Episode 13: Choosing a business structure: From sole proprietors and LLCs to corporations and nonprofits (transcript)

What’s up, y’all. Welcome to The Shontavia Show, where my goal is to help you start a business based on your life’s vision. This ain’t gonna be your daddy’s business advice. I’m laser focused on entrepreneurship in the 21st century, vision and breaking the traditional mold. If you can get with that, you can get with me, be sure to visit shontavia.com for more episodes, blog posts, and other content. Thank you for listening. The show starts now.

What’s up everybody? This is Shontavia and we’re back with another episode of The Shontavia Show, where I help you start a business based on your life’s vision.

So today’s episode, it is all about business structures and business entities. And this is a question I get all the time from new and wannabe entrepreneurs, just how to start operating as a legit official business. So starting a business requires that you make all kinds of decisions, right?

And one of the most important decisions you will make is how you’re going to operate and structure your business. You have to consider all kinds of questions that are actually pretty foreign concepts to people who are new to the game of entrepreneurship and business. So you have to think about, you know, will you start making money right away before trying to register or incorporate a business or get legit in some kind of way? Will you just get like a DBA and do that for a little while? Will you choose an LLC or a corporation? Why does it even matter? What are the differences between all these things? And the crazy thing is is that even though this is one of the first decisions you make, most people don’t even know all the differences between some of this stuff and whether they’re doing it right. So the goal of this episode is to help you start to frame the business structure that you need to operate in as you start your business.

And then actually as you grow, you can make different choices or stay with the same choice.

So this decision has a huge impact on your business. There are financial implications, there are legal implications. Once you start hiring people, there could even be implications for how you go about hiring folks. This stuff gets really, really serious, really fast.

The taxes you pay actually depend on the type of business that you choose. Your liability, your exposure to risk. And so what I mean when I say that is if you get sued, the type of business entity that you actually choose determines how much risk you’re exposed to. So if you lose a lawsuit or you get into a ton of debt, you may have to give up money from your personal bank account. Maybe you could lose your house, your car, your 401k. So choosing the type of business entity that you choose can either expose you to liability, meaning you could lose all that stuff I just mentioned, or it could protect you and insulate you from liability, meaning you won’t have to give up those things, even if you do lose a lawsuit, even if you do get into a ton of debt.

And then also there are other implications. So if you’re trying to raise money, if you’re trying to attract angel investors or VCs, which we’ll do episodes about angels and VCs and that kind of thing, some of them will only invest in certain types of business structures. So again, this stuff gets serious pretty fast.

In this episode, what I’ll do is talk about the most popular types of business entities. I’m not going to go through all of them. In the United States alone, there are probably 15 different types, but the four most popular and the four that I get questions the most about are sole proprietorships, LLCs, those are limited liability companies, corporations, and then for my philanthropically minded folks, nonprofits and 501(c)(3)s. So, so there are all these different types, but I will focus on those four. If you have questions about the others though, let me know. Maybe we can do other episodes about some of the more specialty types.

So I’m going to walk through four things with each type of business entity in this show. So I’ll define each type first, talk about how you actually go about creating one. And then the pros and cons, the benefits and drawbacks of making one choice or another.

And keep in mind all this stuff is very, very high level. If you have questions about it, you really probably need a lawyer or someone you can talk to about how to make the right choice for you. Lawyers, accountants, those types of folks are critically important at this stage of the game.

So sole proprietor. If you just go out and hang a shingle, you start selling stuff today and you don’t file anything. Congratulations. You have made a choice about the type of entity you are, and you are something called a sole proprietor.

So a sole proprietorship is when you have one person that owns and runs a company. There is no legal distinction between that person and the business entity itself. So again, if you just hang out your shingle and start selling stuff tomorrow, you are a sole proprietor. A sole proprietorship is your business entity, and as a sole proprietor, you’re allowed to do business in your own name. If you want to do business in another name, if you want to call yourself something else, that’s a DBA. If you don’t go out and file anything you hear this term kind of thrown around a lot DBA doing business as you might also hear that called being called a fictitious name or a trade name or an assumed name. There aren’t any limits to how many DBAs you can use, but the law in some States is even if you’re a sole proprietor, if you’re going to call yourself something other than your name, you have to file a document with the state to let the state know.

And the thought behind that is, if you’re doing business and you’re not doing business in your name, the state has an obligation to protect its residents to people doing business in the state. People have a right to know who they’re doing business with. But even if you do that, even if you do file a DBA, you have not made any kind of election about your business entity. You’re still a sole proprietor. And so as you say here too, that the word sole actually has a legal meaning. It means you’re only one person. I won’t talk a lot about partnerships today, but if you, uh, or in this episode, but if you start a business with more than one person and you don’t file anything, you’re not a sole proprietor anymore. You’re called a general partnership. But that’s a little bit of a digression. If there are questions about general partnerships, like I said, maybe we can do future episodes about that.

So how do you create a sole proprietorship? And the answer to that is really don’t do anything other than start selling stuff. This happens automatically. Now, depending on what state you live in, you might need to get a business permit or a license or you know, some other things depending on your industry. So where you live and what you’re doing makes a huge difference in what else you have to do. But in terms of choosing an entity, that’s all. That, that’s all you have to do to become a sole proprietor. Just start selling stuff. Now there are pros and cons to this approach. So the pros are it’s easy. There are no real requirements, there are no papers to file. You can generally deduct your business expenses on your personal tax return. Again, talk to your tax professional about this, but generally you can deduct your business expenses and filing taxes is also comparatively easy.

I mean filing taxes ain’t never easy really, but it’s comparatively easy because all you do is fill out this form called a schedule C form 1040 and that just says how much profit you’ve had and how much loss you’ve had from your business. And this is only for sole proprietorships and then you just attach that to your personal income tax return. The same way you’re going to file taxes otherwise, and all of the income you’ve made are just taxed to you as an individual business owner.

So what’s the danger in this approach? What’s the danger in being a sole proprietor? Number one, you are personally liable for any debt or liabilities. So if you start running up credit cards or you lose a lawsuit, you are going to be personally responsible for paying. That could include, again, if you lose, if you end up in a really bad situation, that can mean your money in your personal bank accounts, your 401k, your house, your car, all that kind of stuff.

Also, if you’re a sole proprietor, it’s going to be really, really tough to get funding from any source, really. Banks, venture capitalists, venture capital groups, uh, angel investors. Its going to be a lot more difficult if not impossible to go that route. In part because they want to see an official structure. They want to know that you are not personally liable for debts and liabilities incurred, and there are ways for investors in particular to get pieces of the business. If you actually have a different structure that’s not a sole proprietorship. It’s also harder to get business credit. So it’s hard for me to think of a situation where it’s actually even a good idea to opt to operate as a sole proprietor. Maybe if you’re in a business where people don’t get sued, I can’t think of any business where people never get sued or an industry on this planet where they’re not disagreements.

So operating as a sole proprietor, it’ll get you started, it’ll get you out of the gate, but it is a dangerous way for you to operate, particularly when there are some actually pretty good and relatively inexpensive alternatives. So that’s the sole proprietorship.

The second type of business entity that you could choose, the most popular four that I mentioned are corporations. And corporations are like the historical traditional way to incorporate and operate a profit seeking business, in the United States at least.

So a corporation is an organization, so that can be one person, it could be a group of people, it can actually be a group of other companies or any combination of all of those that act as a single entity. A corporation exists separate and apart from its owners and founders.

So I don’t know if y’all remember a few years ago when Mitt Romney was running for president, he got a lot of flack for saying corporations are people too, but he was actually right about that. As a matter of law and the way that the IRS and our laws treat companies, we treat them like people, particularly corporations.

Corporations are tax paying entities just like me and you.

The owners of a corporation are called shareholders and corporations have a couple of different groups of people that keep the wheels moving within the business. Corporations have a board of directors and so that’s a group of people that make the big picture vision, strategy, direction, decisions. They are officers, so people like the president of the corporation, the treasurer, the secretary. These are usually the people who manage the day to day business. Those are the folks who control the corporation, the board of directors and the officers, and then the shareholders. They’re the owners. They’re the ones who have shares in the company.

We usually call those shares stock. One person can fulfill all of these roles in just about every state. So you can create a corporation and you can be everybody, the board of directors, the president, the treasurer, the secretary. You can be all those people. So one person can create a corporation and fill all of these different roles. Investors like angels, venture capital groups, VCs, they like to invest in businesses that are structured like corporations because corporations have shareholders and shareholders can sell their interest in the company through things like stocks.

So that’s why you hear people say, if you’re going to create a company where you’re going to be seeking investment, it is better in many instances to elect to become a corporation as opposed to maybe like an LLC or a partnership or a sole proprietorship.

So how do you create a corporation? It requires paperwork. You have to file documents to incorporate your corporation with an office called the secretary of state. In most States, in some States it’s called something else, but generally called the secretary of state’s office. And each state has its own rules about how you do this. And each state has different fees for how you do this. So it might be $50 in one state. It’s $110 for example in the state where I live in South Carolina. Or it can be up to $500 in some other States. So the basic steps are you select the corporation’s name and I have some episodes on how you go about thinking about a name because you want to choose a name that won’t get you sued. Number two, you have to file with the secretary of state to incorporate your corporation. This is usually done by a form that most States call articles of incorporation.

You have to create corporate bylaws. And the bylaws are basically just the rules about how the corporation is run, operated, managed all the ins and outs. You might also want something called a shareholder agreement and that’s the rules for the owners, for the shareholders, their rights, their obligations, that kind of thing.

And then finally make sure you look at your state’s rules. So what I’m talking about is generalities, but we’ve got, you know, 50 States in the United States and different States have different requirements. So like some States say you have to announce that you’ve incorporated a business. Some States require licenses, permits, that kind of thing. The other thing you should note about corporations is that they are really two different types of corporations. Theres C Corp’s – C corporations – and then S corps – S corporations. And I’ll give the pros and cons for each because they are a little bit different.

C corporation refers basically to any corporation that pays taxes and is separate and apart from its owners. So corporation is taxed separate and apart from the owners, the shareholders. The C Corp pays its own taxes.

And what are the benefits to being a a C corporation or incorporating a C corporation? Number one, you are insulated from personal liability. That’s frankly for you as a new company, an entrepreneur , or startup, that’s the most, one of the most important things – that you are shielded from personal liability for anything that happens that the business could, you know, be sued for and lose a lawsuit for or debt. So liabilities or debts. You’re protected from those things. So if the C Corp gets sued and loses, the shareholder’s personal money, personal bank accounts and all that stuff are generally protected. Now you can mess that up and break some rules and you won’t be protected.

But generally speaking, C Corp insulates you from liability. Also C Corp’s get more tax deductions that just about any other type of business entity. C Corp’s often pay lower self employment taxes, or owners of C Corp’s pay, lower self employment taxes, and it’s easier to raise money with investors.

What are some of the cons? So it’s pretty complicated stuff there. A lot more rules, more paperwork, more fees. Um, there are more complicated tax considerations. And there’s something called double taxation if you’ve ever seen that term. Basically what that means is the money made by a corporation can be taxed twice. So the first time was when the C Corp pays its own taxes. And then again, if the shareholders get things like salaries, bonuses or dividends, and dividends of when you get more shares of stock instead of like cash. And so the final kind of con is that owners can’t deduct business losses in their personal tax returns because a C Corp is paying taxes by itself.

S Corps on the other hand refer to corporations that don’t pay taxes as a separate entity. This is called pass through taxation. So when the corporations make money, so if they have income, losses, deductions, credits, whatever, those are passed through to the shareholders and the shareholders pay taxes instead.

And again, that is uh, the S Corp, the S Corp is not the tax paying entity. The shareholders are. And the S Corp has just filed by — you file a form with the IRS. So the S Corp is not something you do with the state. That’s something you do with the IRS. There are some benefits and drawbacks to being an S Corp. So the pros of having an S Corp are that owners, again, are insulated from liability or debt of the S Corp. So they are protected from those things. There’s no corporate taxation. So the shareholders are paying instead and there’s not that double taxation problem like you have with C Corps.

The cons are that there’s some very complicated tax considerations and more rules, more paperwork, more fees, and there are more regulations on issuing stock.

So if you’re going to issue stock in a C Corp, they’re much mores rules and stuff that you have to follow. But you should consider a corporation, even though they’re more complex, you should consider corporation if you’re going to seek business loans, if you’re going to try and get funding from somewhere, or once your business really starts to grow if you’re thinking about selling or whatever, you may want to become a corporation or incorporate as a corporation. T.

he third type of entity I want to make sure I mentioned in this episode because they really pretty popular for people starting out, are LLCs, limited liability companies. So the LLC is a business entity that is relatively young in the United States.

They were created in 1977 so they’re pretty new and they were created to offer flexibility to business owners and they’ve been really, really good for startups and entrepreneurs. So in an LLC you get kind of a hybrid, a hybrid between the sole proprietorship, general partnership and corporation.

So in the LLC, the benefit is you get treated like a corporation on one hand because you do get that personal liability and debt protection. The owners of LLCs, the members within an LLC are not personally liable for the corporations, debts and other liabilities. If the LLC gets sued, the owners of the LLC, the folks within the LLC are protected in general unless you break some rules. And there’s not as much paperwork. So on the other hand, so corporations require a lot of paperwork and that kind of thing. There’s not as much with the LLC. There’s some documents need to be filed, but they are less complicated.

So with LLCs, the owners are members. The LLC can be run by an individual member or they can be run by a person who’s designated — and that person is called the manager.

So how do you create the LLC? LLC is actually pretty similar to creating a corporation.

Remember you’ve got kind of a hybrid of the sole proprietorship and the corporation to form an LLC or limited liability company.

So what do you have to do? Choose a name that won’t get you sued. File some documents with your secretary of state’s office. These are usually called articles of organization. You don’t incorporate an LLC, you organize an LLC and register the LLC with a state with the secretary of state. Then you create something called an operating agreement — and it’s just like the rules of how the LLC will operate.

In most States is not mandatory to file the operating agreement with the secretary of state. There are a couple of States that do you to do that, but most don’t. The operating agreement is mostly an internal document, but it is definitely good to have, especially if you have more than one member, if you plan on growing to more than one member within your LLC.

But if you’re going to get a bank account, most banks are going to want to see an operating agreement. So do think about creating one.

And then the fourth and the step is look at your state’s rules and make sure you are getting all the appropriate licenses and registrations and that kind of thing. And that is how you create an LLC.

And the benefits of creating an LLC are very similar to the benefits of creating a corporation. You’re not personally liable for any incurred liabilities or debts. Um, there’s not as much paperwork as with a corporation.

You can choose how you want to be taxed. You can be taxed as a sole proprietor or taxed as a corporation and they’re relatively inexpensive to run.

There are some cons though. The cons are that you do have to file paperwork and some States you actually also have to pay like a regular maintenance fee. Same with corporations.

And then also investors at least historically have not invested as much in LLCs because LLCs don’t have shares of stock. I mean there’s some nuances there, but generally LLCs don’t have shares of stock that you can like buy and sell. So those are LLCs.

And then the final type of business entity. I’d like to mention are nonprofits, because they are so many people out here with socially conscious minds who want to create nonprofits. And so the nonprofit is a company whose goal revolves around some social benefit, some social goal, and like the name says, not to make a profit.

Now that doesn’t mean nonprofits don’t make money. Salvation Army makes more money than just about any other entity on this planet. So a nonprofit can make a ton of money, raise a ton of money, but the nonprofits goal has to be socially beneficial purpose.

And a nonprofit has to benefit somebody. It can benefit a group of people or a general community, but there has to be some social benefit to someone.

And States typically outline what kind of entities can become nonprofits within their state. There are a couple of different categories. You can have public benefit, nonprofits, religious nonprofits, mutual benefit nonprofits.

Depending on where you live, there can be any number of different legal structures to choose from. Though the nonprofit corporation is the most popular.

Then there’s some other nuances, but a lot of that depends on where you are going to register, incorporate your nonprofit. How do you create a nonprofit, not that difficult from some of the other things.

At least to start, you select the nonprofits name, you file articles of incorporation with a secretary of state and do whatever else your state requires.

Most folks, if they’re going to create a nonprofit also want something called 501(c)(3) status. That is something that the federal government gives to you, the IRS.

And if you’re interested in 501(c)(3) status — so I’m saying 501(c)(3) but there are actually lots of different designations within 501(c)s.

But if you’re interested in that, what it does is give you tax exempt status, and you know, allows people to give you money and also, you know, reduce the amount that they give you when they pay taxes.

So what do you want? What do you need to do if you want 501(c)(3) status. This is actually pretty complicated, but at a high level you have to get a tax ID number, then fill out a form. The form is called form 1023 which is a 501(c) status form and then do whatever your state requires.

The States often have registration requirements that you have to meet if you’re going to solicit funds from people.

Benefits to being a nonprofit, the directors and the officers of a nonprofit are shielded from personal liability. If you have tax exempt status, you don’t have to pay federal corporate income tax. You might also be exempt from state and local taxes, but that is something that each state decides on its own, and you might benefit from lower postal rates. And you can do good in the community and good for the people who you want to support through your nonprofit.

Some of the cons are that they do require time, money, and energy. There is a ton of paperwork and very, very nuanced rules. So you need to work really closely with your lawyer and your tax professionals to make sure you’re not running a foul of any rules.

And then the third thing, I don’t know if it’s really a con or something that you just need to think about when, if you’re going to incorporate a nonprofit in most States, one person doesn’t own a nonprofit the same way you can own an LLC or corporation.

Nonprofits usually have to select directors. And those directors are the only people who can elect or appoint officers. Then the officers are the ones who determine the direction and the policies of the nonprofit, not necessarily the founder.

So there you have it! A Rundown of the four most popular types of business entities: sole proprietors, limited liability companies or LLCs, corporations, and nonprofits. I’ve talked a lot about secretary of state’s offices and that kind of thing in this episode.

If you’d like to learn more about secretary of state offices or whatever they’re called in your specific state and where you should walk down this path of creating a business entity, you can find more about that on my website shontavia.com I’ll also include some things in the show notes that lead you in the right direction, if you’re going down one of these paths.

Thank you so much for listening to this episode of The Shontavia Show. If you enjoyed this episode, please be sure to like, subscribe and leave a comment wherever you’re listening. You can find me on social media everywhere, Facebook, Instagram, Twitter, LinkedIn, and wherever else @ShontaviaJEsq. You can also visit me at shontavia.com to find a transcript of this episode along with other show notes.

While you’re there, please be sure to subscribe to my email newsletter.

The information shared in this podcast and through my other platforms is designed to educate you about business and entrepreneurship and I love to do this work. While I am a lawyer, though, the information I provide is not legal advice and does not create or constitute an attorney client relationship.

The Shontavia Show is a LVRG Incorporated original. The show is recorded on site in South Carolina and produced at Sit N Spin Studio in Greenville, South Carolina. Original music and sound design is by Matt Morgan and Daniel Gregory. Mixing and mastering is by Daniel Gregory and the video is by GVL Media.

Episode 12: How to find a good intellectual property lawyer on a budget (transcript)

(00:04):

What’s up everybody. I’m Shontavia Johnson, and this is another episode of The Shontavia Show where I want to inspire you to build a brand, business and life that you love. It’s Thursday y’all woop woop — and I love Thursdays almost as much as much as I love Mondays.

(00:20):

I like to talk about all kinds of things on Thursdays, and what I really want to do is answer your questions. So for as long as I have questions on Thursdays, I will continue to answer your questions. I may drop some other stuff in here about other thoughts I have, but feel free to reach out to me at askshontavia@gmail.com.

(00:48):

So let’s get into this question. Okay. So this topic is kind of funny—how to find a cheap lawyer. That is an oxymoron a bit, but let’s get into it.

(01:00):

Hey Shontavia, thank you so much for the show. I know you are a lawyer and I have questions about lawyers. How do I find one that won’t break the bank? I have a few things I want to copyright, I think, but I don’t have thousands of dollars to spend. I might also have some trademarks and patents—-I really don’t know the difference. This is why I need a lawyer! Also, I’m a woman of color and I’d love to find someone who looks like me, or who can at least understand my cultural perspective, but, again, I don’t have a lot of money. Any advice would be greatly appreciated. All the best to you, Kendall.

(01:39):

Alright Kendall. This is funny. Thank you for the question. I know finding a good lawyer is hard. I know it’s hard. Actually. I am a lawyer and when my husband and I needed a lawyer for some of the other projects we’re working on, we actually had to think, well how would we go about finding a lawyer for this particular thing? Because we didn’t know anybody in that space.

(02:01):

So I can empathize with you here about finding not only a lawyer that fits your budget, but also one that is culturally competent and sensitive to the needs you have.

(02:12):

This reminds me of a story I love that I heard Sarah Blakely recount on–I don’t remember where the video came from–I’ll see if I can find it and I’ll drop the link in the show notes. But Sarah Blakely, when she was starting Spanx, which is the underwear company, when she first was starting in Georgia, she had invented, you know, Spanx and was looking for someone, a patent lawyer in particular to help her file the patent application. And she really wanted a woman. And she could not find a woman patent lawyer in all of Georgia. I think she reached out to like the Georgia State Bar Association, which keeps records of all the lawyers in Georgia, and they couldn’t find a woman patent lawyer, according to Sarah Blakely, in Georgia.

(02:56):

So she had to shift a little and look for just any lawyer who was good, who met her budget and who she felt comfortable with. So according to her, the video that I think I’m remembering correctly, she went out and interviewed some lawyers, many of them laughed at her, told her the idea was ridiculous. And those who didn’t just laugh at her to her face wanted so much money. They wanted basically like her life savings, which I think at the time was something like $5,000 to get started on the patent application. So she basically scrapped that entire plan and wrote most of her patent application herself. She ended up needing help with one specific part, and she found a male lawyer who had been convinced by his daughters that Spanx was going to be a huge thing. So that’s how she found her first lawyer, who apparently she still uses today.

(03:48):

But that reminds me a little bit of your question because she was having some of the same issues. The money question. The question about finding a lawyer who really could understand the technology–not just in like a draconian, black and white kind of way, but in like the, “I’ve see it, I think it is valuable. I understand, you know, as a woman that this is a legitimate invention” kind of way. So I say all this to say as a lawyer, I know it’s hard to find a good one. I do have some suggestions, though, on how you can start to find someone who meets both your budget and your desire for cultural competence.

(04:28):

#1. So number one, if money is one of the primary concerns, which it is for everybody, not just, you know, you, I know, Kendall, but one of the things you can do if money is an issue is look at the law schools in your area.

(04:44):

Hopefully you live near some law schools and find a legal clinic. So, many law schools have legal clinics. Some of the legal clinics have like a business component to the legal clinic. Some have intellectual property components to the legal clinic. And what a legal clinic does is allow law students to get experience representing clients with the guidance of a lawyer or a law professor or maybe a combination of both. And frankly there are other colleagues there, other student counterparts, classmates. So clinics usually do this darn near cheap or free other than the cost of filing applications, because it’s a learning opportunity for the students. So the United States Patent and Trademark Office, which handles patents and trademarks for inventors who want to get that kind of stuff in the US, offers this program called the Law School Clinic Certification Program.

(05:46):

And they basically deputize the clinics that have applied, to go out and represent inventors and creators when they want to get patents or trademarks in the United States Patent and Trademark Office. And they do this fairly economically.

(06:03):

So that’s one place I would suggest that you look.

(06:06):

#2 Number two, look to your local bar associations. So the bar association is basically the group that keeps up with all the lawyers in the area. You may have a state bar association, you may have a city bar association. Depending on the area where you live, there may even be a regional bar association. They keep up with the lawyers in their membership. So if you’re looking for something in particular, kind of like Sara Blakely did, you can reach out to them and find folks. I know in the state where I live, in South Carolina, our bar association, even on their website, has a list of lawyers who will offer a free consultation.

(06:45):

And so maybe, wherever you are, you can try the same thing.

(06:50):

#3 And then third, and this is what you’re not gonna want to hear, probably. Lawyers fees are just high, right? Like, that saying you get what you pay for? Oftentimes that is true, particularly when you have a lawyer who’s not volunteering, not working for a legal clinic where they’re getting paid some other kind of way. Oftentimes you do kind of get what you paid for. So my third suggestion really is to research lawyers and fees. Go interview a few, pick two or three if you can. If you can’t visit them face to face, get on the phone with them or something or web conference, if they’ll do that. And ask them about their fees, get a good sense of a range. This is why I suggest interviewing maybe three people or so.

(07:38):

Get on Google a lot of times, now, you have some boutique firms in particular who post their fees/publish their fees and just say find a lawyer who you like more than the lawyer who is cheap because a cheap lawyer who frankly any lawyer, cheap or expensive, if they’re making a bunch of mistakes, if they’re not being responsive to you and your needs, then that can hurt you more in the long run.

(08:02):

Even though you saved a bunch of money, you don’t want to lose out on any of your intellectual property because you cut corners there.

(08:09):

So I hope these three suggestions are helpful to you, Kendall. Check to see if there’s a law school legal clinic near you. Check out the state bar associations. Do some research online. Interview some people get on the phone or go to their office. See if you can talk to some folks about what their fees are and save the money. Find somebody who you like and who’s responsive instead of just the person who’s cheapest.

(08:34):

Hope something I said here today, Kendall, helps you. And for everybody else, if you have questions either about this or about something else, please reach out to me at askshontavia@gmail.com. If you have questions, you may hear that question and my thoughts about it on the next episode of The Shontavia Show. Thanks so much for listening.

Episode 11: 4 steps to choosing a business name (transcript)

What’s up, y’all. Welcome to The Shontavia Show, where my goal is to help you start a business based on your life’s vision. This ain’t gonna be your daddy’s business advice. I’m laser focused on entrepreneurship in the 21st century, vision and breaking the traditional mold. If you can get with that, you can get with me, be sure to visit shontavia.com for more episodes, blog posts, and other content. Thank you for listening. The show starts now.

What’s up y’all? Welcome to The Shontavia Show where I want to help you start a business based on the vision you have for your life. So the goal of today’s episode is to talk to you a little bit about choosing a name for your business.

This is something people agonize over. And trust me when I say it is not just you. For example, did you know that Nike actually used to be named Blue Ribbon Sports? Or that Google started out as BackRub?

So can you imagine if we were, like, going around saying, Hey, let me BackRub that? That would be really pretty weird, right?

So these iconic companies started out just like a lot of us do with a great idea and a bunch of brainstorming about names. So if you’re thinking about what to name your company, there’s a lot of stuff to think about.

But let me give you four things you absolutely have to do when you’re thinking about what to name your company.

(1) Number one, you have to Google the name. I think everybody knows to do that now. Google the name, but the challenge is most people stop there. They Google the name. If they don’t see anybody with it, they continue down the path of choosing a name. Or if they do see somebody with it, they you know, maybe changed their minds and decided to go with something else. You actually don’t have to do either of those things, but you should Google the name for some reasons I’ll talk about in this episode.

(2) Number two, you should check for trademarks.

(3) Number three, you should check for domain names and social media.

(4) Number four, you should check your secretary of state’s business registry.

So first let’s talk about Googling the name, which everybody knows to do. Once you’ve figured out a name that you like, you should Google it to see what other uses are out there. Now, this is almost an impossible task because it is impossible for you probably to be the first person on a planet of seven and a half billion people who want to use certain words for your business. Unless you’ve completely made a word up, and even if you’ve made a word up, somebody else’s probably made up a very similar word.

It’s hard to find something that hasn’t been used anywhere.

As my mother tells me all the time, ain’t nothing new under the sun. So what you have to figure out is with the names that you’ve chosen, what Google results should stop you in your tracks and what Google results don’t necessarily mean you have to choose a new name for your business? Because you probably will find something and that is actually okay. Just because another person is using the name doesn’t mean you can’t use it. The real questions are whether naming your company, whatever it is you want to name your company, is ethical. Because you know, folks on social media are vicious y’all. And then is it legal? If there are too many instances of the same name out there, you may not be able to set yourself apart in the marketplace. So if you do a search, you see lots and lots of names out there, it may be hard for you to create the reputation you want to create.

And if your name and brand are too close to somebody else’s, even if it’s legal, you may end up with a lot of headaches, because you don’t want anybody to think you’ve stolen their name. You may never hear the end of it on social media, you’ll have all kinds of challenges. You just don’t want to have. The court of public opinion can sometimes be harder than the court of law. And so you don’t want to– there’s a lot of stuff there.

So first when you Google the name, keep mental notes, write some things down about what’s out there. But don’t let any of that stuff stop you yet. Though, keep in mind, and we’ll talk about trademarks in a little bit — you don’t want to fall, you don’t want to fall outside of like what is permissible by trademark law. And what trademark law allows is for companies and people to protect names and phrases where they want to do business.

And so if we delve into trademark law a little bit, trademarks are words, phrases, things called designations — that can include colors, pictures, sounds, all kinds of things — that you use in a business to sell products in the marketplace and distinguish yourself from others.

There’s a lot to unpack with what trademarks actually mean, but just do know if someone’s using a name, a phrase, a group of phrases, and frankly just about anything to identify their business and distinguish what they’re doing in a particular marketplace, there may be a trademark.

One of your next steps should be to look for whether or not that trademark has actually registered in a couple of different places. So the first place you can look, and the smartest place to start is the United States Patent and Trademark Office website. It’s USPTO.gov. You can search for names and phrases there.

So if you see that folks have registered a trademark with the United States Patent and Trademark Office, then that could be a stop sign for you in terms of choosing that name for your business. But again, it doesn’t necessarily have to because trademark law has a lot of nuances to it.

The question will be whether that name itself has been registered for the purpose you want to use it for. So if I want to call my microphone company Pink Flamingo, and there’s no other company using microphone — or selling microphones using the phrase pink Flamingo — I should be able to do that. Even if there’s a Pink Flamingo ice cream shop with a federally registered trademark. Those two things do not compete with each other. So just cause something, some things you find on Google or some things you find in the USPTO’s database, that doesn’t necessarily mean you can’t use it for your business. So that’s one place you can search.

The other place you can search sometimes is your secretary of state’s website for trademarks in particular. So the secretary of state’s office has a number of different responsibilities. Oftentimes in most states, so this is a state by state kind of thing, it depends on where you live, but, the secretary of state’s website or or responsibilities include registering companies, keeping state related trademarks on file, and then any number of other things. But for our purposes, those are the two that are the most important. Your state may have a database that you can search for words and phrases. If they do, you should definitely do that. If they don’t, you can go do that kind of by hand, face to face, or you can hire companies to do that for you.

At any rate, I mean, I’m a trademark lawyer myself…this stuff gets really, really complicated. I don’t know that you necessarily need a lawyer at this stage. Maybe you do if you’re finding lots of things and you’re not clear, you know, if you can get in wherever you fit in.

But, in terms of looking for names of a business, searching the USPTO’s website, searching the secretary of state’s website in the state where you live or planning to do business, can help you further whittle down the list of names and choose the list of names for your business.

The next place you should check, and this is where a lot of people end up with issues in their business, because they do this too late or maybe sometimes they do it too early. Go to godaddy.com or domainnamescheap.com or some domain names registry/website and see if the domain names are available. So the worst thing is in the world is for you to choose a name, register the business with the secretary of state, get a trademark, do all these things.

And then you can’t own the domain name because somebody else does. Or somebody wants to buy a domain name from you. So like me, I own about, I don’t know, 60 or 70 domain names right now, and there are a couple that and I plan to use and plan to use. And you know, they’ve been kind of sitting there and you know, those are things that I own right now.

So if somebody wants to buy them, they have to buy them from me. I actually had somebody buy a domain name from me a month and a half ago for $2,000 and that’s a domain name I paid $12 for. But they needed it for their business and they had already selected all this stuff for their business and did not own the domain name and couldn’t get it without coming through me. So check for the domain names that are available.

And also the social media handles. So if you’re planning on being on social media, on Twitter, on Instagram, on Facebook, on Pinterest or wherever, go ahead and get the domain names too. Buy them. Well, you don’t have to buy a social media handles, but go ahead and get those really, really quickly. Because if you’re planning on using them for your business, then it is great to have those in your wheelhouse, in your portfolio. Even if you change the name later. I mean, you can always cancel the account and let that name go.

But it can be really tough once you’ve already spent a ton of money on marketing, materials and business materials and all that, if you don’t own the social media handles. Also, doing this, checking the domain names and the social media handles, will show you if there are other people out there using the domain name, the social media handle, the business names that you want to use.

So it is best to be consistent and to have a consistent brand from the outset. Searching through all this stuff will help you get there. You want to snatch all this stuff up as soon as you possibly can, because you don’t want to end up losing out on it because it just took you too long.

In my own company, so the name of my company is “leverage,” LVRG. And when I went to search for LVRG.com, it is available, but right now it costs like $25,000 and I wasn’t gonna pay $25,000 for LVRG.com.

So you know, you have to kind of work through lots of different things and figuring out what plan you’ll take with respect to owning the domain names for your company. I ended up buying LVRG.co, LVRG dot a bunch of other things. And LVRG.com may still be there when I do have $25,000 to spend on a domain name, but today ain’t the today.

So look through the um, USPTO’s website. Look for the domain names, look at the secretary of state’s website in the trademark registry, search Google.

And then also with the secretary of state’s website, search for the business names. If you’re ready to make your business official in a state. In every state in the U S there’s some process for doing that — for registering a company. And in most, if not all States, there are rules that two businesses in the state cannot have the same exact identical name. And so a good place to check when you’re looking for what to name your company is the secretary of state office’s official website with the registry of all the businesses.

Because, then again, you’ll see who else is operating in this state with that name. Now, the name of your business will have to be different. You may be able to use the same name through some other mechanisms.

But to start with, choosing the name of your business requires all of these different considerations.

And I’d like to step back a little bit too — when you think about choosing a name for your business, there are really kind of two categories that business names can fall into.

Sometimes business name categories fall into just like the name of the person or the name of the people. So like the name of my company is LVRG right now. It has been through several iterations. It used to be Shontavia Johnson international Incorporated. Now it’s something different.

So some people will choose, like, the name of themselves or their last names or the last names of all the people in the business. Law firms do this a lot as the name of the business and that’s fine.

Others will choose everything else. So Apple, Google, Nike, Canon, you can choose names that are just about anything.

They can be made up words or not. There’s some trademark implications with that, which I’ll cover in other episodes, but choosing the name of the company really can fall into one of those two categories.

Now it can be tough to figure out which category you fall into.

And a lot of people ask, you know, like, should the name of my company, just be my name incorporated or my name LLC, or whatever kind of business entity structure you choose. And I guess my thoughts there fall into a couple of different buckets.

So if the brand is you, you plan on being like the face of the company, the company revolves around your area of expertise and that kind of thing, then yeah, it makes sense for the business to have your name. You can think of companies like Estee Lauder, that was a person’s name. Donna Karan New York, that is Donna Karan’s name. Madam CJ Walker’s Miracle Health Company.

So there are companies that have the name of a person there. But even if you do that and you decide you want to sell or you don’t want to be the face of the company anymore, that’s fine too.

So there are many instances. So Kate Spade is one of those. So Kate spade actually sold her interest in her company to another private organization, private company and you know, she got her pay out and she was no longer connected to the Kate Spade brand.

So that isn’t necessarily like a one for one exchange, but that is a general kind of consideration.

On the other hand, to choose some other kind of name that is not, you know, you your name in particular, if you’re thinking ever about selling the company, if you’re thinking about having a brand that describes ,and the company name that describes more of what you do, and less of the people who are doing those things, then choosing a name that is not a personal name makes sense.

But again, I think a lot of it goes back to your vision for your life.

I talk a ton about vision on this show. I’m a strong believer in the power of vision and in creating things that support your vision. It really goes back to your vision and what you want and what your plans are for your business.

So with this episode, I hope what you’ve taken away from it is searching Google is a really first good step, but there are other things you need to do with respect to naming your business.

So first, is the business going to be your name or something else? Searching Google, searching the United States Patent and Trademark office website, searching the secretary of state office’s website, and then also really, really important getting domain names, buying domain names. They’re probably $10 or $15. And then also looking for social media handles and making sure you can get those things consistently.

Thank you so much for listening to this episode of The Shontavia Show. If you enjoyed this episode, please be sure to like, subscribe and leave a comment wherever you’re listening. You can find me on social media everywhere, Facebook, Instagram, Twitter, LinkedIn, and wherever else @ShontaviaJEsq. You can also visit me at shontavia.com to find a transcript of this episode along with other show notes. While you’re there, please be sure to subscribe to my email newsletter.

The information shared in this podcast and through my other platforms is designed to educate you about business and entrepreneurship and I love to do this work. While I am a lawyer, though, the information I provide is not legal advice and does not create or constitute an attorney client relationship.

The Shontavia Show is a LVRG Incorporated original. The show is recorded on site in South Carolina and produced at Sit N Spin Studio in Greenville, South Carolina. Original music and sound design is by Matt Morgan and Daniel Gregory. Mixing and mastering is by Daniel Gregory and the video is by GVL Media.