Got Startup Meetup June 25, 2015

THIS PRESENTATION IS FOR INFORMATIONAL & EDUCATIONAL PURPOSES

ONLY AND IS NOT TO BE CONTRUED AS LEGAL OR BUSINESS ADVICE1

Cover Your Assetsor

Protecting Your Business and Personal Assets

Assets

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� An asset is defined as “a useful or valuable thing, person, or quality.”

� Today we talk about the protection of personal and business property

Property

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� Tangible property� Real property includes land and things attached to the land

� Personal property includes physical property such as computers, furniture, cars, trucks, etc.

� Intangible property� Intellectual property

� Financial instruments

Methods for Protecting Assets

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� Legal Entities and Structures

� Intellectual property

� Contracts

� Insurance

Personal Legal Entities

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� Trusts

� Family limited partnership

� Limited Liability Company

� Warning: there may be tax, estate and asset control issues with some or all of these structures.

Business Legal Entities

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� Sole proprietorship

� General partnership

� Limited Liability Company (LLC)

� Corporation

� Not discussed: LP, LLP, PC, PLLC, non-profit & publicly held

Sole proprietor

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� Simplest

� Single owner entity

� Typically few, if any, employees

� Owner & business are the same legally, including for tax purposes

Sole Proprietor

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� Pros� Cheap, less complicated

� Owner reports P&L on personal tax return

� Can deduct day-to-day business expenses

� Cons� Owner personally liable for all business debts and court

judgments

� May have higher tax bracket due to business income

� High IRS audit rates

General Partnership

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� If two or more people own and operate together

� The owners and the business are the same legally for tax purposes and liability

� Each partner may be held responsible for another party’s actions (both business and personal)

General Partnership

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� Pros� Cheap, relatively uncomplicated

� Partners report P&L on personal tax return

� Can deduct business expenses

� Cons� Owners personally liable for business debts and court

judgments

� Business income may push you into a higher tax bracket

� Fiduciary duties apply

Limited Liability Company (LLC)

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� A flexible business form which provides for limited liability with few required formalities

� Can choose to be taxed as a partnership or as a corporation

Limited Liability Company (LLC)

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� Pros� Profit and loss can be split unequally among members within

IRS guidelines

� Protects personal assets from business liabilities

� Protects your membership interest from personal liabilities

� Cons� Cost of formation

� Cost of operation

� Member’s shares of profit may be subject to self-employment taxes

Corporations

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� Independent legal entities with a long history

� Shareholders are generally not responsible for business liabilities

� Flexible tax treatment� C type: corporation and shareholders are separate tax entities

� S type: tax liability flows through the shareholders and the corporation is not taxed

The C Corp.

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� Pros� Limited personal liability

� Fringe benefits deducted as a business expense

� Can split corporate profit among owners and corporation

� Cons� Expensive to create

� Many formalities to follow

� Can’t write off business losses on personal tax returns

The S Corp.

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� Pros� Limited liability for business debt

� Losses can be deducted on personal tax returns

� Cons� Expensive to create and maintain

� An LLC offers similar advantages with less paperwork

� Fringe benefits are limited for certain shareholders

� Corporate income must be allocated in proportion to ownership interests

Intellectual Property

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� Patents

� Trademark

� Copyrights

� Trade Secrets

Patent Types and Protection

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� Utility� Machines

� Articles of Manufacture

� Compositions of Matter

� Processes

� Design – ornamental appearance of articles

� Plant – certain types of plants are patentable

Types of Utility Patents

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� Non-provisional patent applications� Protect for 20 years from priority date (in most cases)

� Expensive: expect to pay $25K or more to prepare, prosecute and issue a high-tech patent

� Expensive to enforce

� Provisional patent applications� Are placeholders for one year

� Can be inexpensive if you file it yourself

� The value is dependent upon how well it is written, but is almost always better than nothing!

Advantages of Patents

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� Patent can be used to exclude others from making, using, selling, importing or offering for sale of an invention

� The scope is defined by the patent claims

� Patents and patents pending can slow down competition

� Patents and patents pending can enhance a company’s valuation

Trademarks

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� A trademark is an identifier of the source of a product or service

� Can be a name, logo, slogan, packaging, design, sound, scent

� Trademarks can be protected under the common law to some extent

� Trademarks can be registered at both the State and Federal levels (Federal has many advantages)

� International trademark registration can be obtained through various International Treaties

Copyrights

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� A copyright is a property right in an original work of authorship that is fixed in a tangible medium

� Protects against unauthorized reproduction, adaption, distribution, performance or display

� Is automatic and does not require a notice

� Registration with the Copyright Office affords many benefits

Trade Secrets

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� Information, including a formula, pattern, compilation, program, device, method or process that:� Derives independent economic value from not being generally

known; and

� Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy

Contracts

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� The building blocks of business

� Contracts can be written, oral, actual or implied

� Don’t wing it: see a lawyer when a contract is required

Standard Contracts

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� Certain standard contracts can be made for you by your attorney including� Employment agreements, including provisions for the

company’s intellectual property rights

� Contractor agreements

� Non-disclosure agreements

� Assignment agreements

Insurance

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� There are a wide variety of insurance instruments for protecting the assets of individuals and companies

� In addition to your home and automobile insurance, consider a personal “umbrella” policy

Req’d Business Insurance

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� Insurance for employees� Worker’s Compensation

� Disability

� For business automobiles or trucks you’ll need Commercial Fleet insurance

Other Useful Business Insurance

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� Property insurance

� Liability insurance

� Product liability insurance

� Business income insurance

� Error and Omissions insurance

� Key Person Life Insurance

Summary

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� Protect both your personal and business assets

� Separate business and personal liabilities to the extent possible

� Protect your intellectual property

� Use contracts wisely

� Obtain appropriate insurance protection