5 Top Legal Questions Asked by Food Entrepreneurs
As a small business owner legal advise is not mandatory but helpful. It also helps to know where to go when you have legal questions. Our resident legal resource, Abe Cohn is an Intellectual Property Lawyer at Cohn Legal, PLLC. A law firm designed specifically to provide a boutique and highly individualized experience for entrepreneurs and startups. Abe is sharing the 5 Top legal questions asked by food entrepreneurs. If you have questions or need legal assistance you can visit Cohn Legal, PLLC.
5 Top Legal Questions
1. I am ready to launch my new Food Startup – Which business entity should I choose?
This is a very good question and one that entrepreneurs often have difficulty with. Like many questions of the law, the answer is, it depends. The essential purpose of establishing a business entity for a food startup is to :
- shield the individual owner from liability.
- conduct business as an entity.
Different business entities (LLC, C-Corp, etc.), have different limitations and capacities and each founder must decide which business entity is right for him/her depending on a number of factors.
Generally, I advise my clients who are sole-founders, without the objective of raising capital, to establish a Limited Liability Company or LLC. These business entities are typically the quickest and easiest to set up. And are pass-through tax entities; simply, the profits and losses get passed through to the owner of the company.
Unfortunately, LLC’s do not have a particularly robust equity structure. And do not allow investors to maintain different types of stock, namely common or preferred stock. C-Corps, conversely, are much more financially dynamic and are the preferred business entity of investors. Ultimately, if you intend on raising capital, a C-Corp is your best option.
2. Do I need a Co-Founder?
Another excellent and challenging question. Personally, I think any business in the food space that wants to achieve true growth and assume a large market share must have multiple founders; the launch of a food startup is exceptionally time, money, and resource taxing, and one person would very likely be overwhelmed by all of the responsibilities.
I would advise selecting a co-founder that has a skill set that you do not have. If you are excellent at finance and operations, select a co-founder who is brilliant at marketing and PR. Choose a Co-Founder who has a strength that is foreign to you.
Company Name and Logo
3. I have a great company name and logo – how do I protect my brand?
Branding Branding Branding! Branding is everything and a company’s intellectual property is arguably its most important asset. Consider for the moment the Twix chocolate bar. The name “Twix” is absolutely iconic and along with its red and italicized logo, engenders waves of nostalgia of childhood outings to the candy store. Seeing the name Twix makes consumers feel good and will compel a purchase. This is the essence of trademark law.
Before selecting a new company name for your food startup (or a new product name), it is imperative that you first ascertain whether the name is available for use by checking the United States Patent and Trademark Office’s (USPTO) database.
If your desired name has already been registered for a similar set of goods, you will likely need to select another name. However, if the name is not already in use, you’ll need to submit a trademark application to the USPTO.
Trademark applications essentially consist of administrative information concerning the applicant and more detailed and substantive information concerning the trademark itself. Trademark law can get tricky – please do not be afraid to speak to a trademark attorney about your particular case.
4. A Graphic Designer is developing my food product’s packaging – will I still own the IP rights to the packaging?
In the event that you choose to hire a branding team or even a single graphic designer, to develop your packaging, it is absolutely critical that you have the company/individual sign a work-for-hire agreement. If this agreement is not signed, they/he will actually own the copyrights to the design, despite the fact that you have paid for the work!
A work-for-hire agreement should be thought of as two distinct parts; the procedural items, concerning matters of time, payment, default, etc.) and the substantive terms, which cover the scope of the work itself (what precisely are you hiring the graphic designer to design).
Learn Non-Disclosure Agreement
5. What is an NDA and who needs to sign it?
A Non-Disclosure Agreement, or NDA, is an essential agreement in the toolbox of every entrepreneur in the food industry. Your ideas are absolutely priceless and before you tell them to anyone, individual or company, you must have them sign an NDA. NDAs set forth mandates of confidentiality on anyone who signs the NDA. The NDA binds the signing party to silence and in the event that the signee breaks that sacred vow, the other party (the food startup) may sue the signee for breach of contract.
6. Does my Food Startup need insurance?
In the strongest terms, YES. The food industry is fraught with liability and damages and most onerous of all, the Government really does care, and for good reason, about food products entering the stream of commerce. There are of course different types of insurance that are relevant to food startups by predominately, entrepreneurs in this space should focus on three key types of insurance.
a. Commercial General Liability: CGL is fairly broad in scope but is exceedingly common for food vendors and typically concerns third-party injuries.
b. Commercial Property Insurance: CPI covers the physical assets of the business including equipment and inventory.
c. Commercial Auto Insurance: CAI is obviously a necessity for food trucks and any food vendors that rely on vehicles to carry out their business operations.
Remember, whichever insurance you end up going with, make sure it is sufficient – insurance in the food industry is not the place to cut corners.
For additional articles by Abe Cohn read: Choose a Co-Founder Wisely