Here's the Fine, Legal Print Behind Choosing a Company Name | Cooley LLP Partner, Sally Kay J.D.

OK, so clear that, and you're going to start a company. Now you guys have done some branding stuff, right, this summer? Thinking about how to name your company, what you're going to trademark, what you're going to print on your t-shirts. You guys done that during the course of the time at Draper? No.

No. OK.

So when you pick a name for your company, it's really not— you don't have to come up with the final name just in order to form a company. You can call it anything you want to. The challenge is, is that if you're gonna have something that you wanna make ubiquitous like Google, you wanna be able to trademark the name of your company, you need to do a fair amount of searching to make sure that you are able to do that and you're not impinging upon somebody else's rights. You may wanna form a company sooner than the time that all that searching takes, and all the good searching is really expensive, right? For example, in my firm, if we do a full trademark search for you, international trademark search, Just the company that does the searching, I think that that costs $1,000, $1,500. And oftentimes $1,500 is how you guys are gonna pay your own rent or eat, right? So you're gonna try and weigh the possibilities and say, I think I'd rather eat for another 2 months than do a trademark search now. So just pick a name. Pick a name that you can work with because we can form a company with any name and you can change the name immediately, almost immediately. It's very easy. It's pretty inexpensive to change the name. So don't fall in love with something because what will inevitably happen is you're going to do a trademark search and you're going to find out that somebody else is using it and you can't use it. Or somebody else already owns the domain name. They're not doing anything with it, but once they find out you're interested in it, all of a sudden it's worth $5,000 to them. And it gets expensive. So before you start printing t-shirts, use a lawyer, do a real search. But pick a name for starters that will work for you.

Okay.

So, when you think about the entity that you're gonna form, there's, there's a lot of different ways, a lot of different structures that you can pick. We're gonna talk about Delaware C-corps today primarily. The reason being that if you are looking for investment from a US-based venture fund and most angels, they want you to be a corporation. No, it's fine.

Last slide, you mentioned that, uh, do a real search. What do you mean by a real search, and why do we need to use a lawyer for a real search? Isn't that all public?

No, it's not. Well, you can search your own. I mean, you get on Google and start looking for stuff, but there are lots of companies that have registered trademarks and that they may not be using in a way that you're gonna identify. And the companies that do the trademark searches, we, law firms pay a ton of money to have access to all of those databases. So you, it would be too expensive for you to wanna access like the 7 different databases that trademark people in law firms use to search for marks.

Wait, so the Trademark Office that the US has is not good enough?

No, no, because that's only what's registered. But there's a lot of other people that are using names in commerce that have a common law right to those trademarks that could still come after you.

Okay, cool.

And there's a lot of variability too. So some people have only trademarked things in a certain class, so for a certain type of business where you may be able to use the same name or a similar name. But all of that searching comes back with with all of that and somebody analyzes it and kind of explains to you this is what happens if you try to do this one. And what you don't want to do is you don't want to get in a back and forth with the Trademark Office trying to defend something that they would have denied because it's just a lot of back and forth letters and it can go on for years.

Okay, thanks. Sure.

So C corporations, we're going to talk about those primarily. There are other kinds of corporations called S corps. S corp is something that If you're not looking to raise money and issue preferred stock within probably 12 months, you can form as an S corporation. The benefit of having an S corporation, and I'm not gonna get into all the tax law because I don't understand it. If you're an S corporation, you get to treat the company as though you were an LLC and you get an opportunity to pass through losses. And this is way above my head. This is why I have tax lawyers in my firm that explain how this works. If you're not gonna raise outside money— oh, the other limitations in an S corp, you can only issue one class of stock. So, you can only issue common stock in an S corp. And you can only issue equity to people in the United States. You can't take out international investors in an S corp. In an LLC, different. But you generally are not gonna be able to take outside investment, particularly from venture investors, unless you're a corporation. So, even if you started as an LLC because you think there are tax advantages and your accountant's gonna help you with that. You probably will have to convert into a corporation in order to be able to do financing. This way.

Wrong way.

Okay. So, have— how many of you have formed your company already? You have a legal entity that exists? Okay. So, the important reason to have an entity is because once you have an entity, you are no longer personally liable. Unless you do something horribly illegal or willful or awful. So while you're like doing your thing and you're signing contracts with a programmer, for example, if you haven't formed an entity and then you don't pay that guy, or that guy thinks that you didn't pay him enough, or he thinks you breached your contract or whatever, he can come sue you personally. Because you're not an entity, you're just an individual who's doing some work with this company that you're trying to form. And the thing that you don't want to have happen is somebody come and sue you. And you say, okay, well, I'm 20 years old and I live in my parents' basement and I don't have anything for them to take, so who cares? Well, if you're living in your parents' basement while you're doing this work, or your parents have invested some money in your company, well then they'll say, well, that's the deeper pocket, so I'll just go after the parents. And it may not have any real legitimate claim to do that, but it can cause you a lot of time and expense. just going through the legal system and trying to make it go away. So the benefit of forming an entity is that you get to transfer all the liability from you to the company. And then if they want to sue, they can sue the company. And if the company's got no money, the company has no money. And as long as you haven't done anything intentionally bad, like saying, I don't need to pay that guy because I didn't really like him, the company keeps the liability there. So it's important to form the company, I think, before you want to start entering into contracts with other people. Before you're engaging employees, before you're selling anything into commerce, before you're even beta testing things, especially if you're selling goods of some sort that could potentially cause injury to people. And bearing in mind, you know, I'm a lawyer, so we always think about everything and how we keep from getting sued. People will sue for any reason and for no reason, right? And so They may sue you for something that makes absolutely no sense and it's the stupidest thing and it's absolutely untrue, but they can still at least start the process. And to go back and forth in the court system to get that thing dismissed is very time-consuming and very expensive. So you wanna be able to be as protected as you can. There are a bunch of formalities in forming a company. So our website here, Cooley Go, it's a website that we launched about a year ago and it's actually a really good resource. And it does have— you can actually do your information documents there. You don't need to engage us to do that. But you can go into Cooley Go, put in some information, it will pop you out a certificate of incorporation, and you can go file it with the Secretary of State on your own.

Yes?

Is there a better way to do it? Yeah, there's a bunch of them out there. There's a bunch of them. There's places you go. There's lots of people that use LegalZoom. I think the thing to think about is that you should at least have somebody look at it before you file it. The initial charter, probably not a big deal. But if you're gonna start getting into all the details of issuing founder stock and all the rest of those things, be thoughtful about it. Do some reading about it. Make sure that you understand it. Bearing in mind that there's very little that you can do now that can't be fixed later if you needed to make a change. So, if you omitted something from your Certificate of Incorporation, if you forgot to file something to qualify to do business in a another state even though you're formed in Delaware, you can clean those things up. There may be some fees or some fines and some stuff like that, but most of them are fixable. So, now you have a company and you want to make sure that all the hard work that you've done belongs in the company. And all the hard work that your co-founder has done belongs in the company. So, if the two of you decide you don't like each other, you can't just take your stuff and go home. It belongs in the company and you can figure out what you're gonna do with the company. So, you mentioned that you had a co-founder.