FORMATION AND OPERATION | Managing Your Business

1. Designing, developing and producing your product or service
2. Dealing with employees—Click on our Business | Employer menu above for a list of topics or follow any of the following links to specific topics that might be of interest to employers
   1. Employer overview
   2. Employees or independent contractors?
   3. Offering the job
   4. Employer and employee duties
   5. Wages, benefits and rights
   6. Managing and retaining employees
   7. Terminating the employment relationship
   8. Avoiding and defending lawsuits
   9. Sexual and other harassment
3. Intellectual property
   1. Trademarks and service marks and trade names
   2. Copyright
   3. Patents
   4. Trade secrets
   5. Protecting intellectual property and minimizing your own risks of infringing others' rights
4. Marketing and selling your product or service
5. Rendering unto Caesar—taxes, taxes, taxes
6. Insurance

Designing, developing and producing your product or service

If your business will or does produce tangible products, designing, developing and manufacturing them can lead to liability for injuries to others if proper care is not taken in carrying out those functions.

In some instances that liability will depend on whether you exercised reasonable care in those activities, but in others liability may be imposed regardless of whether the producer exercised due care. This is called strict liability, and it is imposed when a product is defective or unreasonably dangerous even if the producer took all possible care in making and selling the product.

You can minimize your risk of this liability by adopting and faithfully following policies and procedures for

1. Dealing with vendors who supply component parts
2. Quality control and avoidance of manufacturing defects
3. Workplace safety
4. Environmental issues

Intellectual property

Businesses typically will use a number of processes, things, devices, techniques and modes of communicating information or their products and services to give themselves a competitive advantage and to set themselves apart from other businesses. To protect its use of these devices and prevent others from using the same or similar devices, a business must take certain steps prescribed by law, which in some instances includes registering them with the appropriate government agency. The rights protected in this manner are an example of what we call intellectual property. For example, intellectual property includes written works  and inventions. Also, a company may use certain techniques, know-how, ingredients, processes and other things that give a it a competitive advantage and thus needs to keep secret. Each of these is subject to a unique set of laws and regulations.

Trademarks and service marks and trade names

These are the means by which a business identifies itself to its customers and sets itself apart from other businesses; they are protected by state and federal trademark law.

1. A trademark or service mark is a word, name, symbol, device, slogan or combination of those that a company adopts to identify its products and distinguish them from the products of other companies.
2. A service mark is similar to a trademark except that it is used to identify and distinguish a service. A trade name is a personal or specially made-up name used to identify a business, vocation or occupation.
3. Trade dress refers to a product or service's overall image or appearance, and can include aspects of packaging or presentation, such as shape, size, color and color combinations, texture, advertising materials and graphic images, marketing and sales techniques, or the theme or layout of a place of business.
4. Trademarks must be registered with the appropriate state and federal agency in order to protect their use from copycats.
5. Protect your business identity—Once a business has registered and begun using a trademark, service mark or trade name, it must take steps to protect their use.

Copyright

Businesses publish or print many things to communicate with those outside the company, including advertisements, newsletters, catalogs, flyers, brochures, annual and other reports, and so on. Whether these are published on paper or electronically, these communications are protectable under federal copyright law. The nature of a company’s business will determine the importance of copyrightable materials as an asset of the company, but here are a few general tips to follow.

1. Items that may involve significant reliance on copyright protection include:
   1. architectural plans and drawings
   2. engineering plans and drawings of machinery and equipment
   3. computer programs
   4. business plans and reports
   5. television advertising
   6. radio advertising scripts and sound recordings
   7. video and audio recordings of presentations
   8. sales and marketing plans
   9. dramatic works, choreography, and pantomimes
   10. musical works
   11. pictorial, graphic and sculptural works
2. There is no need to register a copyright for the material to be protected and registration may not be practical for many business publications.
3. Although it is not necessary, it is advisable to use the copyright symbol, ©, with the date of publication and the name of the copyright holder.
4. Anything created by an employee as part of his or her job duties is generally regarded as belonging to the company, so if your company does publish any substantial materials, this should be made clear to your employees.
5. You should also be wary of reprinting items published by others because you may infringe on their copyrights. Training and educating your employees is important, especially in these days of the ability to almost instantly publish materials on the Internet.

Patents

Patents are issued by the federal government and are subject exclusively to federal law. Depending on the nature of a company’s business, patents may be some of the company’s most valuable assets.

Patent protection applies to new inventions, but not to ideas. An idea has to be put into practice before it can be the basis of a patent.

The process of patenting an invention is time consuming and involves many traps for the unwary, so anyone developing a new invention or product should immediately seek legal representation by a licensed patent attorney. Patent attorneys are specially licensed by the Patent and Trademark office.

Trade secrets

A trade secret is something that is secret, is used in a company's trade or business, and gives a competitive advantage over other businesses that don't know about it or use it. It must be something that others cannot readily discover or obtain except improperly.

• What can be a trade secret?—Trade secrets can be a formula, pattern, device or compilation of information, a chemical formula, a process for manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. Typically, they are connected with the production of goods, such as a machine or formula for producing something. They can also be connected with the sale of goods or operations inside a business, such as pricing and discount codes, or lists of specialized customers or methods of bookkeeping or other procedures used in running an office.
  
  
• Protecting trade secrets—Trade secrets are only useful so long as they remain secret, so a business must take reasonable steps to prevent their disclosure to any unauthorized persons. This means:
  1. Restricting access to the information to those persons who truly have a need to know it. If necessary, set up a system for recording who sees what and when, such as a check-out/check-in or login-logout system.
  2. Having any employee or any other person who needs to know the secret sign a nondisclosure agreement.
  3. Installing physical and electronic security measures at the location where the information is kept—for example: keep it in a safe or other locked location; use passwords and other electronic security measures to protect electronically stored information.

Protecting intellectual property and minimizing your own risks of infringing others’ rights

A business must be vigilant and challenge any one else who uses its intellectual property, or it risks losing those rights. It also must be careful to avoid infringing the intellectual property rights of others. To minimize these risks:

1. Do an intellectual property audit or inventory, with the assistance of legal counsel. You must know what needs to be protected and how to protect it.
2. Take steps to protect your intellectual property.
   1. If you use written employment agreements, be sure to include terms that spell out how intellectual property will be handled and protected.
   2. If you don't use written employment agreements, require every employee who might conceivably have access to the information sign a nondisclosure agreement that extends during the length of their employment and a reasonable time after they leave your employ.
3. Monitor the activities of other companies and businesses, especially those in the same industry or market.
4. Compare any trademarks or other materials used by those companies to your own.
5. Seek legal advice immediately if
   1. any other company is using any form of intellectual property identical or similar to your own, or
   2. you learn that your company may have infringed another's rights, or
   3. a current or former employee may have disclosed protected information to anyone outside your company or anyone inside your company not authorized to receive the information.

Marketing and selling your product or service

Marketing and advertising

Making claims about your products and services—Businesses that advertise their products must be aware of and follow any applicable Federal Trade Commission (FTC) regulations

Food and drug businesses—Any business that sells food or drugs must follow applicable Federal Drug Administration (FDA) regulations. The FDA regulates products in the following categories:

1. Food, including
   1. dietary supplements
   2. food defense—protection from tampering and other threats of contamination
   3. food ingredients and packaging
   4. food safety
   5. labeling and nutrition
2. Drugs
3. Medical devices
4. Vaccines, blood and biologics
5. Animal and veterinary products
6. Cosmetics, including
   1. Color additives
   2. labeling
   3. product and ingredient safety
7. Radiation-emitting products
8. Tobacco products

Pricing and distribution

Pricing of products is subject to federal trade and antitrust laws, such as the anti-price-discrimination laws. These laws restrict the kinds of actions you can take with or against competitors and customers and violations can be costly.

Do's and don'ts:

1. Don't discuss with competitors pricing or any aspect of pricing, terms of payment, such as discounts, credit terms, and so on, or any aspect of production.
2. Don't ask a re-seller to stick to your suggested retail price.
3. Don't exchange price lists with competitors.
4. Do obtain pricing, product and other competitors' information from independent sources.
5. Do compete energetically.
6. Don't disparage another company or its products.
7. Do emphasize the positive aspects of your products or services.
8. Do communicate with your attorney about any communications you receive from a competitor about any sensitive subject, such as pricing or markets.
9. Do distance your company from any conduct by competitors that appears to involve an attempt to restrict access to a market.
10. Do consult with your attorney before
    1. doing or saying anything that would tend to restrict your distributors or sellers to a specific territory or certain buyers.
    2. discussing exclusive buying arrangements with customers
    3. using "full-line forcing"—i.e., requiring your dealers and distributors to carry your full line of products
    4. terminating a dealer, distributor or customer
11. Do avoid using tying arrangements in which you try to force a customer or distributor to buy one product in order to buy another product.
12. Don't try to force or induce a customer to refrain from dealing with a competitor.

Getting paid

Seeking payment from consumers is subject to state and federal unfair trade and fair debt collection practices laws and collection from other businesses is subject to state and federal unfair trade practices and antitrust laws, among others. For example, in Texas “consumers” protected by the Deceptive Trade Practices Act include individuals and business entities that have less than $25 million or that are controlled by another business entity having at least $25 million in assets.

It is advisable to establish a procedure for collecting accounts receivable and it should be reviewed by an attorney before it is implemented.

Rendering unto Caesar—Taxes, taxes, taxes

No one likes to pay taxes, but we can’t escape them. In operating any business, you will encounter many more specialized taxes than what we encounter as individuals. Having to pay federal, state and local taxes complicates it even more.

Some of the taxes that you need to be aware of include the following. This is not an exhaustive or all-inclusive list, and you should consult your CPA, tax advisor or attorney to determine whether your business is required to pay any of these or any other taxes:

1. income taxes
2. property taxes
3. franchise taxes
4. sales and use taxes
5. license fees
6. ad valorem taxes

Sources of information about taxes:

1. Federal: http://www.irs.gov.
2. State: each state has an agency whose function it is to deal with tax collections. In Texas, that is the Comptroller of Public Accounts, whose website is http://www.cpa.state.tx.us/.

Insurance

Insurance is an absolute necessity for any business to help it cover the many risks faced by businesses in today’s economy.

Your insurance needs will depend in part on how you organize your business and in part on the nature of your business. It is essential for you at least to consult with a competent insurance agent, who should be able to help you obtain the coverages you need.

Consultation with an attorney should also be helpful and McCormick and Boyd Law Firm stands ready to assist new and existing businesses assess their needs.

When shopping for insurance have the following information handy:

1. What things or risks do you want to cover?
2. For what period of time do you want coverage?
3. How much coverage do you need?
4. How much are you willing to pay in deductibles?

The following is a list and brief description of the kinds of insurance that you should discuss with your insurance agent.

1. General liability insurance: All businesses, regardless of how they are organized, should carry general liability insurance, which is intended to cover your liability to third parties for loss or damage that they sustain as a result of your actions or those involved with you in your business.
2. Property insurance: This protects the business owner from loss of or damage to tangible property, and should include protection from perils such as theft, flood, fire, earthquake, water, wind, hail, rain, collision, riot, and civil commotion.
3. Business interruption insurance: this protects a business from loss of earnings that result from certain specified perils.
4. Products liability insurance: This protects manufacturers or producers of goods against liability arising from injuries to the persons or property of others caused by the use of the manufacturer or producer’s products.
5. Advertising injury insurance: This protects a business from liability for injury caused by advertising communications, which advise, announce, or publish a matter (such as a product or service) to the public.
6. Errors and omissions (“E&O”) insurance: E&O insurance covers liability for damages arising from an act or omission by members of a particular profession or group, such as accountants, engineers and architects.
7. Directors and officers (“D&O”) insurance: This covers liability for harm caused by the acts or omissions of  a company’s directors and officers.
8. Professional liability insurance: This covers liability for injury or harm arising from the performance of professional services, such as legal representation or medical treatment.