Starting a Business, Starting a Small Business, Starting a New Business
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Starting a Business, Starting a New Business or Starting a Small Business |
When starting a business on the web, starting a new business, or starting a small business there are important legal issues to consider.
Making decisions about legal matters is about your level of comfort with risk. If you are making huge revenue with a high risk business, you could decide that the money is worth the risk, or you could decide to do it for a short period of time, collect your money and get out. Just because there is risk does not mean that it is not a good business for you. Everything in life has risks -- your business is no exception.
Incorporation
Why Incorporate?
Incorporation means that your company is a separate legal
and financial entity from yourself. It even has its own social security number
for tax purposes which is called a Federal Tax ID. Most people incorporate
to limit their personal liability so that their personal assets are not at
risk for debts of the corporation.
For example, if your company get sued and loses, the winner of the suit cannot
take your personal car or home. Plus, of course, incorporating makes you look
more professional and often helps with your taxes. Also, if you plan to receive
investment in your company, have employees, and grow to be more than a one- person
show, incorporation is an important step to promote these future goals.
While incorporation protects you in many regards, it does not protect you from
any criminal charges by you or the corporation which can come into play if you are
running an adult or gambling business on the internet.
For more information on trademark read the more in the incorporating section of
this site.
Trademark
The trademark act, or "Lanham Act", 18 USC Sec. 1051 etc. , is meant to ensure
consumers correctly identify the sources of goods or services. A trademark is
either a word, phrase, symbol or design, or combination of words, phrases, symbols
or designs, which identifies and distinguishes the source of particular goods.
A service mark is the same as a trademark except that it identifies and
distinguishes the source of a service rather than a product. Normally, a mark
for goods appears on the product or on its packaging, while a service mark appears
in advertising for the services. A "tm" on a product indicates unregistered
(common law) trademark rights and an "®" indicates a registered mark.
It is illegal to place an "®" on a mark that does not have national registration.
As your domain name and your branding is valuable, you should think in terms
of trademark registration. This can be done later in the business process after
you have more revenue available, but it is important to consider it upfront in
picking your domain name, company name, product and/or service name.
You don't want to use a name which is someone else's trademark since they could
sue you to stop your use, including taking the domain name. At minimum,
go to www.uspto.gov and run a trademark
search for the names which you're considering - at least to get an idea of your
how many other folks there are who could possibly have a claim to the mark you
intend to use. Be aware that getting few or no results does not mean that you're
in the clear due to the complexities of trademark law and the fact that the USPTO
database runs a year behind, but these steps will still lower your risk.
When trying to determine whether you've picked a good name in relation to others'
marks, remember that the point of trademark law is to prevent consumer confusion
about the source of goods or services.
Ask yourself whether a consumer would confuse your name with another product,
service or company.
For more information on trademark read the more in the
law library on this site.
Copyright
Copyright can be important when obtaining content for your site and in protection
of your site's content.
The owner of a copyright has the exclusive right
to copy the work
to modify the work (create "derivative works")
to distribute the work
to perform the work publicly
to display the work publicly
Copyright arises upon creation of a copyrightable works (typically substantial text,
images, music, etc.) Facts, titles, recipes, form designs, alphabetical lists and
other items do not have the required "originality" to merit copyright protection.
Your are not required to register works to have copyright protection, however if you
register your materials, you preserve the fact that they are yours as of the date of
registration, and you gain more rights under Copyright law, such as being able to win
attorneys fees and some times higher damages.
The term "Public Domain" does not mean that everything in public or on the internet is
freely usable, but refers to items which either do not qualify for copyright protection
under the law or for which the protection has expired.
When you buy content for your website or business, the best approach is if you can get
a warranty with from the seller or licensor stating that the seller owns all the rights
in it and agrees to indemnify (pay you for the costs) you if someone else sues you for
using the content.
Large content providers should be willing to do this and many small ones will be also.
If not, you'll have to hope for the best and take the risk.
If you create content, be sure to have your creator sign a contractor agreement with
the language required under the Copyright Act so that you own his work product.
If you don't, he owns the copyrights to the works.
For more information on copyright read more in the
law library on this site.
The Website
E-Commerce Issues
- Clickwrap Agreement for Users:
An agreement with your users as part of the purchase process gives you a legal
remedy (for breach of contract) to ensure that you will be paid, that you waive legal
warranties which are implied by law into sales of products of goods, that you may
disclose their identities to government authorities upon request (there have been law
suit to prevent this or as a result of this), that the user is over 18 and a US
citizen, that the site may only be used as permitted, that venue and jurisdiction for
disputes are in whatever state you prefer, that there are limits to your civil
(anything other than criminal) liability, and more.
If the steps outlined in case law are followed, these agreements have been upheld as
binding. This can be very important since your merchant bank will issue credits for
any disputed internet transactions unless you have hand signed documents from
your purchaser.
While a clickwrap agreement will not change the merchant bank policy, it will give
you a way to go after the purchaser and demand payment under the contract.
For more information, read the article on Website Agreements
on this site.
- Federal Trade Commission (FTC):
the FTC regulates trade and commerce with regard to consumers.
The FTC monitors businesses to ensure truthful advertising, that mail-order, catalog
and web product purchase guidelines are followed, that sweepstakes and contest are
conduct in compliance with the law, and that collection of consumer data and privacy
policy guidelines are followed.
All websites which collect consumer data should have a privacy policy.
If you ship physical products or conduct online auctions, you should familiarize
yourself with other FTC regulations in these areas.
Planning for Investment
Business Plan
Prior to approaching anyone about investment, you should always have prepared a formal
business plan and consult with a securities attorney about SEC guidelines regarding how
you can raise money.
A Business Plan typically contains the following sections:
An Executive Summary
An Description of Your Product, Services and/or Business
A Description of the Market
A Description of Your Competitors
A Description of Your Plan to Make Money
Spreadsheets Showing You Will Make Money and When: Your Costs, Expenses and Profits
Biographies of the Directors and Officers
A Conclusion
Take care when writing this document.
Be sure to be concise and use flawless spelling and grammar.
You will be judged by this document and small mistakes reflect a careless attitude
about your business.
Confidentiality
Prior to sharing your ideas, you should consider how to protect them.
Read more on confidentiality in the law library on this site.
Understanding Your Investment Choices
Angel Investors
Angel Investors are persons with income high enough to meet SEC requirements,
"accredited investors", who invest in small businesses.
If you find an angel investor, you need to consult with an SEC attorney to be sure that
the investor meets all the requirements.
Typically, such investors are worth at least one million dollars or more.
Venture Capital Funds
VC listings and information are available from a variety of sources on the web.
Business.com has an excellent list of VC's in their portal, Vcapital.com and Vfinance.com
also offer some helpful resources.
Garage.com is "the" VC spot since long ago in the Valley and if you can afford to
attend their Start-up Bootcamps, you almost certainly will make valuable funding and
other contacts.
If you do, again, have the business plan perfect and cards prepared before you get there.
Based on information from VentureWire.com, the following is a list of VC's which funded
early stage ventures between 2000 and 2001, as the tech world slowly died out, which
means these are probably still a better bet than most to approach early on in your
business:
Bessemer Venture Partners
St. Paul Venture Capital
Austin ventures
Atlas Venture
Chase Capital partners
New Enterprise Associates
3iGroup
Polaris Venture Partners
Goldman Sachs Group
Draper Fisher Jurvetson
Accel Partners
Crescendo Ventures
Advent International
Battery Ventures
Bank Loans
If you own any assets, you can usually get a loan using it as security.
Also, consider your credit cards, as many a small business has been started using those.
Finally, if you have a small business which has begun to attract customers and do business,
secure as many contractual commitments as possible, and then approach the bank along with
your business plan.
Showing committed revenue may impress them enough to issue a loan.
Be sure to describe your business as much as possible, but truthfully, in a way that
does not stress any internet/technology element given the general fear of investment in
those areas currently.
Small Business Administration
Almost everywhere in America, there is a Small Business Administration office
(www.sba.gov).
These offices are a great resource of information, helpful workshops and people,
and some times even loans from the SBA.
This is especially true if you are a minority or female, or looking for a women starting a business grant.
Always, check out the SBA near you early in your funding search.
However, remember that the SBA is the government and nothing will move quickly, so your
patience will be needed and you should always be trying other sources such as bank loan,
angel investors, venture capitalists, etc. at the same time.
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