As a patent attorney located in Austin, Texas who deals with a lot of start-ups with various legal questions, I have written out the following as some legal advice for start-ups.
Start-ups should incorporate such that the companies liabilities to not extend to personal liabilities. In some fields such as “mobile application” based start-ups, there may not be as strong as a need to limit personal liability opposed to a start-up that manufacturers an end product that could harm its users. To incorporate there are several things that a start-up must/should do. 1) Receive an electronic identification number (EIN) from the IRS, and 2) File incorporation papers with the state you desire to incorporate with.
To receive an EIN number, you only need to login to the IRS website and request the EIN number. This number should be used when filing taxes for the business.
To incorporate with the state, the Applicant must fill out incorporation forms from the states chamber of commerce. This is a relatively easy process that requires 1) visiting your states chamber of commerce website, 2) downloading, filling out, and mailing the incorporation papers, and 3) Paying the incorporation papers. I believe the incorporation fees in Texas as of 2013, were $350.
Deciding what legal entity to select may be a slightly difficult, which based on the legal entity you select taxes and/or shares for the company may be treated differently. For smaller start-ups, I recommend setting up a simple “corporation” with the default by-laws. As your corporation grows, it may be beneficial to switch the legal entity of your company.
2. Set up a bank-account for company
Setting up a bank account and credit cards for your start-up is crucial. A main factor that courts look for to see if a corporation really was acting like a company (versus an individual), is if finances for the company and the individual are kept separate. Once the bank account is set up, if your company is receiving revenue place the received revenue into the business bank account, and salaries may be distributed from the business bank account. This is also a good way to keep track of revenue for tax purposes.
If your business created a novel invention it may be worth it to file a provisional patent application. Provisional patent applications give start-ups a way to claim priority to their invention for a year at a lower cost than filing a full utility application. Additionally, if a provisional patent application is filed and improvements are made on the invention it is an easy way to include the benefits in the later filed utility applications. By filing provisional patents start-ups limit the amount of initial money they must invest for patent protection, while also allowing them “patent pending” status before provisional expire in a year.
Design patents may also be a good way for start-ups to obtain patent protection if they are mass producing a “widget.” Design patents give limited protection to objects based on their ornamental design and not their function. A main advantage to design patents is that it is easier to prove infringement vs. utility applications. If another product looks substantially similar to a granted design patent, it is likely that they will be held liable for infringement.
I recommend trademarks holding off on filing for trademarks until they have a viable product in the market place. This is not because they do not have value, it is because the purpose of trademarks. Trademarks are used to make sure consumers do not confuse your product with another product in commerce. If your start-up is currently not selling a product, software application, or service in commerce, there is no current need for a Trademark. Additionally, any trademark is given limited “common law rights” even without filing a trademark, so trademarks are given a modicum of protection inherently unlike patents.
Something important for start-ups to do concerning trademarks is look towards the future. Start-ups are going to create a brand on a name they will be able to get a trademark on. Therefore, I recommend start-ups to use a name that can differentiate them from others in their field of business that is trademarkable. Companies are unable to obtain trademarks on names/slogans that are merely descriptive of their goods or services. For example, a mobile application company wouldn’t be able to get a trademark on the name “Mobile Applications Company” because this term is just a description of what they do. Therefore, to “Brand” your start-up I recommend using a unique name in your field of business.