Your business’s legal layout or structure has a bearing on your liability as an owner. The legal framework also influences the tax liabilities, the degree of control the proprietor has, and so on and so forth. Now, the kind of incorporation procedure you will ultimately choose depends invariably on your needs and preferences and to a considerable extent on the prevailing circumstances.

To be specific, the act of setting up a startup or a company usually boils down to choosing the appropriate commercial layout that is consistent with your short-term and long-term business objectives. This consistency has more to do with conforming to the tax laws that are specific for each and every framework. Talking about the business structures, there are three broad types namely, corporation, partnership, and sole proprietorship.

The structure of both sole proprietorship and partnership is almost the same in both United States of America and Canada. However, the other types of company structures in USA are LLC, S Corporation and C Corporation. While on the other hand, in Canada there are two more business structures, namely, Corporation and Cooperative.

All the above kinds have their characteristic features, benefits, and disadvantages. In the following paragraphs, the nature, benefits and drawbacks of some of the most common types of business entities have been outlined:

General Partnership

A partnership firm is a business entity established by a minimum of two individuals both of whom are owners of the outfit, co-owners to be precise. In other words, the owners of a partnership company share the ownership. The partners engage themselves in the day to day commercial activities and receive a share of the proceeds (or losses for that matter) in proportion to their investments.

A typical partnership entity is similar to a sole proprietorship enterprise in many ways at least with regards to formation or incorporation. The one and only basic difference is that the former always has a single proprietor while the latter setup has more than one owner. In order to form a partnership, there has to be at least two investors or partners.

Of course, a partnership outfit can be constituted by more than two partners as well. A partnership generally does not have a legal structure, very much like sole proprietorship. Nevertheless, the constituting partners draw up a contract or agreement that clearly outlines some crucial specifics related to trade including expenses, revenue sharing, and accomplishments of everyday tasks.

The terms and conditions of carrying out day to day trading as summarized in the contract are legally binding on all the partners. The partners are also required to pay taxes and duties which are proportionate to their earnings and expenses.

Advantages

✔ Since ownership is divided or shared, it facilitates in the allocation of responsibilities as per the partners’ innate strengths and weaknesses or shortcomings.

✔ Very few legal formalities have to be fulfilled in order to incorporate a partnership firm.

✔ Losses incurred in the business can be subtracted and adjusted with taxes.

✔  The partners have greater access to funds and capital assets owing to their judicious sharing of financial resources

Drawbacks

✔ Business growth and development could get impeded owing to disagreements and difference of opinions between the partners.

✔ The take home profit for each partner may not seem large enough as the same has to be shared. Additionally, taxes have to be paid on the revenues and sale proceeds which could diminish the net profit.

✔ Partners have unlimited liability, both individually and jointly.

Sole Proprietorship

Sole proprietorship is the simplest and commonest structure of business. In a sole proprietorship firm, the owner takes all the profit as well as bears the entire losses individually. The sole proprietor is also responsible for paying taxes and supervising the routine activities of the business. Majority of those who are looking to embark on a new commercial venture opt for the sole proprietorship route simply because it can be easily established and informal in nature.

The taxation and legal officials do not differentiate the sole proprietor and his or her business but regard the two as identical. The statutes pertaining to tax consider the sole proprietorship as a source of income for the owner. Therefore, the tax laws necessitate the sole proprietor to mention the financial specifics of the business in the personal income tax document.

The fact that sole proprietorship entity is synonymous with its owner, it has one noticeable advantage. The sole proprietor can leverage and manage taxes in a better manner compared to a corporation or partnership business. For instance, when the establishment incurs losses, the same can be used as a handle to reduce tax liabilities or writing off or offsetting income or earnings from other business sources.

You also do not have to file taxes separately for your entity and yourself. The profits or losses generated in the business are specified in the personal income tax return form of the proprietor. The simplicity and convenience of running a sole proprietorship is somewhat offset by sweeping liabilities related to taxes, debts, and loans.

Advantages

✔ Establishing the startup is remarkably convenient, inexpensive, and simple, requiring minimal paperwork.

✔ Sole proprietor is the be-all and end-all of the entity, taking all the decisions and overseeing the entire business.

✔ Bookkeeping requirements entail very few legal technicalities.

Disadvantages

✔ Liabilities of the sole proprietor are unlimited.

✔ Raising capital and funds for steering growth can be an uphill task as investors do not have any stake in the business.

✔ Owner is solely responsible for managing the daily activities which can prove burdensome and challenging at times.

✔ All tax liabilities are incumbent upon the owner.

Limited Liability Company

A company with a limited liability legal structure enjoys the benefits of a limited liability corporation and the simplicity or adaptability of a partnership firm. A corporation as a limited liability company (LLC) tends to be a comparatively complex legal structure, vis-à-vis a proprietorship or a partnership firm. A corporate unit or organization is formed by shareholders through a process of incorporation which is quite elaborate to say the least.

The incorporation procedure is private and at least two members come together to form the company with pre-agreed sharing ration. The shares which creates formal ownership, by their very inherent nature, makes the shareholders and the LLC distinct from one another. In other words, the shares embody that the LLC is a separate entity distinct from the shareholders with its own tax and debt liabilities.

This provision where the limited liability company comes to have its own legal identity and existence spells numerous tax benefits for the management and the shareholders (i.e. owners). For instance, the owners who receive salaries by their virtue of being corporate employees are exempt from paying taxes incident on the organization. They are only required to pay income taxes on their earnings or salaries.

Additionally, the legal incorporation process also furnishes a level of liability safeguard for the debts of the corporation as well as the organization’s registered name. The corporate has a permanent existence which signifies that the entity continues to exist regardless of whether shareholders or employees stay or leave. A corporation ceases to exist only when it is disincorporated or dissolved in a legal manner.

Advantages

✔ The key advantage of the LLC legal form is its flexibility, especially regarding how profit and management authority are determined.

✔ Members forming a corporate, can draw up an agreement in a way that they find suitable.

✔ There is ample opportunity for commercial growth and progress as incorporating members are generously incentivized to take a personal interest in the same.

✔ Members stay immune from the fallout or aftermath arising out of business activities and decisions.

Drawbacks

✔ Incorporating a limited liability company involves taking numerous complex steps and submitting more paperwork compared to a partnership or sole proprietorship.

✔ LLC members have to pay appropriate taxes by virtue of their being looked upon as self-employed or independent investors.

✔ The continued existence of the corporation is invariably dependent upon the willingness of the incorporating members to carry on with the business.

C Company

A corporation is a complicated legal unit, more complex than what has been discussed above. The corporation, legally owned by shareholders has administrative fees, tax structure, and legal niceties that are hugely complex.

 Benefits

✔ Only profits earned directly by the corporate owners like dividends, bonuses, and salaries are liable to be taxed. Additional or extra profits are subject to taxation at a much lesser rate.

✔ The owners do not have to pay taxes contingent on the corporation.

✔ All debts of the corporation are settled or offset via its own assets and the personal assets of the shareholders are not hypothecated or attached.

✔ Capital resources and fund generation becomes easier courtesy stocks sale.

Disadvantages

✔ Establishing a corporation can be a time-consuming and expensive process.

✔ Regulations imposed by local, state, and federal authorities makes the paperwork exceedingly complex.

✔ C corporations are adversely affected by the incidence of double taxation-the entities have to pay taxes on incomes (i.e. taxes on profits) and again for dividends or bonuses paid to shareholders.

S Company

An S company is different from the C Corp in that the former has only layer of tax which is at the personal or shareholder’s level.

Advantages

✔ S Corp shareholder have to pay taxes as company employees which is much less than what C Corp shareholders have to pay.

✔ The existence of S Corp is perpetual.

✔ Expenses of shareholders or employees can be offset or written off.

Drawbacks:

✔ The S Corp is liable to be reclassified or demoted to a lower category if there is noticeable incongruity between salaries of employees and compensation to shareholders.

✔ A S Corp’s administrative procedure is very complicated.

It is recommended that you seek the counsel of a business attorney before you make up your mind on a particular business structure. Trademark Angel works with a few trusted partners who can help you decide on the best legal structure for your business.

A trademark application cannot be filed for “everything”, as a “general brand” or to “prevent others from registering a similar trademark”. There is no such thing as an umbrella trademark that will cover everything under the sun. If you are an Amazon seller and don’t know what you are going to sell, you will need to go back to the drawing board and come up with a business plan for the next year or two. Once you know what products you will be selling, you can file a trademark application.

Both the U.S. Trademark Office and Canadian Trademark Office require trademark applicants to list and describe all products (and services) that are sold or plan to be sold when applying for a trademark registration.

To minimize the risk of getting an objection from the Trademark Office, below you will find easy tips for creating an acceptable list of goods and services. Of course, your trademark attorney or trademark agent will properly classify your products for the trademark filing but below tips are provided just to give you a general understanding of how trademark classification works.

1. Be specific and avoid using full sentences

❌  I am offering pet sitting services

✔ Pet sitting services

❌ Various clothing

✔ Clothing, namely t-shirts, sweatshirts, caps, and hats

2. Avoid including registered trademarks in the trademark descriptions

❌ Zumba fitness classes (ZUMBA is a registered trademark)

✔ Conducting fitness classes

❌ Cases for iPhones (iPhone is a registered trademark)

✔ Cell phone cases

3. Avoid open-ended words (like “etc.”, “others”, “including”, “such as” and “various”)

❌ Elliptical exercises machines, exercise steppers, and other equipment

✔ Elliptical exercises machines, exercise steppers, exercise treadmills

❌ Kitchen utensils, etc.

✔ Kitchen utensils, namely kitchen tongs, basting spoons and spatulas

4. Avoid being overly specific as this will unnecessarily limit you

❌ Massage services for elderly people who suffer from depression and insomnia

✔  Massage services

5. Indicate field, industry or function where possible (especially applicable for software, videos, and consulting services)

❌  Computer software

✔ Computer software for word processing that may be downloaded from a global computer network (indicate the function)

❌ Downloadable videos

✔ Downloadable videos featuring music (indicate field)

6. Classify products into appropriate classes and use government pick-list to qualify for the lowest filing fee

❌ Toys, cosmetics, toy chests

✔ Class 3: Cosmetics

Class 20: Toy Chests

Class 28: Toys; dolls

7. If you are only selling one item, for example, “Silicone muffin baking liners”, do not add other items that you don’t sell yet and indicate that they are also in use. It is tempting to do so but may lead to a trademark audit and possibly even trademark invalidation.

❌  Silicone muffin baking liners; Cookware, namely, pots and pans; Pot lids; Pot cleaning brushes – based on the use

✔ Silicone muffin baking liners – based on use Cookware, namely, pots and pans; Pot lids; Pot cleaning brushes – based on “intent to use” (future use)

8. Avoid including prohibited items like marijuana (in the US). This may lead to a trademark refusal.

9. Avoid including misleading information like “organic creams” for creams that are not organic.

10. Do not include products that you have no intention to sell.

Do not include “business cards”, “letterhead paper” and “uniforms” if they are not going to be sold to the public.

11. Do not list services if their sole purpose is to promote your own business.

For example, list only services that you offer to others. You should only include “Advertising” if you are providing advertising services for others and not if you are only advertising your own business.

If in doubt, contact your trademark professional! We don’t charge for asking ?

How to Buy a Trademark?

If you’ve done it before, you’ll know that trademark registration can take a long time. A really long time. And nobody likes to wait, especially if you’re an Amazon seller and you needed your trademark yesterday.

I’m often asked: can I just buy someone else’s trademark? Why do I have to go through the long process of filing for a trademark, spending money on government and legal fees, and then waiting and responding to objections? Wouldn’t it be so much easier just to buy somebody else’s trademark? After all, trademarks are property, so they should be bought and sold pretty easily!

Unfortunately, it’s not so simple. Trademarks are only valid when they’re used in commerce (i.e. when a trademark is affixed to a product or its packaging, and the products bearing this trademark are sold in commercial venues). Likewise, if you offer services, the trademark must be shown during the performance and advertising of these services.

When you buy someone else’s trademark, it’s called a trademark assignment. In the US and Canada, the recording of assignments is not mandatory but highly recommended. It’s a relatively easy procedure itself, but the underlying process that follows this assignment is not so easy, which means due diligence is required when buying an already existent trademark.

It’s important to note that a trademark assignment is different from a trademark license. When you license a trademark, you allow another party to use your trademark for a limited period of time in exchange for a royalty fee. When you assign a trademark to another party, you are left with no rights to the trademark.

For the buyer, this means a lot of different things, including what is actually being “bought”. In the US, in order for you to buy an existing trademark, you’ll also have to buy the product line, the assets of the company, or the whole business associated with the trademark, including its goodwill.*

*What is goodwill? It’s a term you may have heard before, but not one that is always understood. Goodwill is the reputation or competitive advantage that a business acquires over time. The older the business, the more goodwill it usually has. In fact, without the underlying business and its goodwill, a trademark is worthless. Why would you buy a trademark that is obscure and unused?

Is it possible to purchase a trademark without its associated goodwill? In the US, this is called a “naked” assignment, as it’s recorded without the transfer of its associated goodwill. But an assignment is valid only if the transfer of the mark includes its goodwill, which means that a “naked” assignment is an invalid one!

This is why a trademark application based on “intent to use” can only be assigned if the trademark is sold to a successor (buyer) together with the business’ assets and goodwill. 

An important distinction: a registered trademark or a pending application can be transferable either in conjunction with or separately from the goodwill of the business with which it is associated. For example, this may happen when a division of a large company is sold.

When this happens, you (the buyer) have to ensure that the partial assignment will not impact the validity of the trademark (that is to say, by reducing its distinctiveness as a trademark). In addition, if the trademark in question is associated with other trademarks of its parent company, all of these trademarks must be assigned together.

It’s also important to keep in mind that, when you a buy a trademark that is registered for a specific product (for example, a face cream), you must continue using the mark for the same products that are listed in its trademark certificate.

If the buyer of this particular trademark uses it in connection with different products that are listed (for example, hair dryers), it may deceive the public into believing that the trademark is associated with an entirely different line of products. As a result, the trademark may be invalidated.

But what happens if the owner of a trademark stopped using it, re-branded, or closed shop? They may still have a trademark that is active and has not yet expired. The problem here is that, due to lack of use, the original trademark owner has abandoned its rights. If you buy such a trademark, it will be of little value since it may be pending cancellation for non-use. It’s usually not advisable to buy such a trademark.

However, one instance in which you may want to buy an active trademark that’s been abandoned is when you want to avoid a confusion objection.  Just keep in mind that purchasing such a trademark effectively means you’re only buying a registration certificate, and nothing else.

If you want to register a trademark that is similar to an active trademark no longer in use, you might consider asking the original owner for consent, but that’s a topic for a different article!

In short, before buying someone else’s trademark, consult with a trademark professional to ensure that you don’t end up with a worthless piece of paper and a major headache!

*In Canada, a trademark may be transferred with or without the goodwill of the business and in respect to some or all goods or services. (Section 48 of the Trademark Act)

Environmentally conscious investors, venture capitalists, and entrepreneurs are leaving no stone unturned in cashing in on the market for green cannabis. Towards this end, market players who fund, develop, cultivate and market the weed, and its numerous variants or derivatives should familiarize themselves with the nitty‑gritty of IPS (intellectual property rights) related with such produce. At the same time, they should be aware of the pitfalls associated with transgressing on the rights of other stakeholders involved in the cannabis industry, starting from the plantation stage to the processing stage.

Germane and related to the safeguarding all marijuana products and derivatives linked to marijuana as well as the different production techniques are the rights and responsibilities of plant breeders, trade secrets, and patents. When it comes to brand positioning and other associated issues about cannabis items, these might be safeguarded via alternative forms of intellectual property rights including trademarks. However, discussing these aspects of intellectual property rights is beyond the scope of this article, and therefore the same has not been dwelled upon or delved into.

PBRs or Plant Breeders Rights

With regards to the above information, preserving high yield cannabis strains in Canada has become a matter of concern that is causing quite a lot of anxiety amongst planters, and cultivators of marijuana. Towards this end, the Canadian government is taking all the necessary steps to help cannabis breeders in every way possible to protect the plant strains. The only and the most efficient manner in which uniqueness of a strain of cannabis plant can be safeguarded in Canada is by applying for getting hold of the PBR grant concerning a plant strain or variety under the aegis of the PBRA (Plant Breeders Rights Act). In Canada, the Plant Breeders’ Rights Act gives you exclusive rights to new types of some plant species.

To receive a PBR, the applicant breeder has to provide proof circumstantially that the strain or variety of the cannabis is a novelty. At the same time, the candidate also has to demonstrate that the strain he has developed is perfectly discernible from other existing varieties, has its distinct set of attributes, and can repeatedly be cultivated to produce the same yield regarding characteristics. Generally speaking, a strain is labeled as new, if the variable being harvested has never been propagated previously for a commercial purpose or in other words selling the product on a large scale.

However, there is a rider attached to the selling clause‑the strain for which the breeder has forwarded an application as a new variety must not have been sold beforehand or in the past for a specific period. Nevertheless, the duration of the timeframe for which the newly developed type must not have been sold is determined not only by its quality but also on whether the trading takes place within Canada or internationally. In any case, all or any transaction should not have happened, nothing less than 12 months before the application for a plant breeder right protection.

As far as PBRs of Canadian cultivators are concerned, it only safeguards the particular strain for which the same has been awarded. Since the day the PBR came into effect, just a few strains of marijuana have been registered for a plant breeder right, while a few more are in the pipeline awaiting registration. Some of the varieties for which PBRs have already been granted as well as are pending, happen to be industrial hemp strains.

Industrial hemp or simply hemp is a variant of cannabis sativa that is cultivated exclusively for its fiber which is subsequently processed for producing a nearly endless range of commercial products including paper, biofuel, animal feed, clothing, textiles, biodegradable plastics, and food. The Canadian Food Inspection Agency, a few years back (2014 to be precise), awarded Breeders right to a cultivator named Chris Griffin based in Toronto, Ontario, for a particular strain of Cannabis Sativa, indexed as Big C. A cannabis grower in Canada who has secured Breeders right (for a specific variety of marijuana) owns the right to cultivate the type of commercial exploitation for at least 20‑25 years.

That implies no other cultivator or grower can produce, sell, export, import, stock or use the variety in any way (for commercial gain) for which PBR has been granted. The Plant Variety Protection Act and the federal Plant Patent Act in the USA bestow similar rights to farmers and agriculturists concerning sexually and asexually reproduced plant strains respectively. So, it follows that anybody infringing upon or breaching a PBR is liable to be hauled up in a court of law and face prosecution.

Nevertheless, exemption from infringement may be granted under specific circumstances. For instance, if an individual propagates the variety with a non‑commercial intent, like using it personally for medicinal purpose or for developing a new strain, will not be seen as violating the PBR stipulations. Additionally, a cultivator or planter who procures or purchases a protected strain legally for stocking seeds to produce the same for private use or consumption is not liable to face legal action on the premise of violating the PBR. This right of a Canadian farmer is known as farmers privilege, and the concession allows him to reproduce the protected strain on a continual basis.

Patents

A cannabis grower in Canada can apply for obtaining a patent provided the strain or variety is novel, serves a particular purpose, commercial or otherwise, and is inventive. Once the applicant or the cultivator is awarded a patent, he or she holds the exclusive rights over the variety. In other words, the array can be propagated, sold, arranged for sale by a third‑party, exported and imported solely by the patent holder. The patent is valid for 20 years at a stretch, in Canada, starting from the date the application was filed. A patent is very much similar to a PBR in that the former debars others from marketing the strain or licensing it to third parties for reaping commercial benefits. To be entitled to a Canadian patent, the description about the variety in the patent application form should conform to the standard delineation of the invention as outlined in the Patent Act.

To be precise, the cannabis cultivar in question must meet the criteria to be designated as an advancement of the existing variety, unique manufacturing process, and so on. The patent is granted to safeguard the invention imbued with a marihuana derivative or offshoot and also a specific method or technique about cannabinoids extraction as well as concentrate/edible production. Interestingly enough, the plant, whatever the strain or cultivar cannot be patented as such in Canada.

Nobody in Canada can apply for the patenting of a plant or any other life form belonging to the organic food chain as the Canadian Food Inspection Agency has kept out such life forms from the ambit of patentability. This convention is in sharp contrast to the norm in the US where it is perfectly valid to grant patents with regards to higher forms of life which also incorporates numerous cultivars of marijuana. Surprisingly enough, though possession of or trading in a pot is not legal in many states of US, one can always apply for a patent for cultivating a plant variety, producing an associate product or for inventing a particular technique/method of production or extraction.

Not very long ago, USPTO (the United States Patent and Trademark Office) awarded a patent for a crossbreed of the plant as the same exhibited attributes that were discernible and distinct from the characteristics of all known cannabis cultivars. Since patenting of new strains is legal in the US, there is always the possibility of issuance of patents for varieties which are already available‑though not in the open markets‑which would nullify their new variety tag, and consequently, render the protective patent invalid and unviable. The embargo on the US on cannabis makes it virtually impossible for the USPTO to screen all existing strains when it reviews a purported novel cultivar for deeming it new per se.

On the other hand, an individual in Canada is not permitted to seek the patent for any form of higher life which also includes plant life. However, one can always apply to a unicellular organism or life form that has not been cultivated naturally. These non‑natural life forms or bodies comprise cell cultures, cell lines, and genetically tweaked isolated genes and cells.

But cannabis cell lines, isolated cells, and genes obtained using conventional breeding methods like crossbreeding or hybridization are disqualified from being patentable. Moreover, when somebody secures a patent for a genetically modified (GM) cannabis cell line or a transgenic gene created using a genetic engineering technique, he or she might be unwittingly or automatically protecting the variety. That is so since trading in seeds or other plant parts or products derived from the copyrighted gene would be tantamount to violating the patent rights.

Furthermore, receiving a patent for the varieties mentioned above of cannabis would also accord a nearly impregnable ring of protection around the strain as exemptions relating to farmers privilege or breeders immunity will not be applicable.

Trade Secrets

In case a newly created cultivar of cannabis, processing technique, related derivative or production process is kept under wraps, the same becomes liable for protecting as a commercial secret. Data on the cannabis processing technique or a new cultivar regardless of whether the subject‑matter is technologically or commercially significant is of value mainly owing to its confidentiality. As far as legally securing the trade secret is concerned, there is no statutory requirement to get the same registered.

It is not at all necessary for a proprietor of the trade secret to opt for some written or even a viva‑voce contract to ensure its clandestineness. The trades current owner has to be very particular if he or she is sincere about not spilling the beans with regards to seeds, leaves, flowers or other reproducing and broadcasting materials. If the strains genetic structure or the production method is replicated through reverse genetics, then the secrecy cloak is automatically lost for good.

Another drawback about not protecting the trade secret with a patent in some form is that if and when someone somehow gets his hands on the strains legally propagating material, he will have no restrictions on replanting the same. The sincerity of an individual to safeguard the information relating to the trade secret is directly proportional to a court of laws seriousness to regard the data as classified. The trade secret will not remain a secret anymore once the relevant info is accessed or obtained via legal means or if the same is divulged by an individual who has knowledge about the data and is authorized to reveal it.

Owner of the trade secret may give his consent for disseminating the information explicitly and exclusively for the purpose it was intended to be circulated in the first place.

Best Practices

Any individual or institution that comes up with a new strain of cannabis or a product which includes a derivative of the weed should evaluate quite early on whether applying for a PBR or a patent would be apt for the discovery. At the same, the person or business should take into account if producing and sell the new or innovative product/service in a specific jurisdiction or jurisdiction would not infringe on the intellectual property rights of others.