{ Legal Basics for Business Danielle A. Higgins, Esq. Day Ketterer, Ltd.

 Select the appropriate business form  Observe corporate formalities  Understanding your Fiduciary Duties  Protect your Intellectual Property Attracting Investors: To Do List

Type of Entity C-CorporationOne or more stockholders. No restrictions on the types of owners. S-CorporationOne to 100 stockholders. With certain limited exceptions, only US individuals (citizens or residents) can be stockholders. Certain trusts and exempt organizations can also be stockholders. LLCOne or more members. Two or more members if LLC wants to be taxed as partnership. No restrictions on type of owner. Ownership Requirements

Type of Entity C-Corporation Stock is held by shareholders. Two primary types: common stock and preferred stock. Permissible to have multiple classes or series of stock with different rights and preferences Proportionate distributions within classes S-Corporation Only one class of stock permitted, but can have different voting rights LLC Units denote percentage of membership interests Governed by Operating Agreement Form of Equity and Restrictions

Type of Entity C-Corporation Articles of Incorporation filed with Secretary of State By-laws, Code of Regulations, stockholder agreements S-Corporation Articles of Incorporation filed with Secretary of State By-laws, Code of Regulations, stockholder agreements S-Corporation election IRS Form 2553 LLC Articles of Organization filed with Secretary of State Operating Agreement Organizational Documents

Type of Entity C-Corporation Shareholder liability limited to amount of capital contributed (purchase of stock) S-Corporation Shareholder liability limited to amount of capital contributed (purchase of stock) LLC Member liability is limited to amount of capital contributed Liability

Type of Entity C-Corporation Governed by Board of Directors  designate officers to manage day-to-day operations Certain majority decisions must be approved by shareholders Board of Directors may form committees S-Corporation Same as C-Corporation LLC Management vested with members Members can delegate management Officers are optional Flexible structure Management

 Select the appropriate business form  Observe corporate formalities  Understanding your Fiduciary Duties  Protect your Intellectual Property Attracting Investors: To Do List

 Hold Annual Meetings and/or take Action by Written Consent  Establish separate banking accounts  Obtain Federal EIN for Company  Bring copies of Articles  Enter into contracts in name of company  Correct: Bob Smith, President, Smith Industries, LLC  Incorrect: Bob Smith OR Bob Smith, Personally  Additional Benefits:  Commercial Loans  Avoid Piercing Corporate Veil Observing Corporate Formalities

 Select the appropriate business form  Observe corporate formalities  Understanding your Fiduciary Duties  Protect your Intellectual Property Attracting Investors: To Do List

 Duty of Good Faith and Fair Dealing  act in a way that you reasonably believe to be in the best interest of the company  Corporations: Directors, Officers, Majority Shareholders (in small corporations)  LLCs: Managers and Members  Duty of Loyalty:  3 Types:  Conflicts of Interest  Stealing Business Opportunities  Competitive Business  Corporations: Directors, Officers  LLCs: Members and Managers (but can be waived in operating agreement) Two Types of Fiduciary Duties

 Select the appropriate business form  Observe corporate formalities  Understanding your Fiduciary Duties  Protect your Technology and Intellectual Property Attracting Investors: To Do List

 Protected Interest: Proprietary Business Information  Formulas: KFC Secret Recipe; Coca-Cola  Customer Lists, Market Strategy  Requirements for Protection: Must be Secret/undisclosed business advantage  Term of Protection: Potentially Indefinite if information Remains Secret  Conduct Prohibited by Protection: Misappropriation (O.R.C )  Damages for infringement: Compensatory and Treble Damages; Attorney Fees Trade Secrets

 Protected Interest: Functional Inventions  Utility Patents: processes, machines, manufactured goods, composition of matter  Design (“ornamental”)  Plant  Requirements for Protection:  New, Useful, Nonobvious, Proper Subject Matter  Must disclose  Term of Protection: 20 Years from Application Date  Conduct Prohibited by Protection: Making, Using, Importing, Selling, or Offering to Sell Invention  Damages for infringement: Compensatory and Treble Damages: Attorney Fees Patents

 Protected Interest: (1) Original Works; (2) works of authorship; (3) fixed in tangible medium; (4) involving expression  Books, musical composition, movies, computer programs  Requirements for Protection: Originality; must disclose  Term of Protection: Author’s Life Plus 70 Years¹  Conduct Prohibited by Protection: Copying or Substantially Similar Works  Damages for infringement: Compensatory and Treble Damages: Attorney Fees ¹The term of copyright protection for corporations is 95 years after publication. Copyright

 Protected Interest: Consumer Recognition & Related Goodwill  Logos, sayings, words, sounds  anything recognizable as a brand  Requirements for Protection: Use in Commerce  Term of Protection: Potentially Indefinite if Mark is Used Properly  Conduct Prohibited by Protection: Creating a Likelihood of Confusion  Damages for infringement: Compensatory and Treble Damages: Attorney Fees Trademark

Several Circumstances:  Potential Investors  Key employees  Suppliers; distributors  Strategic Partners Confidentiality Agreements

Content:  Term (how long must the other party keep the information confidential)  Broad definition of “confidential information”  No right or license clause  Scope of duty to keep information confidential Confidentiality Agreements

 Have an actionable strategic plan that shows growth  Have audited, or at least reviewed, financials for the prior 3 years  Obtain independent valuation of your business (or IP if no operating history)  Hire experienced business advisors Attracting Investors: Additional Advice