CALL NOW FOR CONSULTATION
212-960-8890

Starting a New Business

Forming a Business in New York vs Delaware - Why forming a Delaware LLC is a Mistake

Forming a business in Delaware used to always be the way to go. However, times have changed. Many people wonder whether forming a business in Delaware is more advantageous than forming a business in New York. In this article, the examination will be done with regards to Forming a Business in New York vs Delaware and why Delaware might not be the place to go. 

Usually, when a new client is looking to start a business, he or she will call me and tell me something along the lines of: "I would like to start an LLC in Delaware. Can you help me with that?"  And while I could easily agree and be on my way with my fees in hand - doing so would make me a bad business lawyer.

Is the Customer Really Always Right? 

A good business lawyer is not merely going to do everything his or her client wants (sorry clients)... at least not right away. While forming an LLC in Delaware might be the right option, it might very also well be the wrong, sometimes disastrous, option. A good business lawyer will ask questions, evaluate the situation, and offer advice as to what the best course of action should be.

But let me get off my soap box and get back to my original scenario. After getting this request to form a Delaware LLC, I usually ask two questions. The first is "Why do you want to form an LLC?" and the second is "Why do you want to do it in Delaware?". We will get into the LLC issues on a later blog post, but with regards to the Delaware question, I will usually get a response along the lines of "I don't know" or a variation of it.

Delaware Isn't What it Used to Be - The New General Rule for Where to Form a Business

The truth is, forming a business in Delaware used to be the way to go. However, a lot has changed. Now, hopeful business owners have many options to choose from and aren't as restricted as they used to be. 

As a general rule, I recommend that all new businesses or startups form a business in the state where they are operating. While forming in Delaware might be a good option, there are a lot of factors that need to be taken into account before being able to come up with that conclusion. For example, if your business is located in New York and you registered it as a Delaware LLC, your business does not have the authority to do business in New York. You would need to register that Delaware LLC as a foreign LLC in New York in order to be permitted to do business in New York. Essentially, the business would be paying double the registration costs when they didn't need to do so. And even worse, if they don't register as a NY foreign LLC, years down the line, the business will be responsible for years of back taxes and penalties it should have been paying as a NY foreign LLC. 

Advice Going Forward

This is not to say that there are no advantages to starting a business in Delaware. There are many reasons why starting a business in Delaware still makes sense, especially if you are not starting a run of the mill small business- however these reasons are rare and I only primarily see them in large scale businesses, not small businesses. The only way to know for sure whether it would be a good idea to form a business in Delaware would be to hire an attorney to help you make that decision. While hiring an attorney is by no means, a cheap undertaking, hiring a experienced business attorney to help you make the best decision for your future business is a invaluable investment. Consider hiring one to help you make this decision, among many others, in your next business undertaking.  

--- 
Julian Cordero is an Attorney, Business Strategist, and Music Producer. Oh and he blogs too!  Julian is licensed to practice law in New York and is the Managing Attorney of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property Law.  

Trademarks 101: The Basics of Trademarks

What’s a Trademark? 

Trademarks are a form of intellectual property. A trademark is used to identify and distinguish the source of the goods or services that are being represented by the trademark.  We get it, this is confusing.  In the simplest of terms, a trademark is your brand.  

Trademarks can be letters and words, logos, pictures, a combination of words and a logo, slogans, colors, product shapes, and even sounds.  

Do I have to Register? 

Trademark registration is not mandatory.  (Cue Dramatic Music).  In fact, depending on what state you live in, you may have some rights in your trademarks even if you do not register.  Trademarks that are not registered receive what is known as “common law” protection.  This form of protection varies depending on what state you live in, but in general, the protection will be limited to the areas where you are currently using the trademark.  So for example, if you are selling paper under the name Dunder Mifflin in Scranton, Pennsylvania and do not have a federal trademark registration for the name Dunder Mifflin, another company in Florida can start selling paper under the same name.  

While federal registration is not mandatory, it has several advantages and is almost always recommended.  

Benefits of Registration

Registering your trademark with the United States Patent and Trademark Office (or USPTO as the cool kids call it) has many benefits.  Among these benefits are national protection and and increase in the overal strength of your brand.

Nationwide Protection

Registering your trademark with the USPTO gives you the exclusive right to use your trademark nationwide.  So for example, if our friends at Dunder Mifflin had great lawyers advising them to register their trademark with the USPTO, they could prevent that other paper company in Florida from stealing their name and benefiting from it.

Stronger Brand, Less Problems

While not necessarily a legal consideration, from a business standpoint, unless you plan on being a small mom and pop business that caters to a small selection of people, it doesn’t make sense to not protect and strengthen your brand from the start.  Think about it, you are going to be spending valuable time and resources to promote your brand.  Do you really want to spend all that time and money only to be told years down the line that you need to change your brand?  This is a huge waste and in some cases, can cripple a business.  Trust me, it happens way more than you think.  

Strength of Trademarks

All trademarks are not created equally.  In the trademark world, there are a few categories to describe different trademarks.  The categories are (in order of strength: fanciful, arbitrary, suggestive, descriptive, and generic.  

Fanciful

Fanciful trademarks are the (insert the name of your favorite signer or band here, because you clearly think they are the best) of the trademark world.  A trademark is fanciful if it was invented for the sole purpose of being a trademark, such that it has no other meaning whatsoever.  

Examples of fanciful trademarks are: Exxon, Kodak, and Xerox.  

Arbitrary

An arbitrary trademark generally has some type of dictionary definition before being adopted as a trademark.  However, the trademarks is used in connection with products or services unrelated to that meaning.  Because of this secondary meaning, arbitrary trademarks are very strong marks.  

Examples of arbitrary trademarks are: Apple (for computers) and Shell (for gas stations).  

Suggestive Marks

Suggestive trademarks are marks that suggest a quality or characteristic of the goods and services. While these marks are not as strong as fanciful or arbitrary marks, suggestive marks are one of the most common form of trademarks registered.  The reason for this is due to the marketing advantage of being able to associate a trademark with a particular good or service.  

Examples of suggestive marks are: Microsoft (for computers), Blu-ray (for disks), and PlayStation (for video game counsels).   

Descriptive Marks

Descriptive trademarks are used to merely describe the services or goods where the mark is being used.  A descriptive trademark cannot, by itself, be registered as a trademark because it is inherently weak.  It is possible to register descriptive trademarks if you can achieve a secondary meaning for the trademark.  Secondary meaning means that although the mark is descriptive on its face, consumers are able to recognize the mark as being able to indicate a source of goods or services.  

Examples of descriptive trademarks are: Sharp (for televisions), Digital (for computers), and International Business Machines (for computers).

Generic Marks 

Generic trademarks are not trademarks at all.  The reason for this is because a generic mark is a common name for products or services.  Giving this generic mark any type of protection would essentially create a monopoly, such that the public would suffer greatly if only one person or company would be able to use that mark.  

Examples of generic marks are: salt, smartphone, and social network.  

How Much Does it Cost? 

Trademark registration fees depend on a variety of different factors.  For an updated fee schedule, visit the USPTO Website.

Advice Going Forward

At first glance, the trademark application looks simple.  However, trademark applications are ridiculously complicated.  (Yes, ridiculously complicated is fancy legal term).  Once you start to get into the specifics of the application, it is easy to get lost, confused, or discouraged.  Because of this, the MAJORITY of trademark applications become abandoned or get denied.  

Having an attorney can greatly minimize the risk of your application getting denied.  While results cannot be guaranteed (and if an attorney is guaranteeing results, you should probably run away), having an attorney is your best bet.  

If this is not possible (we get legal costs can be expensive sometimes) it is important to educate yourself as much as possible before going through with the application.  

Trademark fees are nonrefundable.  Don’t make the mistake of randomly submitting a trademark application without either hiring an attorney or educating yourself on the process first.  The USPTO provides numerous sources of information on the trademark application process and should be the first website you visit when deciding to apply for a trademark without an attorney.

--- 
Julian Cordero is an Attorney, Music Producer, and Entrepreneur.  Oh and he blogs too!  Julian is licensed to practice law in New York and is the Managing Member of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property.  

 

 

 

New Business Checklist | A Comprehensive Checklist on Starting A Business in NY

Thinking about starting a business in New York? Reguardless of whether you are thinking about starting the next big startup that turns into a fortune 500 company or a small business, the legal implications of starting a business can be complex. As a result, Cordero Law is happy to provide you its "starting a business checklist" as a guide to help you along the way.