Trademark and Incorporation Basics: What the Hilltown Entrepreneur Needs to Know

After two weeks at our new office in Chester MA, it has become clear that there are a few questions that seem to be on the minds of people running small businesses in the hilltowns: when should you be registering your business name or logo as a trademark, and what are the things you should consider about forming an LLC or an S Corporation instead of continuing to operate as a dba ("doing business as").

Trademarks

What a trademark is: Once you begin using a name or a logo (a "mark") in business, you have some protection for that mark even if you do not register for trademark protection, if you are the first to use the mark and if it does not violate another company's registered or established mark.  The danger is that those are two very big "ifs," and you might find yourself building a following around your brand name only to be met with a cease and desist letter from some company you have never heard of who had previously registered that trademark- something that has happened to at least one hilltown business in recent years.

Why register a trademark: Registering a trademark will do 3 things for you:

1. The trademark application clearly marks the priority date if someone later applies for the same or similar mark.
2. The initial step of searching the US Patent and Trademark Office ("USPTO") database will tell you early on if you might have a conflict with someone else's registered mark.
3. Once approved, you have nationwide enforcement rights if someone else uses a name or a mark that is likely to confuse your customer base.

What qualifies as a trademark:  In order to get trademark protection, your mark must be distinctive, not generic.  For example, you cannot trademark the word "food," but trademarks have been granted for names like "myfoods,"  "bliss foods," and "food made fabulous." If you have a distinctive logo, that can also be protected, with or without words.

How to apply for a trademark:  You can apply on your own using instructions from the USPTO. The filing fee is $250 for each classification you are seeking protection in.  For example, if you were to register "xyz foods" as only "staple food products," you would pay one filing fee, but if you wanted to register it also under "meat and processed food products," you would pay a second filing fee.  If you choose to only do one, all that means is that you only have protection in that classification, and someone else could come along and register "xyz foods" under the second classification.

Should you use a lawyer? You have a range of options.  You can do it all on your own, in which case your only cost is your time and the filing fees to the USPTO. There are also online services that offer filing packages and a basic search for existing marks.  What is missing from both of those is a specific legal analysis of the likelihood that your mark will be accepted if there are other, previously trademarked names or logos that are similar to yours.  This could leave you out the $250 filing fee (or more if you are seeking multiple classifications) if the USPTO rejects your application as too similar to another registered mark.  If cost is a concern, you might consider hiring a lawyer to do that analysis for you, but actually submitting and following up on the application yourself, to minimize legal fees.

Incorporation

Why incorporate: You are not required to incorporate (as an LLC or S Corporation) in order to do business, but there are good reasons to do so.  The primary reason is liability protection.  If you are operating as a dba and your business incurs a significant liability (a debt or a lawsuit, for example), your personal assets are at risk. We often hear people saying they will incorporate as soon as they start earning real revenues, but it is important to remember that your business is likely to owe people money before it becomes profitable, which are exactly the liabilities you don't want to attach to your personal assets.

LLC vs. S Corporation:  An LLC is a limited liability company authorized by Massachusetts law.  For tax purposes, it is considered a "pass through entity," which means you as the owner only pay taxes once on the revenue.  An "S Corporation" is a corporation formed under Massachusetts law that is entitled to the same kind of pass-through tax treatment under a section of the federal tax code for small businesses that meet certain criteria.  From a legal and liability perspective, the benefits are the same with either type of entity, but there can be some differences in tax consequences that you should discuss with an accountant.  When in doubt, keep in mind that it is easier to change from an LLC to an S Corporation than it is to go the other way, which is why many of our clients choose to begin as an LLC.

How to incorporate: if you are the only owner of your business, the process of  forming a single member LLC in Massachusetts is pretty straightforward, and not difficult to do on your own using the Massachusetts Secretary of State's online filing system, or through an internet provider.  Even if you decide to do it on your own, however, it is a good idea to consult with a lawyer at least initially.  If you have a business partner and/or the business is operated by more than one person, you should consult a lawyer to make sure your operating agreement or shareholders agreement addresses all of the things you need to have clarity between the partners on key business and governance terms.

Questions?

Give us a call at (413) 667-2322 and we can schedule you for a call or meeting to help you understand your options.