The Supplemental Register is reserved for marks that are at least capable of distinguishing services from others.  Most of the marks on the Supplemental Register are weak, such as merely descriptive marks that have not obtained secondary meaning in the marketplace, and marks that are merely geographically descriptive, or primarily a surname.

Registration on the Principal Register confers valuable property rights and provides significant advantages:

• Constructive notice nationwide of your company’s claim of ownership. USPTO registration extends the geographic scope of your company’s mark.  The scope of coverage is presumed to be national, regardless of the actual geographic use your company makes of the mark in the United States.  This national scope contrasts greatly with the limited geographic range of common law trademarks.  Registration also makes it easy for others to discover your company’s mark during trademark searches, which helps to eliminate “innocent infringement” as a defense.  With registration, your company gains the right to use the ® symbol in connection with the mark, which may deter potential infringers.

• Jurisdiction of federal courts may be invoked. Registration gives your company the right to sue for trademark infringement in federal court, and makes it easier to enforce your trademark.  A certificate of registration is clear evidence of your company’s ownership of the mark, and makes it easier to prove an allegation of trademark infringement.  The mere fact of registration is proof that the mark does indeed function as a trademark and is not confusingly similar to other registered marks, unless the contrary is established.

• The ability to recover profits, damages and costs for infringement, including the possibility of receiving treble damages in certain circumstances. Registration also gives your company the ability to recover attorneys’ fees in infringement actions.  These litigation advantages are significant.  Your company may be able to use the potentially high liability costs of trademark infringement as leverage when dealing with potential infringers.

• A favorable presumption is provided about the validity of your company’s use and exclusivity of its rights in the trademark. After five years of registration, a mark becomes “incontestable.” With certain exceptions, no one will be able to challenge the validity of the trademark or your company’s exclusive rights in it.

• The ability to have the U.S. customs service block the importation of goods bearing an infringing mark. If your trademark is listed on the Principal Register, your company will have the opportunity to record the mark with the U.S. Customs & Border Protection (CBP), a bureau of the Department of Homeland Security.  CBP agents use the agency’s recordation database in efforts to fight piracy.

• Registration with the USPTO can be used as a basis for obtaining registration in foreign countries. A federal registration is only valid in the United States.  If there is an international market for your goods or services, and you plan to use a mark in foreign countries then consideration should be given to clearing and registering the mark in relevant foreign markets.  As a qualified owner of a registration issued by the USPTO, your company may seek registration in any of the countries that have joined the Madrid Protocol by filing a single application, called an “international application,” with the International Bureau of the World Intellectual Property Organization, through the USPTO.  The Madrid Protocol covers most industrialized countries and is a less expensive and more streamlined process than filing national trademark applications in each country.  Another option is to file a European Community Trademark (CTM) application with the Office for Harmonization in the Internal Market (OHIM) that covers the Member States of the European Union.

Do not miss out on the benefits that come from registering your brand names with the USPTO.   If your company has important trademarks, you should consider registering them in the U.S. and relevant foreign markets.  Learn more.

Disclaimer: This is not legal advice.

Always remember that federal and state laws apply to securities transactions.  Federal law applies to securities sold in “interstate commerce.” Courts have defined “interstate commerce” broadly, and the term even covers transactions involving intrastate telephone calls. Although federal law is becoming more preeminent in the area, state “blue sky laws” and registration requirements also affect business fundraising activities.

Generally, securities laws require you to either register a security with the government or have an exemption from registration under the law. Additionally, anti-fraud provisions apply to securities transactions. This means that even when your company has a registration exemption, it still must disclose information that a prudent investor would find “material” in making a decision to invest.  Fraud for securities law purposes is broadly defined, and may include unintentional as well as deliberate omissions or misrepresentations.  Moreover, corporate officers, directors, principal shareholders, and others associated with a securities offer can be held personally liable for money damages suffered by an investor.

Because the registration of securities can be expensive and time-consuming, start-ups and small companies usually try to qualify a transaction for an exemption under federal and state laws.  Generally, the availability of registration exemptions depends on the nature of your company’s securities transaction; for example:

Type of Offer/Sale

• Is it an intrastate or interstate transaction? As stated previously, federal securities law applies to interstate transactions.  The federal intrastate offering exemption may be available if your company can limit offers and sales of securities to residents of one state.  However, it is difficult to qualify for this exemption, because it is lost if even one offer or sale occurs outside of a single state.

• Is it a “pro rata” offering? Oregon law provides a “pro rata” offering exemption for sales to existing security holders if certain conditions are met.  Pro rata means to divide proportionately.  Assume the following scenario:  A company has two shareholders, one with 45% and the other with 55% of outstanding shares, and wants to issue 10,000 new shares.  A pro rata offering means the shareholder with 45% can purchase 4,500 shares and the shareholder with 55% can purchase 5,500 shares.  Under Oregon law, that transaction may be exempt from registration.

• Is it an Internet Offering? Oregon law exempts offers for sale of securities that are placed on the Internet, as long as the offers are not made in Oregon and do not sell securities to residents of Oregon.  If the company wishes to later sell the securities to persons in Oregon, it will have to register the securities with the state or find an appropriate exemption.

Size of Offer/Sale

• Do you need to raise less than $1 million dollars? Rule 504 of federal securities law provides an exemption for offerings of up to $1 million, but the offers can not be made by means of general solicitation or advertising.

• Do you need to raise up to $5 million dollars? Rule 505 of federal securities law provides an exemption for offerings of up to $5 million in securities to any number of “accredited investors” and up to 35 additional, non-accredited investors.  Among others, an “accredited investor” includes high net worth individuals, board members, executive officers, and general partners of a company.

• Do you need to raise more than $5 million dollars? Rule 506 of federal securities law provides an exemption for offerings of an unlimited dollar amount of securities to accredited investors and up to 35 additional non-accredited investors.

Note that so called “integration rules” apply to federal Rule 504, 505, and 506 transactions, which can affect the availability of the exemptions.  The focus of integration is whether a securities transaction is a separate transaction or part of a larger one (i.e., integrated).  If the transaction is integrated, there may be a problem finding a single exemption to cover all the transactions.  This highlights an important point:  The timing of stock issuances is a strategic decision for the board of directors and can affect the availability of registration exemptions.

Number and type of investors

• How many investors are you targeting? To qualify for some federal or state exemptions, you need to closely track the number and type investors engaged in your company’s fundraising efforts.  As previously stated, several federal and state exemptions are only available if the offer and sales of securities are to a certain number or type of investor.  For example, Rule 505 of federal securities law exempts securities transactions of up to $5 million, but only applies when securities are offered to “accredited investors” and up to 35 additional, non-accredited investors.

• Are the investor’s “accredited”? Oregon law provides an exemption for securities transactions with accredited investors if there is no public advertising or general solicitation.

Amount of securities sales activity

• Is it an isolated securities transaction? Oregon law provides an exemption for “isolated-issuer” transactions that do not involve public offerings.  An isolated-issuer transaction exemption may be available if there are no more than three sales by the company during a 24-month period.

• Is the sale involving 10 persons or less? Oregon law exempts from registration sales to up to 10 persons within the state during any consecutive 12-month period.  To qualify for this exemption, there can be no advertising or general solicitation made in connection with the sale of the securities and no commissions can be paid.  This exemption is particularly useful, because it is self-executing.  In other words, a company does not have to file any paperwork with the state to obtain the exemption.

This has been a brief overview of key securities registration exemptions that start-up and early-stage businesses can use to raise money.  Securities laws are complex; the list of exemptions and requirements discussed here are by no means complete.  Entrepreneurs should always get legal advice about federal and state securities laws before offering, selling or issuing securities.  Failure to comply with securities laws can result in serious consequences, including civil and criminal penalties. Besides those problems, a company history that includes blunders in this area may scare away future investors.  Compliance with securities laws can help you access other people’s money and take your company to the next level.

Disclaimer: This is not legal advice.

A good thing about a letter of intent is that it can save you time and money. By signing a letter of intent you can learn early in the negotiation process whether you and the other side are likely to agree on the major terms of a deal.  The bad thing about a letter of intent is that if you are not careful, you could end up legally binding yourself to a deal that you might later regret.

A letter of intent is general in scope. The contract or purchase agreement, which is negotiated and drafted later, is the legal document that spells out the details.  And as the saying goes:  The devil is in the details.  Until you have a signed contract, you should retain as much flexibility as you can demand. You want the option to walk away from a deal if negotiations go badly.   Hence, the contract or purchase agreement should be the only document that legally binds you.  Do not get legally bound by a letter of intent (unless that is your objective).  Carelessly signing a letter of intent can cause great harm. Doing so can lead to unintentional and perhaps very bad consequences.

Before you sign on the dotted line of a letter of intent:

Look for a disclaimer. Check to see that the letter of intent contains a disclaimer, which clearly indicates that the parties do not intend to be bound by its terms.

Make it clear that only the contract will bind. Make sure the letter of intent provides that only the written contract or purchase agreement to be negotiated and drafted later will bind the parties.

Take care regarding nonsolicitation provisions. Be very careful if the letter of intent contains a nonsolicitation or “nonshop” provision, a common clause that prohibits you and/or the other side from seeking or entering into a letter of intent or purchase agreement with a third party usually within a specified time period. Make sure the intent of any nonsolicitation provision is clear, and that you uphold your end of the bargain.

Take care regarding due diligence provisions. Be very careful if the letter of intent contains a due diligence provision, a common clause that gives one side or both the right to receive and review certain documents about a proposed deal within a specified time period.  Make sure the intent of the parties regarding any review provision is clear.

Watch out for good faith bargaining provisions. Does the letter of intent contain a promise by one side or both to negotiate in good faith or to close the deal?  The presence of such a requirement will be a key factor in determining the nature and amount of damages you may be liable for (or entitled to) in the event of a breach.

Get legal help!!! Don’t treat a letter of intent lightly. The best time a lawyer can help you is before mistakes are made.   A so-called “nonbinding” letter of intent can be tricky, because it may not legally mean what many people assume.  Whether a letter of intent is an enforceable contract depends on the fine print and the situation.

Where parties intend to be bound by certain provisions of a letter of intent such as nonsolicitation and due diligence provisions, the Oregon Supreme Court has ruled that an enforceable contract as to those provisions will exist.  Although the Oregon case involved the enforceability of a “nonshop” provision contained in a letter of intent to enter into a final purchase and sale agreement for real estate, the principles articulated in that case are relevant to other kinds of commercial deals.

The lesson is clear: Under Oregon law, a letter of intent will be an enforceable contract in certain situations. So the next time you’re asked “to put your John Hancock” on a letter of intent, be sure you fully understand what it means.

Disclaimer: This is not legal advice.

To understand how a section 83b election works, you must first understand how the receipt of restricted stock is treated under U.S. tax law.  The basic tax rule is that you don’t report income immediately when you receive an award of restricted stock.  Instead, you report income when the stock vests (i.e., when the restrictions lapse).  The
income you report includes any increase in the value of the stock during the vesting period.  This income is taxed as ordinary income, not capital gain.

For example, assume Mary’s company awards her 10,000 shares of restricted stock when the shares are worth $1.00.  Mary’s shares vest three years later at which time the shares are worth $5.00.  Mary would report nothing when she receives the restricted shares, however, she must report $50,000 when her shares vest.  Her substantial gain is compensation income, subject to ordinary income tax rates. Note that Mary is taxed when her shares vest whether or not she sells them at that time!

Here’s how an 83b election might have helped Mary….

Because she receives restricted stock, she can make a section 83b election. Under section 83b, she voluntarily pays tax when she receives the stock, but not when it vests.  Thus, Mary reports $10,000 of compensation income when she receives the stock, but nothing when it vests.  That’s a far cry from the $50,000 in ordinary income that she must report if she fails to make a section 83b election. Furthermore, having made a section 83b election, Mary becomes eligible for capital gains tax treatment when she sells her stock.  If she sells her stock for $50,000, she reports $40,000 as a long-term capital gain, thus saving her a great deal of money.

There is no guarantee that an 83b election will save you money.  It is analogous to a bet on your company’s future.  This is a key point to remember, and why an election will not always save you money.  For instance, if you receive restricted shares from a mature company, the value may not increase substantially during your vesting period.  In that scenario, it may not make sense to make an 83b election, because you might pay tax upfront for the privilege of holding paper.  The outcome depends on the situation, and is not predictable.  However, you should seriously consider the advantages and disadvantages of an 83b election whenever you receive restricted stock.  The decision may save you some serious money.

Disclaimer: This is not legal advice.

• A mechanism to sale your shares and liquidate your investment. Consider a shareholders agreement as an essential part of your exit strategy.

• A mechanism to resolve disputes between business partners quickly and fairly.  This can save you a great deal of the time and heartache that can result from a messy business “divorce.”   The best practice is to put a shareholders agreement in place at the start of your business venture.   This is the time when everyone is on friendly terms. It will come in handy if relations between business partners fall apart later.

• Restrictions on the transfer of stock so you are protected against unwanted shareholders, business partners, and the creditors of other shareholders.

A shareholders agreement can also help you avoid personal liability for violations of state or federal securities laws.

Lastly, if your company is an S corporation, a buy-sell agreement is essential. By restricting the transfer of shares, the agreement facilitates the preservation of your company’s S election, which is important because it is the avenue on which pass-through tax benefits flow.

When friends go into business together, talking about exit strategies, disputes, and buy-out clauses is not often at the top of their “to-do” list.  What do you think is the best way to broach the subject of a shareholders agreement with friends turned business partners?

Disclaimer: This is not legal advice.