Page 44 - AVN December 2013

LEGALESE | By Clyde DeWitt
Building a Business Just getting started? There are many obstacles to starting a
Avoid these stumbling blocks.
which is what it is. Also, no later than about November of the
new business, particularly in the adult
milieu. Many of these will cost
first year of opening a corporation/LLC, go to a certified
public accountant, not just a bookkeeper. If you have
Clyde DeWitt is a Las Vegas and Los Angeles
attorney, whose practice has been focused on adult
entertainment since 1980. He can be reached at
ClydeDeWitt@earthlink.net. More information can be
found at ClydeDeWitt.com. This column is not a
substitute for personal legal advice. Rather, it is to
alert readers to legal issues warranting advice from
your personal attorney.
Find a unique but
catchy name.
The best names
ar e wor ds that
otherwise don’t
mean anything.
The worst ones
ar e geographic
names and names
that do little more
than describe
what you do.
”
more than your budget allows.
But when deciding where
to cut corners, it’s
important to
remember that
some mistakes can
cost dearly in the
long run.
Following are a few
things to think
about.
Creating the
Business Entity:
Assume for a
moment that you are
to own 100 percent
of the business. It is
then fairly simple:
Start a business enti-
ty—a corporation or
limited liability company. But which? And in what jurisdiction?
Corporation services abound that will do this for you. Those com-
panies claim that they do not give legal advice. (It is illegal if they
do.) That is sometimes true; but where they do give you unsanc-
tioned legal advice, it often is very wrong. You will be surprised to
learn that it is often not much more expensive for an attorney to
set up a corporation for you than to use one of those services.
Why? In the first place, the attorney likely will not charge you to
act as registered agent; the service will. Secondly, lawyers often will
keep rates low at the outset because they are looking to get in on
the ground floor of your business.
If you are going to have more than one owner of the business,
you optimally will have one attorney for each owner. More realisti-
cally, you will have one lawyer who will require you to sign a con-
flict waiver. The importance of having an attorney set this up at
the outset cannot be overemphasized because, unlike you, lawyers
know a long list of things that can go wrong among partners. If
the business succeeds, there can be disputes over division of the
spoils; if the business fails, then who is stuck with the bills? When
you have more than one owner of the business, there are many
other things to think about, which lawyers will hammer home:
What if one owner dies? Gets divorced? Goes bankrupt? Starts
some side business? Steals from the business? Stops contributing?
Or the owners’ respective contributions become dramatically
unequal? Perhaps the business will need money, but the only pos-
sible source is a loan from one of the owners. All of those things
have happened—and attorneys know how to write corporate/LLC
any employees, however, you will need the
latter as well. Be especially careful about
how you pay people. You will be tempt-
ed to pay them as independent contrac-
tors, a potentially dire mistake, especial-
ly if they are working on your premises.
Naming the Business: You also need
to name your business, which is partic-
ularly crucial. You have two names to
think about: the corporation/LLC
name and the trade name. Often they
should not be the same. Your corpora-
tion/LLC name needs to be busi-
nesslike, which your trade name
might not. Dealing with banks, ven-
dors, trade accounts and so forth,
you might not want to have such a
sexy name. Dealing with the public,
on the other hand, you might want to have a sexy
name that could offend the suits. That is why most gentlemen’s
clubs are owned by corporations/LLCs with names like Anytown
Restaurant Management; while the clubs have names like—well,
you are probably familiar with them.
Selecting your corporation/LLC name is not too difficult. It
simply needs to be a very professional-sounding name that is not
confusingly similar to any other entity in the state. Most states
allow you to look up corporations on the secretary of state’s web-
site.
Your trade name, on the other hand, can be a formula for disas-
ter if you select the wrong one. Potential disasters can include a
cease-and-desist letter—either from the attorney for an industry
company whose name is the same or similar to yours, or the attor-
ney for a famous company claiming that you are tarnishing its
trademark. On the other hand, the name you select could lay an
egg because it has no market appeal. Therefore, selecting as trade
name is really tricky.
Find a unique but catchy name. The best names are those such
as Google, Xerox, Exxon and so on—words that otherwise don’t
mean anything. The worst ones are in the form of geographic
names (such as “Glendale Video,” if it is in or near the city of
Glendale) and names that do little more than describe what you
do (such as “Quality Internet Hosting” if you are in the Internet
hosting business).
Once you arrive at a trade name, Google it to death. Also, look
in the United States Patent and Trademark Office (the “PTO” at
uspto.gov) and search for it. Par for selecting a name is probably
25 tries. Once you have found a good one, it is a good idea to file
LEGAL NEWS
documents to deal with them.
Counting the Beans: Next, conduct the business like a busi-
ness. Open a corporate/LLC bank account, and obtain a separate
corporate credit card. Use the corporate accounts exclusively for
the corporation and the personal accounts exclusively for personal
matters—always, always always! If the business needs some of your
personal funds for startup, write a personal check to the corpora-
tion. Deposit it into the corporation account—and call it a loan,
what is called an “intent to use” trademark application at the PTO
(also called a “1b” application). That has the effect of reserving the
name. All of that should be done long before you start negotiating
with web designers and so on, because the PTO process takes
quite a few months. You should, however, have a corporation/LLC
in place before you file the application for continuity’
s sake.
The above is far from exhaustive. However, it should give you
some things to think about when starting a business.
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