Intellectual Property Laws Protect Business Owner Rights to Ideas and Creations

Business owners must know how to brand. Today, with the proliferation of the Internet, successful entrepreneurs need customers to be familiar with their image. Brands, and other identity markers, differ from actual physical property that a business owns. They are a form of intellectual property, which is a legal concept that most people know exists but never really understand fully.

To help demystify intellectual property law for business owners, and others, here is an explanation of the subject, followed by three examples of specific types.

What are intellectual property laws?

This branch of law deals with the rules that protect rights to property that cannot be visible seen. Intellectual property differs from “real” property. Houses, cars, boats and computers are examples of real property. People can see and touch them. In contrast, intellectual property consists of things that society recognizes as existing, yet are impossible to physically handle.

Brand names, books, computer operating systems, songs, iconic symbols and inventions are all examples of intellectual property. Some, are physical items, yet it is the idea behind them, such as the story of a book, that the law covers.

  • Patents
  • Inventions are unique in that there is usually one person who is first in conceiving of the idea. Now, this fact does not preclude others from thinking about and creating a similar, if not the same, product. The two people may have no knowledge of the existence of one another. Human brains just have similar capacities to solve problems by inventing products. Nevertheless, one person did create the product first and, under the law, deserves his or her just reward.

    To save the rights of the first inventor to the profits of their hard labor, there is the patent, a form of intellectual property. Inventors apply for a patent, issued by the government, to reserve exclusive ownership rights. The holder of a patent can choose to license out the use to others, including corporations for mass distribution of the invention.

  • Trademarks
  • Sometimes a company or individual business may want to prevent others from using the symbol that customers associate with them. The law refers to this unique identifier as a trademark, a symbol or name that the government allows one entity to use exclusively in its business affairs. Once a business registers a trademark, no other entity may employ it without expressed permission.

  • Copyrights
  • Original works of art, literature or music receive protection from illegal use or distribution under copyright law. In some cases, depending on the nation, copyrights expire. These rights keep others from claiming, as their own, the creative works of the entitled party, even if unintentionally.

The Value of Intellectual Property Laws

Without intellectual property laws it would be impossible for businesses to protect their financial interests in ideas, symbols and names. The laws prevent others from benefiting from the hard work of creative types. Society benefits as a whole because those who find solutions to problems that make life better, or more beautiful, feel free to do so. They know that no future business can come along and make use of the idea, without first paying them for permission.

Posted in Business Litigation |

What is a Hedge Fund?

Hedge funds are privately held investments that use resources pooled together from investors to capture particular market segment that offers high returns. Investors are therefore required to commit their monies for a minimum period after which they can redeem their investments. These funds are aggressively managed and are only open to the select investors with a minimum set net worth.

The original purpose of creating hedge funds was to capture equity securities investments and to utilize leverage and short selling to monitor the movements of the equity market. This purpose has however been overridden to accommodate other investments that can offer higher returns. The aggressive managers observe the market trends and make speculative investments that at times carry a bigger risk to that of the overall market.

Hedge fund strategies

Their approach to the market structure can take any of the following forms:

  • Short selling
  • Short selling commonly referred to as shorting is a strategy whereby stocks that are not in use are sold and then bought later at a discounted price thereby making real returns. Only a few hedge fund managers can be entrusted with this high-risk venture.

  • Equity market neutral
  • This is an asset stock-picking with the aim of hedging against volatility in the market using the long-short method. The hedge-manager can buy one stock and, on the other hand, short another stock in the same asset class. Regardless of the performance of the individual markets, the investors will still make some money from the investment.

  • Market neutral arbitrage
  • This technique exploits the imbalances in the pricing of different securities. For instance, a manager may short sell a company’s stock and still buy the same companies bond.

  • Merger arbitrage
  • Merger arbitrage focuses on the companies on the verge of an amalgamation. For instance when a corporation Y announces that it is buying company Z at $100 per share, the stock price for company Z will rise by a margin let’s say at $105 by share. The difference between the two stocks is called the spread. A hedge manager can use this chance to make a short term profit from the spread.

  • Convertible arbitrage
  • It’s a corporate bond that is redeemed for a company stock in the future. The price of this bond can fall when the credit ratings fall or when the interest rates shoot up. Profit is achieved from the difference between the price of the bond and the stock it can be redeemed for.

Hedge funds are like a double bladed sword. When you make the right bet, then you are sure to smile all the way to the bank. If you are not lucky, then your lifetime savings can be swept with the speed of the lightning. In the 1990’s, Manhattan investment fund clearing through Bear Stearns lost close to $400 million of their investors assets. The firm, however, collapsed in the 2000s having made $2.4 million and with losses of up to $160 million which the court ordered they should pay.

Posted in Business Contracts, Buying or Selling a Business, Mergers and Acquisitions |

Non-Competition Agreements and Your Business

Non-competition agreements are sometimes used by businesses to protect themselves in the area of their relationship with their employees. They are basically an agreement secured by the employer from the employee that they will not compete with this employer after their employment with that particular firm ends. The more high stakes the type of business or industry in terms of the harm competition from recently discharged employees could do, the more likely such agreements will be commonplace. They are also likely to be obtained when someone sells a business, including their client or customer list. The person who buys that business will need to know that you can’t set up shop down the street and continue selling to that same client list.

The Enforceability of Non-Competition Agreements

There is some variability in state laws as pertains to these types of agreements. In California, for instance, they are illegal except for limited situations having to do with selling a business or dissolving a partnership or LLC. In most states, however, they are generally enforceable as long as they are considered reasonable by the courts in terms of the three criteria of time, distance and type of business. In order to be considered valid, the length of time that such an agreement restricts a former employee from engaging in a similar type of business needs to be seen as reasonable and only what is minimally necessary to protect the company’s vital business interest. Similarly, geographic area restrictions also may come into play. If someone is working for a law firm in Miami, for example, then they quit and move to Jacksonville nearly 350 miles away, a court may find an attempt to enforce a non-compete agreement on that relocated former employee to be an unreasonable restraint of trade because they are now too far to be reasonably competing for the same clients. These agreements also only come into play, of course, if the former employee is going into the same type of business as the former employer.

Protections Afforded By a Non-Compete Agreement

A business spends years and untold dollars of advertising revenue building up a customer or client list. The law sees this as an asset that is worthy of legal protection. This is why one of the most common uses for these types of agreements is to keep an employee from simply leaving after a few months working somewhere and taking the Rolodex of clients or customers with them to open up a competing shop down the street. An employer may also invest a lot of time and money in specialized training for an employee to work for them, and this would simply be lost to no return for the company if they quit and immediately went into business for themselves. In addition to training, company’s will also have certain trade secrets that they don’t want employees learning only to leave and start using them to their benefit.

They are Not a Panacea

Non-Compete agreements are not a magic bullet but rather another tool in any businesses’ arsenal to legally protect themselves and retain valuable employees. A company still has to prove in court that a former employee used some trade secret of theirs in their business or any other legal claim made against them. Non-compete agreements are a vital instrument in helping a business protect its investment in its confidential information, employees and customer lists, and as long as they are carefully worded in terms of reasonableness of time and geographic restrictions, they can be an enforceable and effective tool.

If you or your business need any help with non-compete agreements, contact us at 512-457-1177 today.

Posted in Business Transactions |

Research & Development Tax Credit

The research and development (R&D) tax credit is one of approximately 50 “tax extenders” periodically employed by the U.S. Congress for temporary periods of time at its discretion. The tax incurs an annual cost in excess of $9 billion, which serves as the fourth-largest corporate tax expenditure in the United States. The tax credit endeavors to stimulate the economy through providing private companies with incentives to allocate capital in technological innovation and investment.

Though the intent of the legislation seeks a positive outcome, some analysts and experts question the efficacy of the measure in the long-run. The Mercatus Center at George Mason University, for instance, published a survey on research development investments and their relationship to tax incentives. Some of the challenges this type of legislation faces in practical application are ambiguities surrounding policy, legal matters and definitions of what constitutes R&D. In fact, the study found that the tax credit often features stealth costs that erode its desired outcomes, and thus argued that the credit should be eradicated with a subsequent cut in corporate taxes across the board.

Analysis of the Study

Below are some key findings related to the study:

  • A) The credit lacks empirical data to prove its efficacy. Research in the field illustrates that that tax incentives aimed at stimulating R&D precipitate insignificant investment in private research. In other words, each dollar stemming from the incentive fail to illuminate augmented innovation and, in fact, may erode the caliber of research produced.
  • B) Under the law, “R&D” lacks a clear definition. This lack of precision impedes the development of the R&D sought. The lack of clarity also raises confusion with other parts of the tax code that corporations and affiliated parties must spend time and capital discriminating.
  • C) The credit creates more costs for companies to manage. Firms spend a great deal of money for lobbying and attorneys to best interpret and execute their efforts within the law. In effect, these costs erode the desired effects of the credit and thus undermine macro economic expansion.
  • D) Tax policies of a temporary nature precipitate uncertainty, which businesses respond to with lack of action. Many organizations, especially large ones, prefer to wait to see what the structural conditions of the economic climate will be before allocating resources and making investments.
  • E) The benefits of the credit favor large businesses, as it is employed predominately by the largest corporations or top 1 percent of American firms.

Recommendations for Policy

Based on the analysis of the policy and its efficacy, the group argues that ideally the R&D tax credit should be eliminated completely, while the corporate tax rate should be subsequently lowered with the savings created from the change in policy. This proposal would benefit the whole economy, because lower corporate tax rates have been shown to encourage research and development.

If the desired outcome described above is not feasible, then the following alterations to the current R&D should be made to improve its efficacy in terms of reducing ancillary costs and producing enhanced economic expansion:

  • A) The credit should be made permanent, thereby providing tax certainty and greater transparency for business leaders to make more impactful investments rather than having to try and predict when the tax incentive will be implemented or repealed.
  • B) From a tax code perspective, credit claims on amended returns should be eliminated. The meaning of research from the Internal Revenue Code section 174 should be the standard for defining of what is considered eligible research and development initiatives. In addition, making the alternative simplified credit (ASC) the only option for firms reduces compliance and administrative costs that erode efficiency.

Source: http://mercatus.org/publication/can-research-and-development-tax-credit-be-properly-designed-economic-efficiency

Posted in Tax Law |

Sherman Anti Trust Law and Apple

What is the Sherman Anti Trust Law?

US history books tell that Senator John Sherman, an Ohio Republican, was the main author of the Sherman Anti Trust Act of 1890. Originally, Robber Barons of oil, steel, banking and railroads created “trusts.” These trusts were similar to today’s “cartels” where wealthy principals use hostile buyouts of companies to form “trusts.”

The Sherman Anti Trust Act’s chief aim was to destroy monopolies by outlawing every business contract or combination, or conspiracy in “restraint of trade.” The Sherman Anti Trust Act was supposed to expose the evils of big business and to control big business in the public interest. In 1914, The Federal Trade Commission Act created a five-man Federal Trade Commission whose primary duties were to prevent unfair methods of competition in trade and business that included:

  • Miss branding and adulterating goods
  • False and misleading advertising
  • Spying and bribery to secure trade secrets
  • Closely imitating competitors’ products

Court Decides Apple is in Violation of Sherman Anti Trust Law

The circumstances surrounding court decision that Apple is in violation of Sherman Anti Trust Law are based on the Supreme Court case, the United States of America v. Apple Inc., et al., 12 Civ. 2862 (DLC). The court upheld the violation that Apple and five book publishing companies had conspired to increase the prices on e-books. The lawsuit was filed April 2012. The five co-conspirator publishers with Apple were: Harper Collins Publishers, Penguin Group, Inc. Simon & Schuster, Inc. Hachette Book Group, Inc. and Macmillan Publishers.

According to US Court records, these publishers sold these books from $9.99 to $14.99 as recommended in a meeting with the five publishers and Eddy Cue, Sr. VP of Apple’s Internet Software and Services for which Apple would receive a 30% commission. When Amazon.com discovered this Apple agreement with these publishers, it tried to discourage authors from selling their books directly to online buyers. Amazon later sent another letter to the US Federal Trade Commission regarding the agreements between Apple and the five publishers.

As the case proceeded, the court determined that the Sherman Anti Trust Act had been violated as a result of Apple creating an agreement that created unfair competition due to publishers withholding books from Amazon and fixing the prices to appear equal to that of the prices Amazon was selling their e-books.

The entire premise of the Apple and five publishers’ agreement was based on a mutual adoption of an agency “model.” Amazon hadn’t adopted the agency modeling allowing the publishers to withhold e-books from sale on Amazon. This is where the crux of the violation of the Sherman Anti Trust Act lies. By disallowing Amazon to sell the publishers’ e-books, this created unfair methods of competition in trade and business for related e-book sellers.

The Verdict by the Court

The court uncovered considerable evidence that clearly showed that Apple and five publishers had, as a result of their meeting with Eddy Cue, joined together in “a horizontal price-fixing conspiracy.”

Evidence also showed that “Apple violated Section 1 of the Sherman Act by conspiring with the Publishers to eliminate retail price competition and raise the price of e-books.” The court concluded through evidence that “Apple was a knowing and active member of the conspiracy, proving by the Plaintiff, “a per se violation of the Sherman Act.”

Posted in Business Litigation, General Law, Litigation |

President Obama’s Overtime Pay Proposal: The Ups and Downs

For more and more American workers, putting in work weeks longer than 40 hours is becoming the norm. However, working more than 40 hours per week has not necessarily meant getting paid for more than 40 hours per week. Yet with President Obama’s recent proposal to change the rules concerning overtime pay, many more people may find themselves with bigger paychecks as a result of their extra hours.

What the Law Will Do

In essence, the overtime pay proposal will make workers who earn less than $50,440 annually eligible for overtime pay. Under the current rules, the salary threshold is $23,660, which means millions of workers would be eligible for extra pay. According to the Labor Department, the change could give back to workers more than $1.3 billion per year. However, before everyone starts to assume they will be receiving bigger paychecks, there are many factors that must be taken into consideration.

How the Law Will Affect Businesses

Needless to say, most businesses are not happy at the proposed rules changes. By making more employees eligible for overtime pay, employers will then be faced with a decision. They can either pay their employees the extra money, or possibly reduce hours or lay off employees in an effort to keep their costs down. In addition, businesses can reduce an employee’s rate of pay in order to keep them from earning any more in salary, even if they are working more than 40 hours per week. While this may sound as if it’s illegal, the fact is employers cannot be told to pay employees any certain amount of money. So long as they are following state and federal laws by paying at least minimum wage, they are free to do as they choose.

Upsides

For employees, there are many potential upsides to this proposal. For example, lower-paid managers who had previously been classified as “exempt” would now be considered “non-exempt,” meaning any hours they work over 40 would be subject to overtime pay. Some employees may also get a raise, since their employers may decide it is cheaper to do this than pay them for overtime. And for those who may be looking for part-time jobs, the overtime pay proposal could work in their favor as well. If employers choose to stop letting employees work overtime, they may instead hire part-time workers to make up the difference, which could inadvertently lead to job growth.

Downsides

As with any type of proposal, there is always a downside for someone, and this proposal has many potential downsides for employees. In addition to hours being reduced, employers could also decide to lower a person’s base rate of pay to make sure they don’t make any more money despite still working more than 40 hours. Along with a possible reduction in pay, benefits packages could be greatly altered. Workers who find themselves reclassified as non-exempt employees may find it harder to accrue vacation or leave time, have fewer health benefits and no longer be eligible for profit-sharing or other bonus programs.

So as lawmakers begin the process of discussing the overtime pay proposal, both employees and employers will find themselves very interested in the results. No matter what the ultimate ruling may be, both sides are sure to feel both positive and negative effects.

Posted in Business Contracts, General Law |

New Bill Increases Unemployment Tax for Most

While most people take unemployment benefits for granted, the process by which they are implemented and secured is quite complicated. In Texas, the Texas Workforce Commission is in charge of collecting unemployment taxes, guarding the unemployment fund, and making payments to eligible individuals.

Generally speaking, any wage paid by a Texas employer to a Texas employee is taxed at a flat rate in order to fund the state’s unemployment fund, from which unemployment benefits are paid to residents who are laid off or who otherwise qualify for unemployment payments. This tax is usually withheld from an employee’s paycheck every two weeks. While the rate at which wages are taxed for this purpose can vary, it generally hovers around 3%.

A new law in Texas affects how employers and employees in certain industries are taxed. The law – Texas House Bill 3150 – exempts certain employers from paying unemployment tax. Texas House Bill 3150 specifically exempts so-called professional employer organizations (PEOs) from paying unemployment taxes. Under the PEO model, a company outsources many of the functions associated with employee management to another firm, called a PEO. These services usually include hiring, training, payroll, and other human resources functions. PEOs currently operate in all 50 states, and approximately 2.5 million employees in the United States are associated with a PEO.

Under the PEO model, an individual is technically an employee of the PEO, not the “parent” company. For example, suppose Company A operates in the technology sector and needs to increase the size of its workforce but wants doesn’t want to take the time to recruit, hire, and train new employees itself. Company A might hire PEO firm B to provide these services on its behalf. Firm B would then find employees who are qualified and capable of doing the work that company A needs. Firm B would hire, train, and pay these new individuals, who would technically be employees of PEO firm B despite the fact that the actual work they perform is done for company A. Company A transfers a monthly fee to firm B, who uses that fee to pay its employees and to provide other services.

Critics of the current tax structure argue that it unfairly “double taxes” these arrangements. Previously, both the financial relationship between company A and PEO firm B and the relationship between firm B and its employees qualified as separate employment arrangements (i.e. company A employs firm B, who then employs individuals) and were therefore both assessed an unemployment tax. These critics argued that this set up was unfair, as PEO relationship are in effect just a parent company employing individuals directly through the use of a middleman.

Texas House Bill 3150 eliminates this double taxation by exempting PEO-individual employee relationships from the unemployment tax. Eliminating the unemployment tax on PEOs, however, is estimated to cost the state unemployment fund upwards of $15 million per year; therefore, the bill also includes an increase of 0.01 percent in the unemployment tax for non-PEO employment relationships. This increase will amount to approximately $1 per employee per year.

Supporters of the bill have lauded it for creating a fairer taxation structure that doesn’t force PEOs to pass on unnecessary costs to companies seeking to higher new employees, while critics have claimed that PEOs used influence and lobbying power to secure a sweetheart deal. Nonetheless, the bill goes into effect on September 1, 2015.

Posted in Tax Law |

Pros and Cons of the Flat Tax

A common complaint about the American tax system is that it is too complex. At over 75,000 pages, the U.S. Tax Code is almost impossible for any one person to read, let alone understand and act upon. Can anything be done to lessen this complexity?

The Flat Tax

Critics of the U.S. Tax Code claim that the reason our tax laws are so convoluted and complex is because there are too many categories of taxation and exemptions. Some suggest that the answer to simplifying the Tax Code is to abolish the current code and replace it with a so-called “flat tax.” A flat tax is defined as a tax code with one universal tax rate that applies to all citizens, regardless of income, and which contains no exemptions or other deductions for special categories of taxation.

The Progressive Tax

The flat tax stands in contrast to the current graduated income tax, sometimes called “progressive taxation.” The current Federal Income Tax is progressive, meaning that people are taxed at progressively higher rates, with rate of taxation increasing the higher the income. Progressive taxation also includes special exemptions, deductions and tax brackets that vary according to income, occupation and the desire to achieve wider societal goals, such as reducing income inequality.

Positive Features of the Flat Tax

The most appealing feature of the flat tax is its simplicity. Regardless of income, everyone would know exactly what percentage of their income they would have to pay to the government. That would eliminate the time consuming and expensive trouble that people, corporations and other financial entities have to invest in order to figure out their taxes each year. In theory, under a flat tax your taxes could be completed and filed in only a couple of minutes, freeing all that energy currently needed for tax filing for more productive purposes.

Negative Features of the Flat Tax

Critics argue that instead of being more fair, a flat tax is actually more advantageous to the wealthier members of society. That’s because poor people have much less money left over after paying their taxes than wealthier people do. They claim this makes the flat tax more of a burden on lower income people than the rich. Critics also argue that a progressive tax rate can focus tax rates on those most able to pay, while also targeting tax relief to encourage positive activities such as donating to charity.

Future of the Flat Tax

Despite being repeatedly proposed for over three decades, the flat tax has never attained much political traction. This failure persists despite bipartisan agreement that the current tax system is in serious need of reform. What seems more likely is that instead of an a totally flat tax, the current system will eventually be partially “flattened” to eliminate some of the worst complexity, while retaining some minor variations in rates and deductions. Hopefully, such a compromise would allow Americans to enjoy the best features of both the flat tax and the current progressive system.

Posted in Tax Law |

Patent Trolls

What is a Patent Troll?

The most basic definition of a patent troll is an individual or company that obtains patents in bad faith and then proceeds to misuse them to assist with business strategy. Often, they gain their patents through purchasing them; the most common sellers are companies facing bankruptcy. They will then use the patents they’ve obtained to launch infringement lawsuits against companies in order to gain a profit. Patent trolls also commonly lay on their patents in hopes of halting the productivity of other establishments.

History of the Term

Although not definite, other common terms for patent trolls are patent-holding companies (PHCs), patent assertion entities (PAEs), or non-practicing entities (NPEs). The term “patent troll” itself gained notoriety in the early 1990s when a video depicting a troll rushing into offices and swiping patents from their original owners was released to companies. The goal of the film was to alert people to the growing presence of unethical litigants in the business world, and how it may harm them.

The Effect of Patent Trolls on Business

Patent trolls are a hot topic of debate, but their effect on companies and the overall economy of the United States is no mystery. Not only are they a plague to large corporations, but they have played a big part in discouraging start-up businesses. People grow fearful of the infringement lawsuits perpetrated by trolls, and for good reason. In 2011 alone, they cost U.S companies over $27 billion in cost. Not only that, but a study out of MIT’s Sloan School of Business indicated that investment in startups and otherwise smaller establishments would have been $21.772 billion dollars higher if it had not been for the frequency of patent trolls’ litigation.

Laws Regarding Patent Trolls

There has been a variety of legislation, both proposed and passed, with goals of limiting the power of these companies. A notable example is the Innovation Act of 2013, which would have made it more difficult for non-practicing entities to file frivolous or vague lawsuits. It passed in the House, but was put on indefinite hold in the Senate in 2014 and left to collect dust.

New Horizons

A version of a bill known as the Patent Act has recently been approved by the Senate Judiciary Committee. Although it has the same goal as the Innovation Act, its proposals are a little different. First, it raises the requirements necessary to file a legitimate patent lawsuit. Plaintiffs must clearly indicate which of their patents are being infringed upon and explain why, among other things. Not only that, but it lays out conditions stating that the loser in an infringement suit must pay for the winner’s legal fees. This will weed out the patent trolls who like to file lawsuits despite knowing they will lose in court. Furthermore, it sets limits to the amount of “discovery” that occurs during lawsuits. Discovery is the amount of work that either side involved in a lawsuit must do to produce evidence in their favor. Startups and smaller businesses must often settle during infringement lawsuits because they cannot afford to produce favorable evidence. If passed, this legislation will hopefully put an end to a lot of unsavory patent abuse and improve economical conditions.

Posted in Business Contracts, Business Litigation, General Law |

Why Form a C Corporation?

Owning a business is part of the classic American dream.

That doesn’t mean business owners should leave their personal assets at risk while building up. Incorporation protects the owner(s) by making the corporation a separate entity from the owners, and usually falls into one of three types: LLC, S Corporation, and C corporation.

C corporations, or standard corporations, must be owned by shareholders and run by a board of directors. The board of directors then elects a president to manage the company’s daily business.

A C corporation must follow certain practices in order to maintain their status. Stockholders meetings must be held at least annually, and minutes must be taken at each meeting. Officers must be properly elected, usually the aforementioned president, a secretary, and a treasurer. Stock must be issued to all shareholders, including the owners that formed the corporation. The corporation must also keep enough capital on hand to cover potential debts, or risk being viewed as a sham corporation when sued, which removes the liability protection provided by incorporation.

Some states also require a C corporation to write a company charter and/or bylaws, dictating the structure and policies of the company, and the range of situations that can arise is enormous.

There are some other disadvantages to a C corporation in addition to the required hoop-jumping. The most notable is that profit is taxed twice: once when brought in by the company, and once when profits are issued to shareholders as dividends. This can be avoided by incorporating as an S corporation, but S corporations come with shareholder restrictions.

There’s also a high cost to forming and operating a C corporation, from filing fees and legal fees required when conducting business across state borders. C corporations often need to hire lawyers to navigate all these legal hurdles.

There are advantages to forming a C corporation, or they wouldn’t exist in the first place.

Because of the ability to issue shares, it is easier to acquire capital to grow the business. Bank loans come with interest, and some banks avoid the risk that comes with a recently opened business, but some investors are willing to gamble on a company’s success in exchange for a share of future profits.

C corporations also exist in perpetuity, only dissolving after shareholders vote on the action. The business will continue on, guided by the company bylaws, regardless of ownership or leadership changes.

C corporations are also eligible for extra tax breaks on certain employee benefits, like medical costs not cover by insurance, allowing for more income to be sheltered from taxation.

An unincorporated business, since it does not exist as a separate entity, is difficult to directly pass on to a new owner or to heirs, but shares are easily transferred via sale, gift, or will.

Every situation is different. Many small businesses choose to incorporate as an LLC, and an S corporation if effective, but a C corporation is a better long-term solution if a company has the potential to grow into a large corporation.

Posted in Business Contracts |

The Foreign Account Tax Compliance Act

One of the biggest problems the Internal Revenue Service faces is making sure all people from the United States, including those living outside the country, accurately report all of their income when filing tax returns. However, since this is rarely done, problems can arise. Not only can the money be used for illicit purposes, but it also keeps the United States government from generating the revenue needed to support various programs. To help in the fight against this activity, the federal government passed the Foreign Account Tax Compliance Act in an effort to solve this growing problem.

Basics of FATCA

Known as FATCA, the Act requires all U.S. persons to report their non-U.S. financial accounts to the Financial Crimes Enforcement Network. In addition, all foreign financial institutions are required to search their records for any U.S. persons suspected of having financial assets in those institutions that have not been reported to the United States government. Enacted by Congress, it became effective March 18, 2010 as part of the Hiring Incentives to Restore Employment Act, a stimulus bill of which FATCA was the revenue-generating portion.

Revenue Gains

Upon implementation, FATCA was estimated to produce almost $9 billion in additional tax revenue over an 11-year period. While originally this was thought to be a substantial gain, critics of the Act have stated it will be only a small part of the nearly $40 billion in international tax evasion that occurs annually. Problems have also risen regarding the cost of implementing the Act in financial institutions. Compliance costs have been conservatively estimated to be $8 billion per year for financial institutions, which far exceeds the expected annual revenue generated.

Foreign Relations

Along with questions about its cost and implementation, many foreign nations have also raised concerns about FATCA. For example, Canada recently expressed its concerns about its citizens rights to privacy being violated, as well as having the belief that the country’s banks would be under more and more control from the Internal Revenue Service. Along with Canada, many other nations have threatened to no longer open accounts for Americans, which would create almost impossible conditions for those living and working abroad.

IRS Capabilities

While the Act sounds good in theory, many political leaders in the U.S. and abroad question if the IRS is capable of handling the additional influx of tax filings that would result from FATCA. With many cuts in personnel in recent years, the IRS itself has expressed concerns about its readiness. However, the agency recently released a statement saying 2015 would be considered a transition year for FATCA, with the emphasis being on entity enforcement and administration, rather than focusing on individual investors.

While countries such as France, Germany, Italy and Spain have all agreed to implement FATCA in their financial institutions, other nations such as China have stated their banking laws prohibit them from complying with FATCA. Still other nations have reported tremendous numbers of U.S. citizens renouncing their citizenship in an effort to avoid compliance with the Act. While it is believed that most nations will ultimately agree to FATCA, there are still many questions left unanswered as to its overall effectiveness. As the U.S. government and IRS continue working toward a viable solution, FATCA will have a chance to prove its effectiveness at home and abroad.

Posted in Tax Law |

What is a Limited Liability Company?

One of the challenges that most entrepreneurs face is choosing the most suitable business entity. The entity that one chooses has its repercussions. It determines how taxes are paid, the regulations that come along with it as well as personal liability. A limited liability company is one of these entities. Before making a decision, it is important for one to understand what is entailed in the entity.

The Definition and Categories of LLC

An LLC is a hybrid kind of a legal structure that has limited liability features and also provides operational flexibility and tax effectiveness of a partnership. Its structure majorly depends on the state that one is in. However, broadly, it is possible to choose one of the three types of LLC’s:

  • Professional LLC– It is organized with the aim of providing professional services. In most states, the individuals involved are required to have their respective licenses, such as architects, doctors or lawyers. The members are usually individuals within a similar profession. They must operate within the profession’s code of practice.
  • L3C– This is an enterprise that should not be aimed at maximizing income, but rather for performing socially beneficial activities. It combines the benefits of nonprofit organizations, the market position of a social enterprise and the legal flexibility of a traditional LLC.
  • Series LLC– It allows a single LLC to separate its assets into separate series. This is advantageous in that in case the lender forecloses on one series, the others are not affected.

Advantages of LLC

    Fewer Compliance Requirements– whereas corporations are required to have annual reports, regular meetings with shareholders and the board of directors as well as have written corporate minutes, LLCs do not have to hold frequent meeting. This largely reduces the paperwork that ought to be done.

  • Tax Flexibility– The members do not experience double taxation. The IRS does not regard an LLC as a separate entity. Thus, it is not taxed directly. Instead, the members decide on how they will be taxed. The can choose to be partners, single members, or as corporations.
  • Limitless Members– There are no restrictions on the number of members required. Thus, the LLC can have many or as few members as desired. However, the IRS recognizes LLCs, which have at least two members.
  • Protected Assets– They provide limited liability to the members. Therefore, the members are not regarded to be personally responsible for the business debts. This means that their creditors cannot pursue their personal assets.

Disadvantages of LLC

  • Transferring Ownership– It is quite difficult to transfer ownership. The owners must first approve the addition of new members or altering of the existing member percentage.
  • Additional Taxes– In some states such as New York and California, these companies are required to pay capital values tax or franchise tax.
  • Raising Capital– It is harder to raise money due to two reasons. One of them is that some people find it difficult to put their money in the company because of lack of a strict corporate structure. The other reason is that it cannot be easily converted into a tradable stock company.
  • Less Precedent– This form of business is a new concept. Therefore, there is not much law precedent for the limited liability companies, unlike corporations.
Posted in Business Contracts, General Law |

What Are Confidentiality Agreements?

Definition

A confidentiality agreement, also known as a non-disclosure agreement, is a legal agreement between at least two parties that stipulates that specific confidential material that can be shared only with the agreeing parties and none outside. There are two forms of a confidentiality agreement: a unilateral agreement is a one-way share of information from one party, and the other party must keep it secret, and in a bilateral agreement both parties supply confidential information, such as during a merger.

Uses

A confidentiality agreement can be used in several different situations. A common usage is for strategic business meetings where sensitive information may be shared between companies but not be accessible to a competitor or the general public. The agreement creates a confidential partnership to guard trade secrets or proprietary information. Often when individuals are exposed to sensitive information through work, they are required to sign a confidentiality agreement as both a legal guard for the company they work for and a way to impress upon them the need for secrecy. Whether the agreement is between two companies or an individual employee and employer, a confidentiality agreement makes any potential legal issues much easier to deal with.

Pertinent Cases

One well-known confidentially agreement court case was RRK Holding Company v. Sears, Roebuck & Co, decided on May 27th, 2008. RRK had entered into a confidentiality agreement with Sears in 1997 when RRK agreed to produce a next generation spiral saw under Sears store brand, Craftsman, and sold exclusively in Sears stores. The two companies signed a confidentiality agreement that prohibited the disclosure of the prototype concept. When negotiations eventually failed and the two companies parted ways, Sears manufactured a similar product two weeks before RRK, and with a lower price. In court, Sears argues that the product designs fell within the general knowledge of the industry and was not a trade secret. A jury found that the product was innovative and that Sears had breached the confidentiality agreement, and Sears was hit with a $25 million judgement.

Consequences of Violation

For employees who breaches a confidentiality agreement with their employers, their jobs could be terminated immediately even with an employment contract, and that is just the start. An employer can sue and if successful, obtain monetary damages from the employee. In some cases, the employee can be charged with criminal activity (by the government, but instigated by the employer) for intellectual property theft or other similar crimes. Outside the law, a fired employee may have trouble finding another job in the same field if it is a specialized and close-knit industry.

That being said, sometimes a confidentiality agreement can be hard to prove in court. The suing party must prove that they suffered monetary damages and that the agreement was not overly broad in regards to what could not be revealed – and no matter how much money they potentially gain back, the once-secret information is out there and can never go back to being confidential. Any competitive advantage that those secrets once held is now gone.

Posted in Business Contracts, General Law |

What Are Antitrust Laws?

With the current antitrust case brought by European regulators against Google moving forward, there is renewed interest among investors in learning about the laws that control anticompetitive practices. In the most general sense, antitrust laws are intended to prevent any one company or group of companies from unfairly controlling a market. In recent years, antitrust laws have also been increasingly used to correct perceived market inefficiencies. The vagueness of this regulatory mission is one of the primary sources of angst for business leaders regarding these laws, as it can be challenging to plan for future growth in an uncertain regulatory environment.

What is antitrust law?

The vagueness of antitrust laws is what makes them so tricky to understand. At a gut level, most people feel that it’s wrong to leverage one’s own position to extract disproportionate amounts of wealth from the system by discouraging competition. In practice, however, it can be hard to state clearly when a company has begun to operate in bad faith against the public good and the market.

In the late 1800s, several companies in the United States founded trusts that acted as what we would today call holding companies. These trusts owned shares from a number of corporations in order to skirt the letter of laws established in the 1600s by the English to prevent monopolies from being formed. The goal was to create the appearance of multiple corporations operating within an industry while in fact centralizing control within a single board of trustees.

From the 1880s to the 1930s, American legislators passed a series of laws aimed at breaking up these trusts, giving rise to the term “antitrust” that we use today to describe a whole host of activities that extend beyond the original model. With the emergence of American financial power in the aftermath of World War II, the American version of antitrust became the global standard. Ultimately, the European Union adopted its own version of these laws in its early decades.

In the modern view of regulators, there are three primary concerns about the power of corporations to control a market. There is market allocation, where companies carve up different territories and decide not to compete with each other. Regulators also worry about bid rigging, where companies agree not to bid contracts lower. Finally, there is price fixing, where companies agree to maintain artificially high prices for goods sold to the public.

The case against Google

On April 15, regulators from the European Union made official claims that Google is using its search engine to direct customers to its own products and services. The E.U. had previously made unsuccessful attempts to reach an agreement with Google regarding its search operations in Europe. The company believed that it had reached an agreement with the E.U. in February and that the matter was largely behind them.

Google controls about 92-percent of the market share for search queries in Europe, meeting almost any accepted standard for a monopoly. The main thrust of the complaint is that Google uses its search engine to redirect people who are looking for specific products and services to its own shopping site. Google, however, contends that it treats all search results equally and is only serving consumers search results that are considered most appropriate by its algorithm to their queries.

Posted in General Law |

Trademark Law

A trademark is a unique or distinctive sign of origin or authenticity that identifies a product or service as coming from a specific manufacturer or service provider. The trademark allows the product or services to be distinguished from those of a competitor. It might also be called a service mark.

What Makes a Trademark?

A trademark can be a brand name. Included as trademarks by the U.S. Patent and Trademark Office are words, names, symbols or any combination of them that are intended to distinguish and indicate the source of certain goods and services from those of competitors. Think of a Campbell’s Soup label. The specific cursive writing of the name of the maker of the product with the red background operates as a trademark. We don’t have to pick the can up and read the fine print on the back to know that it’s Campbell’s Soup. Think of the Nike “swoosh” on a pair of shoes or a shirt. That’s a trademark too. Trademarks are acquired by using them, not by registering them, but registering a trademark enhances the owner’s rights.

What Trademarks Are Used For

Trademarks are used to claim, protect or enforce specific proprietary rights of goods and services. Trademarks can have tremendous monetary value because of the products or services that stand behind them. Apple has the world’s most valuable trademark. Google and Coca Cola are right behind it. Products of all of these businesses are identified by their trademarks in highly specific manners. By identifying these products and services through their trademarks there is no likelihood of confusing them with those of competitors.

Trademarks vs. Copyrights

A trademark is an insignia, stamp or symbol that specifically identifies where certain goods or services originated from. Copyrights provide an entirely different form of protection that’s focused on original creative works like literary works, music, theater, paintings, sculptures or even dance and pantomimes. A copyright doesn’t protect the name or title of a creative work, nor does it protect any symbols or logos one might use to promote the work. It protects the creative work itself. Like a trademark, a copyright isn’t required to be registered either, but registration enhances the copyright owner’s rights.

How Trademarks Are Protected

If a person or entity owns a trademark, they’re permitted to sue an infringer. Infringement is caused when a likelihood of confusion has arisen as to the source of the goods or services. Courts will look at a variety of factors in an infringement suit to determine whether a likelihood of confusion has arisen. Those include but aren’t limited to the strength of a trademark, the similarity of the marks and the alleged infringer’s intent. Products or services that can amicably exist with each other involve completely dissimilar products like Apple Computers and Apple Records.

Notwithstanding the fact that registration of a trademark isn’t required for protection, registration does avail the owner to specific legal benefits. It provides constructive notice to all of the United States of ownership of the trademark. After five years, the trademark becomes incontestable so long as it’s properly maintained. Trademarking permits an infringement action to be brought in federal court where treble damages, attorneys fees and costs can be awarded.

Posted in Business Litigation |