Starting up takes a lot. A lot of time. A lot of energy. Perhaps a lot of money. And definitely a lot of planning. At the very beginning, a business owner is looking for revenue, low costs, and maximum upside, in an understandable effort to build a foundation for an economically sustainable enterprise. Having an economically sustainable enterprise–especially one that may eventually be sold–requires sufficient planning to document the assets of the firm and to ensure the firm legally owns those assets. With assets often come certain liabilities, completing the picture and value proposition of the business for owners, investors, and potential purchasers. As tempting as it can be to pass on early legal planning for a business in light of other demands that feel more immediate, that planning will show its value for a business of any size or type when avoiding headaches, heading off informal disputes and even full-on litigation. Learn the core legal considerations for a business in its inception stages, along with the pitfalls you can plan around as you build your business.
Even if you don’t think you have intellectual property, an attorney well-versed in trademark, copyright, trade secret and patent law can almost always discover that you do. We counsel our business clients to consider all of the intellectual property they might have or be developing, and what it might look like if they lost that property (or never owned it to begin with.) Whether your company owns particular intellectual property will depend on a variety of factors, such as whether a written contract governed its creation, whether the person creating the material was an employee or independent contractor, and whether joint ownership might exist. Good planning in this arena will also involve determining whether formal registration is appropriate, like registering a copyright with the U.S. Copyright Office or federal trademark with the United States Patent and Trademark Office.
Possible Pitfalls: Copyrights, trademarks, and trade secrets require careful planning to ensure ownership and protection. Don’t wait until your customers lists leave with a departing worker, or a dispute arises with an independent contractor, to carefully plan for these important assets.
Employment in Virginia is at will, unless a written contract changes that relationship. Good planning is necessary to properly manage to employees and contracts, from policy manuals to agreements governing trade secrets, non-disclosure, non-solicitation, and non-competition. These contracts are assets of the company that a business owner is unwise to do without and are part of our day to day counseling for any business.
Possible Pitfalls: Businesses must comply with the Federal Fair Labor Standards Act (wage and hour laws), and their trade secret and non-competition agreements must use specific language for a court to later enforce them. Businesses that do not plan for these issues–or haven’t done so with the advice of an attorney–often do so at their peril.
A common term in many industries–“book of business”–captures the idea of the current customer base and resulting revenue controlled by the Company. It also may have a more abstract relationship to the general goodwill associated with the Company and its brand (and trademarks). Ultimately, it is a literal ledger of expected revenue derived from a business’ current customer base. The problem with the book of business as an “asset” is that there may be no underlying contractual right to the revenue, or, if it does exist, that right might be cancelled at any time (as can be the case with insurance contracts).
Possible Pitfalls: Purchasing a book of business is a can be a risky proposition. A good contract includes identification of key directives such as the acts the seller will do to help maintain business relationships on the purchase of a business.
Once a company opens its doors to begin selling to or interacting with customers, it naturally generates “goodwill,” an intangible benefit encapsulating how its customers and the consuming public perceive the business. That goodwill is tangibly embodied in the trademarks, trade dress, and other branding of the company. When it comes time to consider selling the business, those marks and their goodwill can be sold.
Potential Pitfalls: Trademark rights technically don’t require government registration, as certain rights exist at common law, but registration provides more concrete and nationwide rights. Registration also provides a tangible, marketable item you can assign to a purchasing business and account for on the company’s balance sheet, so don’t miss out on creative ways to establish and reinforce the value of your hard-earned goodwill such as trademark registration.
Legal planning not only provides a means for reducing the risk of legal liability–it also provides a way for a company to protect its assets, making them a defined, concrete part of the business. Talk to a knowledgeable business and intellectual property attorney to plan your path for success.
To learn more about business planning and partnerships, join us at our next round of Shark Bites this month.
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