New Business Registration: Sole Proprietor/Partnerships Vs. LLCs

So…. You’ve gotten past the initial trepidation and you want to go into business for yourself. Outside of all the other things you must consider when starting a business; you must understand HOW you are going to conduct your business. There are many different entities that your state has created that allow you to do business with vastly different consequences. Here are just a few things to consider. Please keep in mind that I reference Michigan law because that is where I practice.

Sole proprietor, partnerships vs. Limited Liability Companies

Some businesses start out as sole proprietorships, partnerships, limited partnerships, etc. A partnership is very simple to form and involves very little formality. The mere act of conducting business for a profit between two or more persons will cause a partnership to arise under Michigan law. With regard to Name Protection, In order to protect the partnership’s name, a Certificate of Co-partnership should be filed in the county where the partnership is located. A partnership can do business under more than one name by filing a Certificate of Persons Conducting Business Under Assumed Name with the county where the partnership is located (aka “dba’s”). The failure to file a Certificate of Co-partnership will not terminate a partnership. An additional benefit to the Certificate of Co-partnership is that it discloses to the public the partners who have authority to bind the partnership. With regard to agreements, a partnership agreement is not required, but it is recommended. The partners should understand what their rights and responsibilities are relative to one another. Without a partnership agreement, the law assumes that all partners share equally and make decisions equally.

All of the aforementioned entities do not afford you any personal protection from liability if things go horribly wrong in your business venture. In some cases, this is not of much concern because many start-ups have very little in terms of assets and neither do the individual owners. However, most people with the courage to start their business usually have assets they want to protect from litigation or court judgments. The important thing to remember in the beginning is whether your customers believe they are doing business with you personally or whether they understand that they are doing business with a company that you happen to own. If they believe that they are doing business with you, and you have done nothing with regard to state filings and your money goes directly into your personal checking; your potential exposure to liability could be immense. This potential liability also applies to you when your partner promises a customer something neither of you can deliver. Personally, I cannot think of a worse situation.

The LLC achieves the advantage of limited liability like a corporation, yet the owner need not observe traditional corporate formalities.

The lesson here is to know that at the very least; your state affords you the opportunity to do business as a Limited Liability Company (LLC). An LLC is created by filing Articles of Organization, which are similar to Articles of Incorporation for a corporation. Attorneys and promoters may sign LLC Articles of Organization so that an LLC can be formed in the same way a corporation can be formed. Initially, a member of an LLC was required to sign Articles of Organization. An LLC can be organized to engage in any lawful purpose permitted for corporations or partnerships, and its duration is perpetual unless otherwise indicated in the Articles. The name is protected when the Articles of Organization are filed. The name must contain the words “limited liability company” or “L.L.C” or “L.C.” (with or without periods). The LLC may adopt one or more assumed names by filing a Certificate of Assumed Name with the Department of Labor & Economic Growth. An LLC should provide for the rights and responsibilities of the members in an Operating Agreement. The lack of an agreement can be disastrous. Without an agreement, each member is entitled to one vote and the profits of the company are split evenly, regardless of what the parties intended. One or more members are allowed. This is a very important advantage for sole proprietors. A sole proprietor can become a single member LLC and will still be taxed as a sole proprietorship. The single member LLC need not be taxed as a corporation. This allows those persons who conduct a business as a sole proprietorship to obtain the benefit of limited liability with little expense or hassle. The LLC achieves the advantage of limited liability like a corporation, yet the owner need not observe traditional corporate formalities. The primary formality is that the owner must keep LLC funds in separate accounts and make certain the business is done in the name of the LLC; otherwise, the benefit of limited liability may be lost.

Under the Check-the-Box regulations by the IRS (absent an election otherwise), a single-member LLC is disregarded as an entity separate from its owners (thus referred to as a “Disregarded Entity;”“DE” herein) A DE is a tax-nothing. It is not taxed; its owner is taxed as if the DE did not exist. The corporation holding the DE functionally holds the LLC the way a corporation holds a wholly owned subsidiary corporation, which protects the corporate owner from the LLC’s liabilities. Single-member LLCs, treated as DEs for tax purposes, are very beneficial since a corporate owner does not need to file separate federal tax returns, yet achieves diversification of risk. The Articles of Organization must state the name of the LLC. The Articles must state the purpose of the LLC or that the LLC may engage in any activity for which an LLC may be formed under Michigan law. The Articles must also state the resident agent and office, the LLC’s maximum duration if it is not perpetual, and an indication of whether the LLC is manager-managed or member-managed.

These are but two options to consider when starting your new business venture. The next time we will navigate the vast differences between LLC’s and Corporations.

Intellectual Property on the Web — Know Your Rights

With burgeoning technology and its new uses in social media, the pressing question becomes what to do when your content is stolen. First, you noticed that I didn’t say “if” someone steals your content. That was on purpose. With the glut of information on the Internet, it’s now a matter of “when” not “if”.

The first step in learning about what you can do when someone steals your content is to know that it will happen, so the more prepared and informed you are, the better your chances of prevention and having a plan in place when they steal.

As the number of websites and blogs grow, the demand for content puts more pressure on website administrators, who may resort to stealing content in order to fill space on their sites and attract traffic. Website hijacking, as such an example, is on the rise. Most people do not realize it but this is a copyright violation. Copyright laws were designed to protect those in society whom we celebrate and honor, often representative of the lowest paid workers.

Here are a couple things that you can do:

1. Put a copyright notice in the box with your site’s information and licensing information in the footer so that any sites that scrape your feed will also carry with it correct attribution and information.
If the issue of people stealing your content doesn’t bother you, be sure and mark your website or blog accordingly with a copyright tag that says “help yourself”. Display a copyright notice, like one from Creative Commons, which says “free for the taking”.
If it does bother you, you can display a copyright policy notice to inform your readers that your content is yours - don’t touch. Or you can choose another copyright policy that says something between. Check out all the different copyright options at Creative Commons. They feature small logos, which designates which rights users have to use your content.

2. Draft a Cease and Desist Order.
Usually this legal looking document with a threat of monetary damages does the job. If it does not, then definitely contact the host server with the Cease and Desist Order, advising them to shut down the site if action to comply with the Cease and Desist Order is not seriously. Most hosts will jump to avoid such actions and will temporarily suspend the site.

A Cease and Desist Order can consist of some or all of the following:

• Notification of the copyright infringement and theft of intellectual property.
• A demand that they cease and desist from infringing your copyrights.
• A clear time table for response and deadline.
• Specific request to remove or destroy the page with the stolen content, or another move that will satisfy your need to have the theft stopped or controlled.
• Inform them that they are liable for any and all attorney’s fees, court costs, and damages (only valid for registered copyrighted work - so register your work now.)
• Inform them of any intentions you have to send copies of this Cease and Desist Order to their ISP, host, advertisers to let them know of the infringement.
• Clearly state you will take further legal action is this is not resolved to your satisfaction by the deadline.
• If you want, reinforce your statements with the contact information of your lawyer.
• Request for identities and URLs of all links to the stolen content.
• Demand for an accounting of all profits and income derived from use of the infringed content.
• Demand compensation for any and all profits and income derived from the copyright theft.
• Demand compensation due to lost profits, income, and reputation.
• Clearly state how they are to respond to you regarding this action, by phone, email, in writing (mail), and if they are to respond directly to you or to your legal representative or lawyer.

You should make the letter or email as official looking as possible. For emailed Cease and Desist Orders, make them simple, clear, and easy to read, with double spacing between paragraphs and a clear title. Do not use background art or stationery. Make it look like a memorandum.

Remember, your web-based content is considered intellectual property under this country’s copyright laws and are entitled to protection if you so choose.

Legal Services for Small Business: The Importance of Value Pricing

Many small businesses are concerned with the inherent costs associated with legal counsel and therefore reason that they can forgo legal advice—that is, of course, until they get themselves into trouble. The reality though is that an attorney should be a line item in your expenses even if not engaged most months of the year. But if cost is a concern then the first factor to consider when selecting legal counsel is their pricing model.

Most attorneys bill their clients using an hourly billing model, however, this can be distasteful to many small business owners who closely watch their bottom line and fear getting into billing cycles with no apparent caps. And with good reason—most successful businesses know what their expenses are. Usually things go into a tailspin when you don’t have control of your spending.

The hourly billing model for attorneys is very 20th century thinking. I started my legal career in the last century but swore that I would do things differently once I could. For those who feel the way I do, there is an alternative: value pricing. Value pricing in the legal industry is still in its infancy, but it is the future.

The concept is similar to the widely known and accepted “project pricing” model for most other industries and centers around finite costs for specified deliverables. With the traditional hourly billing model there is no incentive for the attorney to end the engagement in a timely fashion. You (the client) and the attorney’s goals are therefore not aligned. Conversely, value pricing is results oriented, aligns client and attorney goals and keeps legal costs within quantifiable and expected norms. All of this is key if you’re operating on a limited legal budget.

…Value pricing is results oriented, aligns client and attorney goals and keeps legal costs within quantifiable and expected norms.

I have personally seen the benefits of value pricing to my clients. In the end they care little about how I do what I do and more about the fact that I get the results and the professional manner in which I deliver them. Hourly billing gets in the way of all things attorneys and clients really need to focus on…namely, the work.

As an attorney, being measured by my worth as opposed to how long I can sit at my desk is the professional lifestyle I prefer. The fact it allows both my client and I to both be on the same page, as it were, and that all of our incentives are properly aligned with business goals makes the engagement mutually rewarding.

If you currently have an attorney that is billing you by the hour, ask him or her why. If your attorney cannot think strategically, offensively and proactively every single day, you should find one who runs their business the same way you run yours.

If you’re currently looking for an attorney seek out one that offers value pricing.