog. I hope you stay tuned to Biletsky Law’s next edition.

 

Is an LLC the best option for me?

/in /by

Biletsky Law - LLC Benefits
Relatively speaking, LLCs are one of the newer entity choices that companies may be structured as. But just because it’s a popular entity choice doesn’t necessarily mean that it’s the right choice for you. So let’s explore some of the advantages and disadvantages of selecting an LLC.

 

But first, what is an LLC?

An LLC, or a limited liability company, is a unique entity type which combines different characteristics from other types of business entities. Just looking at its’ name gives you a better idea about what this means. The limited liability part is generally a characteristic of corporations which provide the corporation’s owners with protection from liability. Another characteristic that an LLC has is the way that it is taxed, but we’ll get into that a little later.

 

So what’s the deal with the “limited liability”?

Let’s start off by comparing other business entities. A sole proprietorship or a general partnership are business structures where the individual or partners are held liable for the general business, profits, and losses of the company. Now let’s look at LLCs and certain types of corporations. With these entities, the individuals are protected from liability and the company itself is liable for the business of the company. This is generally speaking and there are many situations where the individual owner may become liable.
Biletsky Law - LLC Taxes

And what about the taxes situation?

Here’s another aspect of an LLC that is particularly alluring to business owners. Again, let’s look at some of the other entity choices. Individuals in sole proprietorships and certain types of partnerships are only taxed once, also known as a “pass-through” tax. This is different from certain types of corporations which may be subject to double taxation. This occurs when the corporation is taxed and then the individual is also taxed. In certain states an LLC provides it’s owners with the choice of how to be taxed. These choices can include being taxed either like a sole proprietorship (or a partnership) or as a corporation.

 

Costs and Investors.

One of the downsides of setting up an LLC is the cost. Sole proprietorships and partnerships have minimal to no cost to set up. LLCs and corporations can cost up to several hundred dollars to set up depending on the state the company is being set up in. For some companies, this downside is offset by the fact that LLCs and corporations are attractive to investors whereas sole proprietorships and partnerships are generally not conducive to investors.

 

Decisions and Changes.

Business planning and selecting which structure is best for you and your company can be complex and there are numerous different issues that you need to consider before deciding which one is ideal for your situation. It is highly recommended that you discuss your business plans with a legal professional before making your decision. However, just because you have already chosen or even already set up your business as a particular entity does not mean that everything is set in stone. Depending on the state your business is in, changing the type of entity can easily be done.

Conclusion

So where does this leave us? LLCs can be very flexible and advantageous business structures depending on the state you are attempting to set your business up in and what your overall goals are. The topics discussed above are just a few of the issues to consider when choosing how to set up your business. Remember, planning, research, and knowledge are essential to the success of your company!