I’ve been dealing with an interesting issue lately, in that I’ve been contacted by a number of entrepreneurs from abroad who are looking to start an American company for one reason or another.

It is easy — nay, very easy — for literally any person to form a company in the United States. Delaware (the state where you should be incorporating) makes it easy. You hire a registered agent, you fill out the forms, and that’s it. That state doesn’t care where you are — just that they get their money and that you have a registered agent. (NOTE: Just because you formed the company doesn’t mean you formed it correctly. Please, please, please consult a licensed and knowledgeable attorney to help you navigate the corporate compliance labyrinth.)

So, you’re an entrepreneur in say, France. You want an American company because you want to sell goods using Amazon fulfillment services, and Amazon will only pay to American bank accounts. How do you get such a bank account?

Answer: It isn’t easy. Every entity must have an EIN (employer identification number) in order to open a bank account. An EIN is obtained by using a person’s Tax ID Number or the EIN of another company. Obviously, if you are not a resident of the US, you don’t have a Tax ID Number, and you probably don’t own a company.

Connect the dots here: What if you could purchase a fully-formed company, complete with open and accessible bank account? Well, you can. Once you are the owner of a company, you can be added as a signer of the existing bank account. Depending on the American bank where the account was opened by its previous owner, you may or may not need to make an appearance in person in the States to sign on the dotted line.

Yes, this is a complex and expensive solution, but it is a completely legal, fully-baked solution. I’m currently setting up deals like this one, so contact me for more information, or to get started.

1. Mediation clause. Some LLC founders may find it best to provide that in certain situations (which can be spelled out in the operating agreement), a third-party mediator be given the decision making power over the subject of the deadlock. This is good in that it provides a non-biased opinion, but many founders have a logical problem: the company would be essentially handing over management of the business to a disinterested party.
2. Buy-sell arrangement. Also known as the “Texas shootout” or the “Texas standoff,” this arrangement is the “nuclear option” for bypassing a deadlock without deciding on the merits. It has the effect of eliminating one of the Members from the company in exchange for cash.
• Essentially, this arrangement allows one Member to offer to buy out the other Member’s shares for some price. If the offered-to Member declines the offer, he must then buy the offered-by Member’s shares for the same price.
• Example: Joe and Mary own an LLC as 50/50 partners. The company is worth $5 million. Joe and Mary reach an impasse that they cannot break. There is a buy-sell arrangement in the operating agreement. Joe offers to buy Mary’s share for $2 million. Mary declines. Contractually, Mary must now buy Joe’s share for $2 million. Joe walks away with $2 million. Mary now owns 100% of the company.
• Why would anyone do this? Because it is very clean. There is nothing ambiguous about a Texas shootout. It is easy, it is predictable, and it is lethal.
3. Change in Membership Structure. A 50/50 LLC that is having trouble acting in a unanimous manner may benefit from adding an odd number of small percentage (minor) Members. In this situation, the Members shift the scheme from two Members at 50% each to five members at 47/47/2/2/2% by admitting three new members and optionally requiring a buy-in. This sets up a majority-minority situation where any majority must be made of either both major partners together, or one major partner plus two minor partners. Clearly, this could be a bit of a slippery slope depending on who the new Members are, but the big advantage is that LLCs that do not have a deadlock provision in their operating agreement can probably enact this scheme.

Great, so how does one procure a trademark?

First, a trademark search must occur. You need to check things out and make sure that no one else is already using your mark. (A quick note here about trademark classes: Say your mark is the word “SHAZZBOT” and you are in the business of growing organic green beans. When you go to search for others who have trademarked SHAZZBOT, you need not be worried about a web development company that owns the trademark on SHAZZBOT. There is very minimal likelihood of confusion between selling green beans and developing websites.) Trademark searches can be completed solely on TESS, the USPTO web system. However, it isn’t a bad idea to do some googling to make sure there aren’t any non-registered, yet earlier-in-time uses of the mark.

Search come back clear? Great.

Next, you need to choose a filing basis. The tricky thing about filing trademarks is that they must be in some way connected to “commerce.” Unless a mark can somehow be tied to some sort of business venture (including non-profits), it will be denied. This keeps “fake” or non-existent businesses from registering and hoarding marks.

For marks that are already “in commerce,” the filing basis is generally 1(a). (Reference to the USPTO code that governs this whole procedure.)

Thankfully, the USPTO provides some help for new companies who may not be in business yet: The Intent To Use, or 1(b) application.

In a 1(b) situation, a filer basically says “Hey USPTO! We are going to be using this mark in commerce within 6 months. Put it on hold for us, and we’ll let you know when we are live.” While this is convenient, it can be deadly to your efforts if you don’t remember to file the Notice of Use as soon as you are public.

After you’ve conducted your search, determined your class(es) and chosen a filing basis, you are all set to file. The easiest way to proceed is to use the USPTO online system, TEAS.

As you can see, there are many steps here, and many ways to make potentially fatal mistakes. Retaining an experienced attorney to do the filing on your behalf, or offering advice as you complete the process is a very prudent measure.

Contact us to find out more about how we can help you.

To many lawyers, using technology to provide services is frightening. Why? Because it represents the death of the billable hour? Because it isn’t “the way it is done?” Because there *may* be an ethics problem? Who knows.

The law industry is the last among the professions to adopt worthwhile technology that will make their client’s lives easier, and this is a shame. For example, I recently read the book about how to start a law firm, and it used a lot of dead tree real estate explaining how fax machines were not yet fully understood, but could be excellent tools in the future. Fax machines. (This was the 2009 edition of this particular tome.) Here’s an article explaining to lawyers how twitter works. (In 2011! Little do they realize that twitter may have reached its peak already. That’s another blog post.)

The point is that the very practice of law is changing, whether the Ivory Tower of the industry wants it to or not. Lawyers and law firms who are resistant to the tech wave because of the learning curve (or even worse, because they fear the ethics board) will soon find themselves without clients to service. As the post-millennial generation becomes established enough to need legal representation, they will look for service providers who meet their very post-millennial needs.

For those of you who perhaps haven’t already googled the subject to within an inch of its life, the biggest single difference between the two is taxation. The profits made by an LLC “pass through” the entity and are taxed solely on the partners’ individual tax returns. Profits generated by a corporation are subject to taxation twice: once when the corporation itself files taxes, and again when company makes distributions to its shareholders.

The obvious choice seems to be LLC, right? Maybe not. LLCs are much less flexible when it comes to raising funds because the management of the company can’t simply sell shares to raise capital. Sure, there are complex mechanisms that allow for admitting new shareholders in exchange for cash, but frankly if this is a concern, a corporation might be the better fit.

In most cases, both entity types provide a certain level of insulation for their managers, should something go wrong. While it is always possible that an interested party could “pierce the corporate veil” (yes, an actual legal term of art) for an executive’s misdeeds, the entity itself will almost always stand in front of managers who make poor business decisions that lead to injuries.

Your region/locality has a lot to do with the decision, as well. For example, a single-member LLC (that is, an LLC with one person who wears every management hat, and is the only partner) is disregarded in New York City.

After all of the above analysis, you still have to weigh your exit strategy. If you are hunting for venture capital or even angel capital, potential investors will almost always want your entity to be a Delaware corporation. (We’ll go over the reasons for this in another post — just roll with it for now.)

So, sorry to say, there is no simple answer to whether your company should be an LLC or a corporation. So much depends on the individual facts of your situation that you are best served consulting an attorney who is licensed in your jurisdiction.

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First, authority. A lawyer is almost always set up to believe that he or she is the authority on a subject when pen is put to paper on the topic. “Surely, any visitor to my site will detect my legal brilliance emanating from the screen, for I am a lawyer!” Sadly, these “informative” blog posts, which are attempting to serve as some sort of proof of the lawyer’s competence and intellect probably fail because they never reach an audience, because Mr. Esquire is using the blog incorrectly.

The second (and I would argue, correct) usage of a blog on a law firm website is simply for search engine optimization purposes. I think we can all agree that no legal blog post has ever solved a client’s case, simply because the blog doesn’t have all of the facts. The blog is a marketing tool that introduces the lawyer’s expertise and some very basic tenets of some legal issue. More productively, though, a blog post titled “How to Incorporate in New York” is likely to appear in search results for terms like “how do i incorporate in new york?” and “make a new york business”.

More visitors –> more awareness –> more engagement –> more business

With that in mind, I’d caution you, dear Prospective Client, not to take legal advice from a blog. (Or LegalZoom, but that’s another post.) Now, if you’ll excuse me, I need to crank out a few hundred words on the best way to make a will in New York.

Dirk the Dirk

Arbitrary text is the best.

Arbitrary text is arbitrary.