INFINITI LAW provides innovative, superior quality, and cost-effective corporate and business law solutions to companies---no matter what your phase of development. For new companies, we provide insightful legal advisement regarding the most appropriate form of business organization to establish in light of both short and long-term business objectives. We act as your strategic business partner throughout the crucial first few years of development to not only build a solid infrastructure for your company but also to expand your commercial and marketing advantage. We leverage our existing industry contacts to provide you with the greatest chances for success. For both new and established companies, we act as the equivalent of an “in-house corporate counsel” in terms of providing the full range of transactional and business services needed by companies.
FORMS OF DOING BUSINESS IN THE UNITED STATES
The following is a general overview of the most common forms of doing business in the United States. It highlights some of the advantages and disadvantages of each type of entity and is intended to be only a general introduction to the options available.
This is a form of operation that works if there is just one owner. The sole proprietor may employ others, raise capital by borrowing, enter into contracts that bind him personally. The principal advantages of this form of doing business are administrative simplicity and autonomy. The principal disadvantage of this form of doing business is potential limitless liability.
A princIpal advantage of doing business as a corporation is that the shareholders of a corporation are insulated in most instances from personal liability on the obligations of the corporation. In addition, the corporation has a perpetual existence so the withdrawal or death of any of the shareholders does not terminate the corporation. Ownership of shares of a corporation are transferred relatively easily and the statutory law and case law governing corporations are well developed and thus are relatively predictable. The principal disadvantages of this form of business entity is that formal record keeping and reporting requirements are extensive and that most corporations in the US are subject to ‘double taxation’ such that the income of the corporation is taxed at the corporate level and then the distributions of earnings to the shareholders triggers a second income tax at the shareholder level.
A general partnership is a combination of two or more individuals by written or oral agreement for the purpose of engaging in ongoing business activities. Tax consequences of the general partnerships’ activities are passed through to the individual partners, with no taxation of the partnership entity itself. The primary advantage of general partnerships is that they permit great flexibility in allocation of rights and burdens among the participants. The primary disadvantage is that a partner in a general partnership is jointly and severally liable for all partnership obligations to the full extent of each partner’s business and personal assets.
A limited partnership is a partnership created by written or oral agreement, which provides for at least one general partner who is responsible for managing the partnership and at least one limited partner who is usually a passive investor. The principal advantage of a limited partnership is that it can combine the flexibility of a general partnership with the limited liability of a corporation. Tax consequences are passed through to the individual partners according to the partnership agreement with no taxation at the entity level. Limited partners are not responsible for the partnership debts and liabilities beyond the amount of their investments. The main disadvantage of this type of business entity is that the limited partners are restricted in the involvement they may have in the day-to-day management of the business enterprise. Limited partnership interests are generally considered to be securities and therefore the offer and sale of those interests are subject to the requirements of state and federal securities laws.
LIMITED LIABILITY COMPANY
An LLC is an unincorporated entity organized under state law which combines certain advantages of partnership, such as single-level taxation, with a corporation, such as limited liability to members. One disadvantage of LLCs is that because this form of entity is relatively new, there is not a well developed body of statutory or case law dealing with LLCs and thus legal developments in this area may be somewhat less predictable. In addition, investors are typically not as comfortable with this form of organization as they are with corporations.
BRANCH OF A FOREIGN ENTITY
A foreign corporation also has the ability to do business in the US without forming a separate new entity. In California, the filing of a qualification to transact business in California as a foreign corporation is required. The principal advantage of transacting business in the US as just a branch of the foreign entity is that the organizational expenses are kept to a minimum because no new entity is required. The disadvantages are that your company is exposing its non-US assets to claims arising out of activities of the US branch office and the application of a branch profits tax as well as other unfavorable tax implications. One caveat here, a foreign corporation can actually create a ‘branch’ office without any intent to do so through the hiring of a local sales agent if the agreement is not drafted to avoid such an effect.
A joint venture is not a specific type of legal entity but is merely a generic term used to indicate the existence of a working relationship between parties who join together in a common enterprise. The word ‘partnership’ is used expansively within high technology companies today---often without understanding of the legal ramifications of this concept. If precautions are not taken in detailing and memorializing the relationship in writing, a general partnership in legal terms may be created inadvertently. The result of a legal classification as a general partnership is that each partner company would be held liable for the financial obligations and liabilities of the other and may be subjecting itself to taxation issues that could easily be avoided with proper legal advisement and document drafting.
If the foreign business does not require substantial assistance from the US ‘partner’, but rather requires assistance in a narrowly defined area or only requires assistance for a short period of time, then the strategy would most likely be to enter into a specific, limited contract with the US company to provide the services required.
If, however, the foreign business requires more substantial services and desires to establish a longer-term relationship with the US business, the more appropriate strategy may be to form a joint venture entity to conduct the business. There are two primary approaches for a foreign business to organize a joint venture entity with a US corporation. The first approach is for the foreign business to organize a US subsidiary corporation and then that US subsidiary corporation would, in turn, form a partnership with the United States based company ‘partner.’ The second approach is to form a US corporation owned jointly by the foreign business and the United States based company ‘partner.’ A foreign business that uses either of these two approaches, and, in fact, maintains an arms-length relationship with the joint venture would generally achieve its goal of insulation from liabilities arising from the business of the joint venture. In addition, with some exceptions, the foreign business would generally not be subject to the jurisdiction of the US courts.
Corporate laws are state specific (i.e. they vary from state to state); most states, however, follow the same basic pattern for incorporation (with slight differences in the naming of documents, etc.) The following is a generalized list of the steps involved in setting up a corporation in California. If you incorporate in another state (i.e. such as Delaware) but intend to open an office in California, you should be aware that you are required to file with the California Secretary of State to qualify to do business in California as a foreign corporation.
STEP ONE: CHOOSE AND RESERVE CORPORATE NAME
Before filing your Articles of Incorporation with the California Secretary of State, Infiniti Law will conduct a name search with the Secretary of State to insure the availability of your chosen name as a corporate name. It is possible to submit a name reservation request to the Secretary of State that will hold the corporate name for up to 60 days to insure that you do not loose the name while preparing to incorporate. Availability as a corporate name, however, only means that no one else has registered a corporation under this name in California. It does not guarantee your right to use this name or provide you with any protection from others using this name---intellectual property laws determine these rights. Prior to making a final decision on a corporate name, it is advisable to conduct a trademark and domain name search to ensure that you will lawfully be able to use the name and that the name chosen will suit not only your current but also future business needs. Infiniti Law can help you design and implement a trade name protection strategy that is in keeping with both your current and future business goals.
STEP TWO: DECIDE ON CAPITAL STRUCTURE
Because your capital structure may affect the drafting of the Articles of Incorporation, we recommend that you make the major decisions regarding initial capitalization of the corporation in advance (i.e. will the company be financed through equity or debt financing—or a combination of the two). Ensuring adequate capitalization is important for protection of your shareholders because undercapitalization is one of the main reasons why courts have chosen to “pierce the corporate veil” (i.e. disregard the corporate entity and hold the shareholders responsible for the debts of the corporation).
STEP THREE: DRAFTING OF ARTICLES OF INCORPORATION AND BYLAWS
The filing of the Articles of Incorporation with the Secretary of State is what actually establishes the corporation. Bylaws, by contrast, are the governing documents and lay out the location of the principal office, the roles and duties of the directors and officers, procedures for director and shareholder meetings, etc. Infiniti Law will work closely with your company to ensure that the documents drafted are in keeping with your corporate culture and your vision for your company.
STEP FOUR: FILING OF THE ARTICLES OF INCORPORATION
Infiniti Law files the Articles of Incorporation with the Secretary of State and your Corporation is now an established separate legal entity.
STEP FIVE: ORGANIZATIONAL MEETING MINUTE NOTES DRAFTED AND ORGANIZATIONAL MEETING OF DIRECTORS HELD
At this point, final set-up decisions are required and corporate authorizations for the actions of officers are given. Information required will include: who are the officers and directors going to be? Which officers are to have which powers? Authorizations will need to be given with regard to appointment of Certified Public Accountants, establishment of bank accounts, authority for obtaining tax identification numbers, etc. Authorization for the implementation of the capital structure chosen earlier is also given.
STEP SIX: CAPITAL STRUCTURE/FINANCING DOCUMENTS EXECUTED
The capital structure/financing documents are drafted and executed per previously decided guidelines. Securities law compliance requirements are addressed and required filings completed.
STEP SEVEN: REGISTRATION AND LICENSING DOCUMENTS PREPARED AND FILED
After incorporation, Infiniti Law will assist you in obtaining the various business identification numbers and licenses needed.
The following is illustrative of what is typically required:
Other permits and licenses may be required depending on what type of business you are operating and whether or not you will be exporting/importing goods.
INFINITI LAW can build or expand your company’s human resources infrastructure to meet your business objectives and provide your company with superior protection through the design, review, and implementation of comprehensive recruitment, employment, and termination procedures and policies. We counsel employers on a wide range of employment and benefits-related issues and help our clients make informed, strategic decisions to protect and advance their companies. Through our expertise in immigration law, we can easily handle the added complexities created when the need for foreign labor arises. For emerging growth companies, INFINITI LAW often acts as an “in-house corporate counsel” to insure that your business objectives are met. We leverage our existing industry contacts to ensure the smooth establishment and operation of your company. No matter what your stage of development, INFINITI LAW can provide your company with innovative, superior quality, and cost-effective legal solutions.
It is easy to accidentally violate employment laws at the early stages of your company’s development. Thus, it is critical to gain an understanding of whether or not your job requirements and procedures comply with applicable state and federal laws. We provide comprehensive legal advisement regarding hiring procedures and laws. In addition, when professional recruiters are used, the engagement contract needs review and evaluation to ensure your company’s protection. Job Applicant Non-Disclosure Agreements are also critical to protecting your intellectual property during the interviewing process.
The most common type of employment in California is “at will”---this means that you can terminate the employee at any time and that he/she can resign at any time with or without cause. Employment Agreements, however, are still commonplace in at-will cases because of the need to make the at-will nature of the employment explicit, to incorporate non-disclosure and non-solicitation agreements, and to assign intellectual property rights. While at-will employment is the most common, term employment contracts are common in cases involving executives and other key employees.
INDEPENDENT CONTRACTOR AGREEMENTS
Companies are increasingly using the services of independent contractors. An independent contractor is an independent businessperson who has contracted with your company to perform services or to achieve a certain objective and who controls the means and manner of job performance. For such individuals, the use of a written agreement designed specifically to establish the independent contractor relationship is essential for your company’s protection because courts often re-characterize the relationship to that of employer-employee, which results in fines, penalties, unpaid taxes, and lawsuits for your company.
Infiniti Law can help you develop and draft company policies that are in full compliance with applicable state and federal employment laws. Many companies prefer compilation of their policies in an employment handbook.
Offering stock options to employees has become increasingly popular in recent years. If your company is planning to offer this benefit, drafting of a stock option plan and individual stock option agreements in compliance with applicable laws is essential.
Typical Company Policies to Consider
INFINITI LAW works closely with your company to develop innovative, cost-effective strategies and procedures to register, protect and commercially advance your intellectual property rights at each phase of your company’s development. We are knowledgeable in the areas of trademark, copyright, and trade secret law and work hard at staying abreast of the latest “cutting-edge” information in the areas of internet, computer hardware and software technology, communications, life sciences, pharmaceutical, medical device and applied materials issues. We handle the full range of services involved in registering, protecting, and licensing your trademarks, domain names, copyrights, and trade secrets.
3 KEYS TO A SUCCESSFUL INTELLECTUAL PROPERTY INFRASTRUCTURE
Your company will save substantial time and money in the long-run, if effort is put into establishing a solid intellectual property infrastructure at the early stages and a long-term plan for your intellectual property development is established.
There are several keys to developing a successful company infrastructure from an intellectual property perspective:
#1 RESEARCH YOUR MARKET SPACE FROM A LEGAL PERSPECTIVE
We believe that knowledge is power and that it is better to be proactive rather than reactive. Infiniti Law can assist you in obtaining a thorough search of your market space with regard to your trade name, trademarks used on your product(s), and domain names. We will then help you analyze this information in light of current laws and help you develop a comprehensive intellectual property development plan.
#2 FILE EARLY
The nited States Intellectual Property system relies primarily on priority of filing. As such, you should register your trademarks, domain names, and copyrights as early as possible to prevent any later conflicts.
#3 HAVE DOCUMENTS DESIGNED FOR INTERNAL AND EXTERNAL INTELLECTUAL PROPERTY PROTECTION FROM THE BEGINNING
Your intellectual property needs protection on two fronts: Internally and Externally. By internally, we mean that you need to protect your intellectual property from misuse by and potential ownership claims from your employees or independent contractors. By externally, we mean that you need to protect your intellectual property from misuse, misappropriation, and ownership claims by your customers, strategic partners, and vendors.
Typical Documents Used for Internal Intellectual Property Protection:
Typical Documents Used for External Intellectual Property Protection: