Posts

Norton Law Corporation Blog Etsy Business Trademarks and Corporate Formation

How to Protect Your Etsy Business

The idea for this post came from a couple of different sources. First of all, I’m getting married in just over a month, and my fiancee and I have been ordering quite a few things from the handmade capitol of the world over the last few months. Secondly, I recently read an article a couple weeks back about Urban Outfitters, H&M, and Forever21 allegedly ripping off the designs from a number of artists on Esty—I’d post the link, but I forgot to save it (and in true lawyer fashion, I also can’t really comment on whether those companies engaged in that kind of activity). So I figured, why not make a post on how shop owner on Etsy can best protect themselves not only from liability, but from other companies leaching off of their great ideas and unique designs.

Now, it should be noted that Etsy’s corporate counsel, Hissan Bajwa, wrote a post a year or so ago about the various types of business entities an Esty shop owner could own, but I feel like he may have left out a few things and wanted to go into a little more detail. Keep in mind that everything in this post is merely general advice, and none of it should be considered legal advice since (for most people reading) I’m not your attorney and I’m not basing any of this article on specific, individualized, facts but merely general observations.

The Best Legal Structure for an Etsy Shop Owner

What the best legal structure is for your business is going to be a question for your own personal business attorney. That’s right, you’ll need to evaluate what you’re selling, whether you’re working with anyone else, and what the taxes will be like depending on the type of structure you’re interested in (and that’s also a good question for a CPA, as most good business attorneys will tell you).

Let’s Talk Sole Proprietors

With that said, I’ve been shopping on Etsy for a long time, and I know that for most of the seller out there, who are working part time crafting their wares, a sole proprietorship is fine. You’re doing business as yourself (or under an assumed name, for which you’ll need a “Doing Business As” DBA recorded pursuant to your county’s rules), and as a result, if you run a shop on Etsy, you’re already a sole proprietor. From a tax perspective, you and your business are one in the same, and from a liability perspective, you’re also one in the same—which an lead to you being held personally liable for any lawsuits that may pop up against your business. Do keep in mind that you may be able to protect yourself with liability insurance, but be sure you really know what your policy says.

In short, a sole proprietorship structure is easy to run (all the money just goes to you), easy to maintain (you don’t need any specific filings or documentation except for a DBA), easy to form (automatic as soon as you start doing business), but you need to watch out for the liability problems or you could get seriously burned (you’re personally liable for everything done in the name of your business).

So, in an incredibly general way, I’m going to say that for most Esty sellers, a sole proprietorship is all you need—especially if you’re just starting out and don’t want to invest a bunch of money into a business you’re not sure is going to work—unless you’re selling items that could injure someone, including vintage items, food products, beauty and grooming products, certain types of furniture, or anything that could injure someone.

Partnerships Are Just…Meh

Now, the question when you decide to start working your business with another is whether to form a partnership or one of the more “sophisticated” business structures like a corporation or a limited liability company (LLC). This might just be personal preference talking, but I’m not a fan of the partnership structure unless it’s absolutely necessary (which does happen in very specific circumstances which are way, way outside the scope of this article). Essentially, you and another person enter into a business partnership, at which point I always recommend a partnership agreement—seriously, if you’re partnered with someone and you don’t have a partnership agreement, call an attorney and get one drafted now, this very instant, I’m not kidding—when you start operating the business together.

A partnership is kind of like a sole proprietorship, but for two people. Same as before, they’re easy to run (just split that money as stated in your partnership agreement, or equally if you don’t have a partnership agreement), easy to maintain (again, just file for a DBA and that’s all you’ll need provided you and your partner are still getting along), easy to form (just start doing business with someone else), and as with the sole proprietorship, easy to get totally screwed if someone sues the partnership. And why you may ask? Because in a partnership, both partners are on the hook for the entire amount of any liability the partnership incurs. So if your partnership is sued, and your partner can’t or won’t help pay, you’re going to be stuck holding the bag (though in all fairness, you can try and get the money from her later).

My feeling about partnerships for Etsy store owners is this: if you’re doing enough business that you’re in need of a business partner, skip the partnership, spend the money and form a corporation or an LLC.

Better Liability Protection Comes at the Price of a Corporation or LLC

We come to the last two types of businesses for Etsy shop owners: the corporation and the LLC. Now, there’s only one type of LLC (unless you count LLPs, which are like LLCs and partnerships mashed up and only used in limited circumstances), but there’s a whole slew of corporation types, from C-Corp to S-Corp to B-Corp. We’re going to talk about a few pros and cons of all of them, but a somewhat more detailed study, you may want to check out my other articles on corporations and LLCs.

For a lot of small business owners, the biggest issue I run into with corporations and LLCs is that entrepreneurs don’t like to pay for them. Most of the time, as long as you do yourself a favor and stay away from the non-lawyer legal service providers you see advertised on TV, you’re going to have to shell out around $500 to $1000 to get a corporation or an LLC formed after attorney fees and filing fees with the state you choose to incorporate in. For some business owners, especially Etsy sellers who are just getting started, that’s quite a chunk of change, and you’re probably wondering what you get for that.

What you get for that is a lot more liability protection in case something goes wrong and your business gets sued. This means that if the business is sued, you’re most likely going to be protected. It also means that you have to keep up with a lot more busywork to keep your business going. Extra documents will need to be drafted, meetings will need to be held, a separate set of taxes will need to be done, and so on. But all of that comes with the big perk that if your business is sued, you and your family aren’t going to have to pay for the damages out of pocket if you lose—your business is solely responsible. And because of that big benefit of a corporation or LLC, if you’re selling products that run a higher risk of hurting someone, do yourself a favor and talk to a business attorney (most of us are free to consult with) about whether you should go the corporation route.

On top of the liability protection, some of the corporation types also give you extra benefits. For smaller businesses, I say stay away from the C-Corp structure unless you’re interested in securing some kind of venture capital investment. However, an S-Corp can help you save money on taxes, and a B-Corp can help you save money on certain supplies and other necessaries to keep your business running since having a (Certified) B-Corp shows the world that your businesses takes social responsibility seriously.

Protect Your Handmade Items from the Prying Eyes of the Big Companies

While the first part of this post dealt with how to protect yourself in the face of liability, the second part of this article will deal with how to protect your products from “theft” by the competition. At the outset, it’s important to know that not everything can be protected and a full on, proper protection scheme will cost you a lot more than you’re probably making selling your products on Etsy, but I’ll give you a few hints and tips on how to protect your products without breaking the bank.

Also, every industry has a preferred type of protection, wether it’s copyright, patent, trademark, or trade secret, so I’ll be touching on all types of protection.

Don’t Copy Me…I Have a Copyright

Copyright protection is automatic for things that qualify for it. That’s right, you don’t need to file any paperwork, pay any fees, or anything like that if your items qualify for copyright protection. However, obtaining a copyright for many types of products is simply impossible, and if you want to go after someone for money damages who has copied your work, you’re going to have needed to register your copyrighted item with the Copyright Office arm of the Library of Congress.

So here’s how copyrights come to be. They need to meet two main requirements: originality and fixation in a tangible medium. First, something needs to be original to be copyrighted. It doesn’t have to be super original, just mostly original. Second, it needs to be fixed in a tangible medium. Say what? That just means it has to be more than just an idea, it has to be “touchable” for lack of a better word. There’s also a third requirement: the item can’t be functional.

With the requirements out of the way, let’s talk about a few items currently on Etsy’s front page that may be able to qualify for copyright protection. Jewelry, clothing and accessories, photographs, paintings, furniture, and eyewear. That’s a pretty wide range of products, all of which may be available for copyright protection provided any individual item from a group of items like that is able to meet the requirements for a copyright.

If You’re Trading Goods, You Need a Trademark

Trademark protection is another great way to keep the big companies at bay and protect your products. First things first, I’m a trademark attorney, so I always recommend that if you’re serious about your business, you really need to spend the few hundred dollars to trademark your company’s name. You don’t have to spend extra to trademark a logo or a slogan, but do yourself a favor and trademark the name of your company to give you that extra leverage to fend off competitors who may try to leach off your success. And even if you’re not worried about that, at least have a qualified attorney perform a trademark search to make sure you’re not infringing on the trademark of another. Seriously, I’ve seen it happen before, and a few hundred dollars now can save you tens of thousands later.

With that out of the way, trademarks are designed to protect brands and make sure consumers know where any given item is coming from. Most notably, business owners register trademarks for the name, logo and any slogans used by the business, along with the names they use to brand their products. However, beyond that, certain characteristics of the products themselves may be eligible for trademark protection under what’s known as trade dress. Trade dress extends trademark protection to the decorative, non-functional, non-essential portions of a product, which makes it an excellent way to protect certain types of products. Here’s a few examples of where trademark protection may be applicable: watches, clocks, clothing, jewelry, eyewear, and accessories.

Patents are Patently Expensive

Patents are the third category of intellectual property protection, and to be perfectly honest, they’re way beyond what you’ll likely need as an Etsy shop owner. They’re usually incredibly expensive and take a long time to obtain, and I really don’t recommend patents for most small businesses.

Keep Your Recipes a Secret, a Trade Secret

The final type of protection for your products is trade secret protection. Purveyors of food products, beauty products, and other consumables, its time to listen up. Trade secrets protect the recipes and formulas you use to create your products, but they can also be used to protect things like customer lists, supplier lists, and pretty much anything that makes you different from your competition. The catch? You need to keep your trade secrets a secret. Don’t tell anyone you don’t need to. Make those you do tell sign a non-disclosure agreement. And if you write any of your trade secrets down, keep them under lock and key and only let others see them on a need to know basis.

A Quick Conclusion to a Long Article

At over 2400 words, I think this is the longest article I’ve written on my site, but there was a lot of information to cover and I hope you’ve learned a thing or two about how to protect yourself and your Etsy business. A few things to keep in mind in parting.

Sole proprietorship is probably fine for many Etsy shop owners, but not all, so call an attorney if only for a quick (free chat) about business structures if you’re worried about liability or interested in taking advantage of the perks of a corporation or LLC.

Copyright and trademark protection may be available for your products, but don’t just assume. As far as trademark protection goes, take a look at the (growing) database of common trademark questions for some quick answers on whether your product may be trademarkable. And if you have a product or service to add, let me know and I’ll give you credit for it.

Whether you’re a sole proprietor using a DBA or a full-fledged corporation, trademark your business name, or at least spend the money on a professional trademark search to make sure you’re not infringing on the trademarks of another.

And that wraps it up. Good luck in your endeavor on Etsy and I hope your business continues to grow into a huge success. And if you’re already a shop owner on Etsy, feel free to share your shop in the comments below.

10 Things to Consider Before Buying a Business

Starting your own business entity from scratch is definitely not for everyone. While running any business involves a ton of hard work and dedication, starting from square one involves even more. That’s why so many business owners choose to purchase another person’s business that’s already running strong. But before you sign that check to purchase an existing business, have you done your due diligence and made sure that everything the seller or the business broker told you is correct? We’ve complied ten of the top considerations to check in your due diligence process to ensure the business you’re buying is all its represented to be.

Current and Accurate Financial Information

You’re buying a business to make money. That much is given. But is the business you’re purchasing actually as successful as the seller’s made it out to be? For starters, you’ll want to have the financial statements for the last three to five years audited. Also, check any credit or analyst reports that may be available on the business. Read through schedules of inventory, accounts receivable and payable, and check for any additional indebtedness.

Make Sure the Business is in Good Standing

All too often, a business owner forgets to submit annual or biennial documents to the state’s Secretary of State, causing the business to be suspended. Do yourself a favor and make sure the business is still in good standing. And while you’re at it, read through the Articles of Incorporation (or Organization), the Bylaws (or Operating Agreement), and all other documents contained in the corporate binder, including minutes and additional records.

Check for Employment Law Violations

Employment law is an absolute quagmire for a lot of employers. Minute differences between exempt and non-exempt employees as well as the failure to update an employment handbook can spell disaster for an unaware employer. So be sure to check through all of the employment records for current and former employees of the business to determine their categorization, benefits paid, and any workers’ compensation or unemployment insurance claims they’ve made, among other things.

Taxes Paid

Taxes, like employment laws, can be a tricky situation for a business owner to navigate. While many businesses employ attorneys or CPAs to fulfill their accounting needs, far too many believe they can do their taxes themselves and fail to meet requirements set forth by the IRS or state or local taxing authorities. When you’re going through the company’s financials, be sure to look through all tax filings s well, and focus your attention to any tax liens or discrepancies that could spell trouble later.

Look for all Necessary Licenses or Permits

Many businesses must maintain active licenses or permits with various state and federal agencies for them to conduct business legally. Unfortunately, quite a few of those businesses—particularly the smaller ones—often neglect their licensing requirements. If you’re contemplating the purchase of a business where a license or permit is required, make sure the business has it, and it is up to date.

Examine the State of Physical Assets

There are few businesses that can get away with having little to no physical assets as a part of their business model. While a schedule of assets can take you a long way to understanding the types and status of the assets the business owns, that is only the first part of the puzzle. You’ll also need to look to any equipment leasing contracts the business has with manufacturers or dealers, any UCC filings for the equipment, and lists of all purchases and sales of capital equipment.

Intangible Assets such as Intellectual Property

While physical assets are often thought of as one of the most important factors in the purchase of a business, intangible assets, such as intellectual property, can often be more valuable than the physical assets of a business. What are intangible assets? We’re primarily talking about trademarks, patents, and copyrights the business owns. Be sure to check if the business’s name and product names are trademarked (and still actively maintained). Go over methods for protecting trade secrets with the managers. Comb over patents and licensing agreements to make sure they’re valid.

Vendor, Supplier, and Other Contracts

A business is often only as good as its supply chain. And as an integral part of that supply chain, you need to be sure that your contracts with vendors, independent contractors, or any other suppliers of materials or labor are all valid and intact. Start by getting a list of all of the third parties the business deals with on a regular basis. Check to make sure their contracts are all valid and there are no breaches between the parties. Also, while you’re checking these contracts, take a look at any real property leases or mortgages.

Environmental Issues or Other Litigation

One of the most hot-button issues currently for purchasers of new businesses is whether the previous owners have any environmental problems that may pop up later. From pollution to exposure violations, even the smallest environmental issue can spell big trouble for the business. Be sure you check out any types of hazardous materials the business uses as well as how those materials are handled and disposed of. Also, check for hazards in the form of litigation that could harm the company later on, including any current or threatened litigation by or relating to the company.

Get as Much Customer Information as Possible

A business will not have any success without a strong customer base. And any business that is worth its price will have a detailed list of customer information on hand for your perusal. If possible, read through a list of customers to find out who they are, where they live, and what products they purchase. The more you know about your customer base, the better position you will be in when it comes time for you to take the reins of the company from the seller—meaning you’ll be able to enjoy profits as quickly as possible.

Photo Courtesy: Sebastiaan ter Burg

Soon to be featured at: Directory World

How to Pick the Perfect Name for Your Business

What’s in a business name? A lot, surprisingly. And it’s something far too many entrepreneurs fail to dedicate time to when starting a business. Sure, in the mind of a team putting together the next great internet startup, a name doesn’t really mean much when there’s the big picture things to think about: the business plan, the coding, and the website design and functionality. But a business name is something that should be at the forefront of any businessperson’s mind from the moment they take that first step toward incorporation. Hopefully this article will help to shed some light on the importance of picking a great name the first time—lest there be unforeseen repercussions down the road.

To many, the name of your business is just the thing you wrote down on articles of incorporation or the articles of organization at the time you formed your business. Maybe you spent a few minutes thinking about it—maybe you spent a few hours. But the real question is: Did you consider the branding implications, the marketing prospects, and the complete integration of your business around your name? Didn’t think so.

You see, the name is more than just the name of your business entity. For many entrepreneurs, it also extends to everything their company produces. The website address, the product name, and (what unfortunately becomes a sticking point for many businesses later on) the trademark. Because so much hinges on the business name, you want to make sure you get it right the first time. Changing a name because of trademark issues can be detrimental to your business—and having to settle for a less-than-perfect website address can spell doom for an entirely web-based startup.

So what should you keep in mind when naming your new business? Here are a few questions you need to ask yourself when choosing a name for your business.

  • Is Your Business Name Already Taken? When you decide to form a business entity, you’re going to have to register with some Secretary of State office. At the time of registration, there may be another company with your chosen name—at which point you’ll have to come up with a new business name. Instead of thinking you’ve found the perfect name from the beginning, why not save yourself from disappointment by picking a few possible names and ensuring they’re not already taken in your chosen state.
  • Are There Any Laws Against The Use Of Your Chosen Business Name? Some states have laws regarding what can or cannot be used in a business name. Generally, these laws are designed to prevent use of deceptive business names, but additional laws could cause problems too, so make sure you read the applicable rules and regulations regarding business names before you try and register.
  • Is A Domain Name Available For Your Business Name? Chances are you’re going to want a web presence for your business at some point. Do you really want to have to resort to a .net or .biz domain name? Or worse, has someone registered all of the top level domains for your chosen business name, leaving you to register a domain name that only vaguely resembles the name of your business.
  • Is The Business Name Able To Be Trademarked? This is a big one for companies that want to protect the goodwill associated with their name (which should be every company). If you’ve chosen a name for your business that can’t be trademarked, you may have a tough time trying to protect your business down the road. And if you’re taking your business around the world, make sure you can trademark your business name in places beyond just the United States. This applies to product names, too.
  • Will The Business Name Subject You To Trademark Infringement Claims? Have you decided to name your new company something deceptively similar to another company that already has a very strong presence in the field? If so, you may be inadvertently subjecting yourself to trademark infringement claims. Not a good thing. Make sure you’re not picking a name that is clearly designed to sound incredibly similar to your competitors.
  • Does My New Business Name Mean Something Weird In Another Language? This is kind of silly, but take a page from Ikea when naming your business (and your products) and try to make sure the name isn’t some vulgar word or phrase that could get your company into trouble when you branch out to foreign markets.

But, if you only take away one thing from this article, make sure that when you come up with your business name, you make sure your name is unique enough that you’re not infringing on anyone’s rights.

Image courtesy: Waag Society