Are my workers employees or independent contractors?

This important question has significant financial implications to small business owners. IRS Publication 15-A states "The general rule is that an individual is an independent contractor if you, the payer, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result." Based upon decided cases, the consideration of whether a worker is an employee or a contractor falls into three main categories: do you control the worker's behavior, do you control his financial situation and the relationship between you and your worker. If the issue is unclear in your circumstances be sure get professional advice.

How do I apply for a Patent or a Copyright?

Copyright forms are readily available at Federal Centers or can be ordered from the COPYRIGHT OFFICE, Library of Congress, Washington D.C. 20559. Applying for a patent is more complicated and a patent attorney's services should be sought. Their names are listed either in the telephone book or at the "Attorney's Referral Service". Trademarks are protected by the Federal Government; again an attorney's services should be procured.

What is a Trademark?

Unlike copyrights and patents, trademarks affect all businesses. When you sell a product or service using a brand name, you are using that brand name as a trademark. A trademark or service mark may consist of letters, words, graphics, or any combination of these elements. You have automatically some protection for your trademark if you were the first person to use that trademark in commerce, even if you did not register your trademark. However you should hire an attorney who is experienced in trademark issues and have him make trademark search and file for registering you trademark. The registration will not necessarily give you protection nationwide, let alone internationally, but at least you are going to be protected regionally.

What is a Copyright?

Copyright is a protection of books, magazines, software, music, movies, recordings and artwork. Concepts, ideas, titles, names and brands are not protected by copyright. Copyright protection automatically extends to any appropriate material, whether it was applied for or not. However the small fee of ($20) is well worth the cost to register the copyright and increase the legal protection from infringement. The copyright notice should be highly visible and contain the word (or symbol): "COPYRIGHT", ( © ), the year it was first issued to the public.

What is a Patent?

Patents protect intellectual properties, such as inventions, designs and a wide range of creations. Patents need to be applied for in the country one intends to use it, within a year of the first commercial use of the product.

How should I structure my business: sole proprietor, partnership or corporation?

Sole Proprietorship

  • It is easy to form.
  • You are in full charge regarding all decision-makings.
  • Offers the most flexibility.
  • Simpler taxes.
  • Less bureaucratic restrictions.

BUT:

  • Has unlimited liability.
  • The business is vulnerable to critical events.
  • Difficult to raise capital and financing.
  • Depends on the singular ability of the owner.
  • Less professional in appearance.

Partnership

  • Association of two or more persons to carry on a business.
  • Co-ownership of assets.
  • The need for a Written Articles of Partnership.
  • Mutual agency: share of management and profits.
  • Easy to form.
  • Direct rewards, combined efforts.
  • Easier to attract capital.
  • Flexible.

BUT:

  • Unlimited liability of at least one of the partners.
  • Instability, dependence on the other partner.
  • Dependent on the judgment of the partners as an agent.
  • Difficult to dissolve.

Corporations

  • A distinct legal entity existing on its own.
  • Better image, suggest more professionalism.
  • Offers limited liability.
  • Lower tax rate.
  • Easier to sell stocks.

BUT:

  • Activities limited by the charter.
  • Extensive government regulations.
  • Double taxation.
  • More complicated to form, could require legal assistance.
  • Strict regulations of modes of operation.

"S" Corporation
The S Corporation is a corporation, for which an election has been made with the Internal Revenue Service for the income to pass through and be taxed directly to the stockholders on a pro-rata basis, avoiding double taxation on profits and dividends. It allows the stockholders to offset business losses against their personal income according to certain IRS regulations.

  • The S Corporation must have seventy-five or fewer shareholders.
  • The corporation can have only one class of stock.
  • All shareholders must consent to the election.
  • Cannot have alien, non-resident shareholders.
  • The corporation cannot own more than 80% of another corporation.
  • At least 75% of the receipts must be generated by business.

Limited Liability Companies (L.L.C.)

  • It is a combination between corporation and partnership.
  • Has the limited liability advantages of a corporation, but operates with the flexibility and tax obligations of a partnership, a corporation or a sole proprietorship.
Q&A - Business Law