ENTREPRENEURSHIP
WITH A SOCIAL PURPOSE
David Cromwell & Libby Ludlow | UW Entrepreneurial Law Clinic
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
This presentation is provided for your information
only and is not intended to constitute professional
advice as to any particular situation.
AGENDA

The Possibility – Why entrepreneurship?

The Idea – Assessing the opportunity

The Name – Trademark considerations

The Entity – Selecting, Forming, and Maintaining

The Funding – Sourcing funding

The People – Building a team

The IP – Protecting intellectual property
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE POSSIBILITY:
WHY ENTREPRENEURSHIP?
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
Even more than usual, the
world will need imaginative
and insanely hardworking
entrepreneurs.
- The Economist
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
Social entrepreneurs recognize
social problems and use
entrepreneurial principles to
organize, create and manage a
venture to achieve social
change. To be one takes
courage, a keen mind and a big
heart.
- Sean Murphy
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
PERKS:
Make a difference
 Set your own course
 Greater autonomy
 Live your passion

BUT, IT’S NOT FOR EVERYONE...
Element of risk
 Long, hard hours
 Resources thin
 Resilience and
perseverance

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE IDEA:
ASSESSING THE OPPORTUNITY
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
ASSESSING THE OPPORTUNITY

What is the problem or need you are addressing?

What is your “unique” solution? (product/service definition)

Who will pay for it? (market definition)

Why will they buy it/use it? (nature of the need)

Who or what is the competition? (forms of competition)

Why will customers/beneficiaries choose you?
(advantage)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
ASSESSING THE OPPORTUNITY

Can competitors copy your “uniqueness?” (barriers)

How will you create demand? (marketing)

How will you sell/distribute your solution? (channel)

Can this business earn a profit/break even? (business/funding
model)

What kind of skills & experience is needed? (team)

What are the major risks? (risk profile)

Is the idea worth pursuing?
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
ASSESSING THE OPPORTUNITY
But most importantly…
Do you LOVE it???
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
A case study…
www.gozgirls.com
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE NAME:
TRADEMARK CONSIDERATIONS
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – YOU HAVE A NAME…BUT
WHAT’S A TRADEMARK?
A word, name, symbol, or device used to indicate
the source of the goods/services and to distinguish
them from other goods/services.
 Examples:


Apple, Wal-Mart, Tide, McDonald’s, “I’m lovin’ it,” the
color brown for UPS, the designs of the Coke bottle and
apple’s iPod, logos
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – SO, HOW DO YOU ESTABLISH
A MARK?
Start using the mark
 To Register, File an application:

Federal registration (USPTO):
http://www.uspto.gov/trademarks/index.jsp
 State trademark registration (info on Secretary of State
website)

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – WHY SHOULD YOU CARE?

Advantages of Registering your Mark
Not invincible, but:
 Public notice
 Presumption of validity
 Various venue and damages advantages
 So, from a business standpoint:
 Avoid cost of infringing another’s trademark
 Build brand
 Don’t underestimate sleeping at night…this is your
baby

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – HELPFUL HINTS

Selecting a Registrable Name
 Don’t Copy Others: Search Google and also the
USPTO database
 Are they close to yours?
 Sound, meaning, products/services…
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – HELPFUL HINTS

The More Original, the More Protection
Generic = Bad
 Not registrable
 Example: “Ivory” ivory
 Descriptive = Pretty bad
 Only registrable if secondary meaning
 Example: “Tasty” bread
 Suggestive = Better
 Registrable
 Example: “Chicken of the Sea” Tuna
 Fanciful or Arbitrary = Very good
 Registrable
 Example: Apple computers (arbitrary), “Kodak” cameras
(fanciful).

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
TM CONSIDERATIONS – KNOW YOUR RIGHTS

Defenses for Alleged Infringement?
Fair use
 Comparative advertising


Case Study…
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE ENTITY:
SELECTION
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
SELECTING AN ENTITY - OVERVIEW


Why form an entity?
Overview of Options Available:

Non-Profit



501(c)(3)
Many, many others…
For-Profit







Partnership
LLC
L3C
Co-op
Corporation
 C Corp
 S Corp
B Corp
Social Purpose Corp
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
NON-PROFIT – IS IT THE RIGHT FIT?

Advantages






Liability Protection
Tax Exemption
Halo Effect (Public Trust)
Grants
Public Service Loan Forgiveness Program (PSLF)
Disadvantages
No Private Inurement
 Assets Committed to Charitable Stream
 Tax Exemption Not Guaranteed
 Maintenance is Burdensome

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
NON-PROFITS – OPTIONS

501(c)(3) *


501(c)(4)


Business leagues, chambers of commerce, and real estate
boards
501(c)(19) *


Labor, agricultural, and horticultural organizations
501(c)(6)


Civic Leagues, social welfare organizations, and local
associations of employees
501(c)(5)


Religious, educational, charitable, scientific, literary, testing
for public safety, foster sports competition, or prevention of
cruelty
Organization of past or present members of the armed forces
And many more… (28 in total)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
NON-PROFITS – A HEAD’S UP

501(c)(3)
Organized & operated exclusively for public benefit
 No private inurement
 No political and legislative activities
 Charitable contributions

NO employment tax exemption (except 501(c)(3) is
exempt from Unemployment Taxes)
 Unrelated Business Income (UBI)
 Board of Directors
 Raising funds

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
NON-PROFITS – REAL QUICK: THE CO-OP

Increasingly popular…but what is it?


Why use the structure?


To provide greater benefits to the
members, e.g., increasing individual
income by increasing sources of supplies
otherwise unavailable if members acted
alone.
How?


Business owned and controlled by the
people who use its services.
Examine options under RCW Section 23B
Examples: REI, Tillamook County Creamery
Association (110 farmers)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FOR-PROFIT – IS IT THE RIGHT FIT?
One starting question: How are we funding the
entity?
 If will need outside funding:

Will the funding be “donations,” i.e., does the donor
expect to receive a tax deduction?
 OR: Will the “investors” expect a return on their
investment?


Another Question: Do you expect to offer free or
discount services?


OR do you expect to have profits?
Another Question: What is your exit strategy?

If you have one, probably want to do a for-profit
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FOR-PROFITS – OPTIONS
LLC
 Corporation



C Corp or S Corp?
Limited Partnerships, Limited Liability Partnerships,
Limited Liability Limited Partnerships…and the list
goes on
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FOR-PROFITS – OPTIONS
So many entities, where do I start?
 One question: Again, how will I fund the entity?

Will I need major funding (e.g., from angel or venture
capital investors)?
 If yes, probably going to be a Delaware C Corp


If not venture funding, LLCs often work


Flexibility, pass through taxation.
But, numerous tax considerations and other
factors…

Will the entity offer stock options or other equity to
employees? (LLC less desirable)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FOR PROFITS – KEEPING YOUR SOUL
“Maximizing shareholder value” is a culture, not a
legal rule: directors enjoy wide leeway
 Corporate Social Responsibility
 B Corp Certification
 L3C
 And…

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
SOMEWHERE IN BETWEEN – SOCIAL PURPOSE
CORPORATIONS
Just passed last spring, unique to Washington
 Requirement: create general social benefit

Social benefit
 Environmental impact
 Employee welfare

But not told what that has to be or how to achieve it
 Idea: give businesses flexibility to prioritize other
interests over shareholder profit
 Case study

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE ENTITY:
FORMATION
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FORMING AN ENTITY – FORMS & FILINGS
Corps & LLCs

Charter Documents – File with Secretary of State
Corp – Articles of Incorporation
 LLC – Certificate of Formation





http://www.sos.wa.gov/corps/OnlineApplicationForms.aspx
Master Business Application

File with Department of Revenue

http://dor.wa.gov/content/doingbusiness/registermybusiness/
Federal Employer Identification Number (EIN)

Apply to the Internal Revenue Service

http://www.irs.gov/Businesses/Small-Businesses-&-SelfEmployed/Apply-for-an-Employer-Identification-Number-(EIN)-Online
Local Business License

File with municipality
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
FORMING AN ENTITY – FORMS & FILINGS
Non-Profit Corporation




Charter Documents – Articles of Incorporation

File with Secretary of State

http://www.sos.wa.gov/_assets/corps/NonProfitArticles2010.pdf
Master Business Application

File with Department of Revenue

http://dor.wa.gov/content/doingbusiness/registermybusiness/
Federal Employer Identification Number (EIN)

Apply to the Internal Revenue Service – Form SS-4

http://www.irs.gov/pub/irs-pdf/fss4.pdf
Federal Tax-Exempt Status



Washington Charities Program Registration



File with the Internal Revenue Service – Form 1023
http://www.irs.gov/pub/irs-pdf/f1023.pdf
Register with the Charities Program to raise or collect contributions
http://www.sos.wa.gov/charities/StartingaNewCharitableOrganization.aspx
Local Business License

File with municipality
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE ENTITY:
MAINTENANCE
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
MAINTAINING AN ENTITY
Corporations & Non-Profits







Bylaws
Organizational Meeting
Record Book
Initial Report
Annual Report (LLC – “Renewal”)
Taxes & Licenses
Formalities to preserve limited liability:
 Stay appropriately capitalized
 Follow all legal formalities
 Don’t comingle assets
 Insurance Coverage
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
THE ENTITY – OTHER CONSIDERATIONS
Shareholders agreement (for-profits)
 Board of Directors
 Liability Protection
 Insurance
 Website – Privacy Issues

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE FUNDING:
SOURCING FUNDING
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
SOURCING FUNDING – NON-PROFITS

Non-Profit Funding Model
Distinction between beneficiary and funder
 Two “businesses”



Program activities & raising charitable subsidies
Funding Types:

Donors
Individuals
 Foundations
 Corporate
 Mix

Grants
 Fee-for-Service

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
SOURCING FUNDING – FOR-PROFITS
Boot-strap
 Loans
 Friends & Family
 Crowd-Funding
 Angel Investors
 Venture Capital

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
THE PEOPLE:
BUILDING A TEAM
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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BUILDING A TEAM
Finding the right people
 Bringing people on:






Partner
Mentor
Volunteers
Independent Contractors
Employees
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
BUILDING A TEAM – CONTRACTOR VS. EMPLOYEE
Incorrect classification of employees as contractors
can result in penalties and back-taxes
 IRS Multi-Factor Test:

Financial – pay, reimbursement, tools/supplies
 Behavioral – control over how work is done
 Business Relationship – nature of agreements


Washington State Multi-Factor Test:
Bringing own tools or equipment?
 Supervising, training, setting hours, assigning tasks?
 Do they have a separate business of their own?


Supervision, location, UBI, business registration, paying taxes,
keeping books
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
BUILDING A TEAM – FORMS & FILINGS

Independent Contractors
Contractors must fill out a Form W-9
 Must file a Form 1099 for each contractor whose annual
payments exceed $600


Employees





Employee must fill out a Form W-4
Social Security and Medicare Taxes must be withheld & matched
Must pay Federal Unemployment Tax (reported on federal return
Form 941 or 944)
Must complete a Form W-2 for each employee every year
WA requires all businesses with employees to file reports with the
Dept. of Labor & Industries


Workers Compensation
Employment Insurance
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
THE IP:
PROTECTING INTELLECTUAL PROPERTY
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
IP – WHO KNOWS, WHO CARES?
Many businesses founded on IP
 Basic knowledge of how law recognizes IP will help
you as a business person maximize your IP and
increase chances of business’s success

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
IP – INTRODUCTION
Four basic types
 For review, anybody know one?
 Also: copyright, trade secret and patent

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
COPYRIGHT – WHAT IS COPYRIGHT?
A set of exclusive rights granted to the author of “an
original work.”
 Requirements:
 Original
 Independently created
 Minimum level of creativity
 “Fixed in any tangible medium of expression”
 “sufficiently permanent or stable to permit it to be
perceived, reproduced, or otherwise communicated
for a period of more than transitory duration”
 e.g., written down, recorded, saved to hard drive, live
performance if fixed during transmission

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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COPYRIGHT – EXAMPLES
Literary works (fiction, nonfiction, computer programs)
 Works of visual arts (paintings,
drawings, photographs, maps,
architectural plans/works)
 Works of performing arts
 Motion pictures and other
audiovisual works
 Sound recordings

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
COPYRIGHT – WHAT WORKS ARE NOT
PROTECTABLE?




Unfixed works
Titles, names, short phrases, slogans
(Trademark)
Facts, idea, procedure, process, system, [method
of operation, concept, principle, or discovery]
(maybe Patent)
Useful article
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
COPYRIGHT – HOW TO OBTAIN COPYRIGHT?
Copyright is secured automatically when the
work is created, i.e., fixed/recorded in a tangible
medium for the first time.

Providing copyright notice [optional]


© 1996 Jane Doe
Copyright registration [optional]

Application + filing fee
 Deposit of work being registered (damages
advantages)

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
COPYRIGHT – PROS AND CONS
Advantages






Length (author’s life + 70 years)
Cost: $35 to register (gives various advantages), but
otherwise free
Damages: potentially substantial
Time (vs. Patent)
Popular
Disadvantages

Just the expression, not the idea
 Can be “independently” created
 Investors might not be as impressed as with patent

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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TRADE SECRET – WHAT IS A TRADE
SECRET?
Really Broad
Information:


Not generally known to the
public
 Confers some sort of
economic benefit on its holder
 Subject of reasonable efforts
to maintain its secrecy

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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TRADE SECRET – EXAMPLES



Formula (e.g., recipe of Coca Cola)
Pattern or compilation (e.g.,
customer lists)
Program device, method, technique,
or process, designs (e.g., business
methods, business plans, business
forecasts, blue prints, databases, etc.)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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TRADE SECRET – HOW TO PROTECT
Establish a written
confidentiality policy

Marking documents

Access control

Monitoring use

Non-disclosure (NDA) and
confidentiality agreements

Non-compete agreements

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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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TRADE SECRET – PROS AND CONS


Advantages
 Cheaper (no filing/maintenance fees)
 Faster (instant)
 Longer protection (as long as it is kept secret)
Disadvantages
 Weaker legal protection - no protection against
reverse engineering and independent discovery
 Cannot use other forms of IP protection which require
disclosure (patents, copyright)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
PATENT – WHAT IS A PATENT?


The grant of a property right to the inventor, issued by
the United States Patent and Trademark Office
Right to exclude others from making, using, offering for
sale, or selling the invention in the United States or
"importing" the invention into the United States
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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PATENT – TYPES OF PATENTS



Utility patents: invention or discovery
of any new and useful process,
machine, article of manufacture, or
composition of matter, or any new
and useful improvement thereof (20
years)
Design patents: invention of a new,
original, and ornamental design for an
article of manufacture (14 years)
Plant patents: if you’re interested,
ask me (14 years)
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
PATENT – REQUIREMENTS OF PATENTABILITY



Patentable subject matter:
process (methods), machine,
manufacture (articles made),
or composition of matter
(chemical compositions and
compounds).
 NOT laws of nature,
natural phenomena, and
abstract ideas
New
Non-obvious
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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PATENT – HOW TO OBTAIN A PATENT


Filing an application with the USPTO
 Typically with the help of a patent agent or patent
attorney
Start this process before or within a year of
 Selling your invention
 Talking about it in public
 etc.
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property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
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PATENT – PROS AND CONS OF PATENTS

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Advantages:
 Strong legal protection against infringement
 Important to some investors
Disadvantages:
 “Publishing” the patent
 Expensive: USPTO fees $6,000 + attorneys
fees (low end) $5,000
 Time-consuming
 Delay to grant (30 months)
Keep trade secret protection in mind
All images appearing in this presentation are subject to copyright and remain the intellectual
property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
ELC
RESOURCES:
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University of Washington
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UW Entrepreneurial Law Clinic - http://www.law.washington.edu/clinics/entrepreneurial/
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Gates Public Service Law Program - http://www.law.washington.edu/GatesScholar/
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Buerk Center for Entrepreneurship - http://www.foster.washington.edu/centers/entrepreneurship
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Washington State
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WA Secretary of State - http://www.sos.wa.gov/corps/
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WA Dept of Revenue - http://dor.wa.gov/
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WA Dept of Labor & Industries - http://www.lni.wa.gov/
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Washington Attorneys Assisting Community Organizations - http://www.waaco.org/
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Federal
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IRS - http://www.irs.gov/
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Public Service Loan Forgiveness Program - http://studentaid.ed.gov/sites/default/files/public-service-loanforgiveness.pdf
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Business Resources
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Score (business mentoring and workshops) - http://www.score.org/
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U.S. Small Business Administration - http://www.sba.gov/
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Non-Profit Resources
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Alliance For Justice (education for nonprofits on how to maximize legislative advocacy) - http://www.afj.org/
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Funding Models - http://www.ssireview.org/articles/entry/ten_nonprofit_funding_models/
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Legal
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Practical Law (form contracts, etc./free for students): http://www.practicallaw.com
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USPTO Homepage (links to TM searches): http://www.uspto.gov/
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Patent Searches: https://www.google.com/?tbm=pts
All images appearing in this presentation are subject to copyright and remain the intellectual
property of the respective owners. Use of such images is for educational purposes only. © 2013 UW
QUESTIONS?