[gijoe985]

Simple question. Incorporate now, or start as sole prop and then switch in a year or so. I assume that my first year of business will be slow. I am setting up so that I have minimal costs and only plan to expand once demand increases. So I may only sell a couple hundred dollars of stuff by the end of the year. I figure I can set up as a sole prop and maybe if things started really taking off then I can switch over to an S corp.

I know a decent bit about the different corporate structures and whatnot, but I just don't know if it is worth the hassle of setting one up if I'm not really making any money yet. I know I could get one set up in a month or so, so I figure that'd work if I found that I was in need of starting one.

 

[gijoe985]

Liability is the one thing prompting me to go with incorporating from the getgo...

 

[thutch15]

Later... unless you have a lot of personal assets currently. Screen printing is not considered that risky of a business operations. Not that something could not happen, but the majority of the time a few new shirts will fix any issue you come across. I personally fill that there is no better business structure then the sole proprietor... that is until you get some assets that others would want. I would suggest starting by calculating your Net Worth.

 

[gijoe985]

Luckily my net worth is a negative number... Or at least for this case...

I will openly admit though, I am producing my own designs and let's just say that I could see the possibility to running into legal actions over some of them. Derivative works... I've researched similar cases and they haven't gone to court.

Either way, that is a concern of mine, but also a calculated risk I am taking. Parody stuff is done all the time, and many times it is liable to be taken to court, but isn't because it does not defame the original. That's how a few of my designs are, funny spoofs.

Either way, this thread isn't intended to be a debate on trademarks, but it is an important factor when considering liability protection.

 

[thutch15]

Luckily my net worth is a negative number... Or at least for this case...

I will openly admit though, I am producing my own designs and let's just say that I could see the possibility to running into legal actions over some of them. Derivative works... I've researched similar cases and they haven't gone to court.

Either way, that is a concern of mine, but also a calculated risk I am taking. Parody stuff is done all the time, and many times it is liable to be taken to court, but isn't because it does not defame the original. That's how a few of my designs are, funny spoofs.

Either way, this thread isn't intended to be a debate on trademarks, but it is an important factor when considering liability protection.

Agree that you could run into legal problems, but it is just one of those things that is not likely to happen. Plus it is not something that if you don't do now you never will be able to... get some money coming in and then go do the paperwork. No reason to jump all in until you know that it is going to workout.

 

[gijoe985]

I guess my last thoughts (and something I should include in my business plan) are that I should do the math to figure out the cost of incorporating in the fashion that I am planning and then determine what additional tax benefits I will receive by incorporating. Then I should be able to determine the breaking point where it would be financially smarter to incorporate.

I was just telling a friend about the benefits of incorporating. There are some great books out there like Loopholes of the Rich and Inc and Grow Rich. For instance, in WA state I'd have to pay self employment tax along with fed income tax, medicare and soc sec. If I ran an S corp efficiently, I could avoid paying such taxes completely. (for a time)

 

[Dan K]

We started as a general partnership then incorporated about 3.5 years later. The transition was a lot of work, it would have been WAY easier for us to start as a corp rather than transitioning to it. At the end of the year, as soon as there was any money made (profit for the business or draws for the partners) the taxes were incredibly stiff as a partnership (regular income tax plus a flat 15% self employment tax on all draws and any profit the business showed). It would have been more financially beneficial for us to have been a corp since day one. These things are different state by state too, we are in CA.

 

[kimura-mma]

I will openly admit though, I am producing my own designs and let's just say that I could see the possibility to running into legal actions over some of them. Derivative works... I've researched similar cases and they haven't gone to court.

Either way, that is a concern of mine, but also a calculated risk I am taking. Parody stuff is done all the time, and many times it is liable to be taken to court, but isn't because it does not defame the original. That's how a few of my designs are, funny spoofs.

Either way, this thread isn't intended to be a debate on trademarks, but it is an important factor when considering liability protection.

Even if you do incorporate, it will not guarantee protection of your personal assets in situations like this. There have been legal precedences where corporate executives have been held personally liable when the company commits intellectual property infringement. Like you said, you are taking a calculated risk. And obviously, that's your call. But don't assume or expect the corporate veil to protect you personally in an infringement case.

And I know this isn't a trademark thread, but defamation does not determine infringement. Simply using trademarked or copyrighted material without permission can potentially get you sued.

 

[gijoe985]

Point taken. Currently my thought process that I am leaning on is that I would be following the common designs found in my niche. And so far, from what I have found, most trademark parodies have been accepted by their owners and what few have not were settled outside of court by simply discontinuing the shirt. And from what I understand this has been far and few between.

 

[kimura-mma]

There is absolutely nothing wrong with taking calculated risks. It happens in business every day. And many people will say it is necessary to be successful. If you have properly researched all possible scenarios and find that the reward outweighs the risk, then that's the only answer you need.

But you seem to want to find some legal (and possibly moral?) justification to it all. But it's impossible to do that. There is no way to predict whether you will get sued or not. And there is no way to predict whether you will win a lawsuit or not. Regardless of what happened to someone else, every situation is different. Some people get caught, some don't.

To be honest, it doesn't really seem like you believe you are taking any risk at all. It seems like you actually believe (or are trying to convince yourself) what you are doing is legal, or at least, low risk in getting caught and sued.

Like I said, there is nothing wrong with taking calculated risks. But don't let your willingness to do so convince you into believing your actions are actually legal.

 

[gijoe985]

This is starting to rabbit trail, but I'll give my final thoughts on on the copyright issue.

I don't see anything immoral about my designs, therefor I don't see any need to morally justify them. One of the key factors that I have read in articles about why most companies allow these types of parody shirts to continue is because they do not infringe on their territory (i.e. Home Depot doesn't make shirts, so if someone plays on their logo, it isn't cutting into their sales) as well as the fact that the shirts actually provide additional advertisement for the companies do to the associations made. I believe this is why multiple large apparel companies have been openly making parody shirts for years without any major problems. In fact the only instance I have heard about was Coca Cola wrote them requesting that a shirt line be discontinued and after complying there was no further dispute.

I do believe that a corporation would protect personal assets from litigation, though if I became aware of cases that proved otherwise, I would take it into account. I am learning a lot about these legal factors and I tend to sway to the pessimistic side on this topic. When I read people commenting that "if you change 7 things it isn't infringement" I just chuckle.

Here is an interesting article, after reading this I read others that went into details on why Kerusso has not been sued yet for their designs.

Michael Atkins - Seattle Trademark Lawyer - Seattle Post-Intelligencer Reports on Starbucks Logo*"Parody"

=========================================

Back to the main point, I do like the advice I got earlier about it being financially smarter to incorporate from the getgo.

How would taxes work if I began as a SP in January, but incorporated in April? Can I wrap those first four months into my corporate tax return, or must they be separate?

 

[Dan K]

Back to the main point, I do like the advice I got earlier about it being financially smarter to incorporate from the getgo.

How would taxes work if I began as a SP in January, but incorporated in April? Can I wrap those first four months into my corporate tax return, or must they be separate?

We went through exactly that. We incorporated at the end of a 3rd quarter. The first 3 quarters of the year were filed as a general partnership, subject to regular income tax and the 15% self employment tax on our draws (income) and profit (retained, not necessarily income so we paid taxes on money that was technically not in our pockets - SP are taxed the same way). The 4th quarter of that year was filed as the S Corp. Two separate tax returns were filed, no way around that, and we had to pay the accountant for preparing both returns. So if you do plan to start as an SP or General Partnership, my further advice would be when you do transition do it on the first of the year so you only have to do one tax return...

 

[kimura-mma]

This is starting to rabbit trail, but I'll give my final thoughts on on the copyright issue.

Sorry about that. I wasn't really trying to bring the copyright/trademark issue back up. Just commenting on the risk vs reward comparison and where the legal and moral issues fit into the calculated risk decision.

I do believe that a corporation would protect personal assets from litigation, though if I became aware of cases that proved otherwise, I would take it into account.

Personal Liability for IP Infringement - Holland & Bonzagni, P.C. Registered Patent Attorneys