If you want to start a small business, you can form a new LLC (limited liability company) in Minnesota without hiring an attorney. You will save the expense of attorney’s fees, but you also will not have the counsel of a business attorney and will have some other risks.  The risks are explained at the end.

Here are the steps to forming your own LLC in Minnesota:

1.       Check to see if your business name is available here: http://da.sos.state.mn.us/minnesota/corp_inquiry-find.asp?:Norder_item_type_id=9&sm=6

2.       Download the form you need to create an LLC at either of these links:

• Articles of Organization (PDF): http://www.sos.state.mn.us/Modules/ShowDocument.aspx?documentid=4388
• Articles of Organization (DOC): http://www.sos.state.mn.us/Modules/ShowDocument.aspx?documentid=4391

3.       Register your LLC by filing the Articles of Organization with the Minnesota Secretary of State’s business office. Currently the filing fee is $160.

4.       After you register your LLC, obtain your Employer Identification Number (“EIN”) from the IRS by calling 800-829-4933.

5.       Bring the LLC Articles of Organization and your EIN to the bank to establish a small business checking account.

Benefits of Forming a Minnesota LLC Yourself

The benefit to this process is you save the cost of attorney’s fees.  For example, a single-owner LLC would normally cost $450 in attorney’s fees plus the filing fee, so you are saving $450 by doing it yourself.

Risks of Forming a Minnesota LLC Yourself

For a majority of small businesses, an LLC is preferred over an S Corporation, partnership, limited liability partnership, and other business types. But sometimes an LLC is not best for your circumstances. By forming an LLC without the advice of an attorney, you accept the risk that an LLC may not be the best for your situation.

When you register your own LLC using the process above, there are a few additional risks. First, you will not have a Member Control Agreement or a Member Voting Agreement, which most attorneys recommend, especially if you have multiple owners. A Member Control Agreement is addressed by Minnesota Statutes section 322B.37, and a Member Voting Agreement is addressed by Minnesota Statutes section 322B.366. Our firm provides these agreements to all clients as a part of forming their new LLC. Without these agreements, the LLC owners will be subject to the default designations for Minnesota LLCs, which are often contrary to small business owners’ intentions. If you intend to obtain a business loan, most banks expect to see that you have all these documents to ensure you are properly prepared and running your business in a professional manner.

Another risk is that the Minnesota Secretary of State’s form for Articles of Organization does not include other notices that you may want included. The Articles of Organization, and the provisions on them, are deemed published to the world to put the world on notice. Some courts have held that without certain notices on file with the Secretary of State, your business cannot enforce certain rights against other parties because those parties were never put on notice that you were preserving those rights. Our firm prepares Articles of Organization for clients with a set of notices that are not included by the Secretary of State to ensure that our clients’ rights are preserved.

Finally, if your business has multiple owners, an attorney can advise you on “best practices” for handling disagreements, tax issues, exit strategies (exits include death, disability, bankruptcy, divorce, and simply one owner deciding to leave the business), and how much an owner will be paid for being bought out of the business. If these issues are not discussed and put in writing, they can become points of contention because business owners may have different expectations or understandings. This can lead to costly legal battles that far exceed the cost of hiring a business attorney at the beginning to draft up the normal LLC operating and voting agreements.

Conclusion

In conclusion, forming an LLC on your own can save you money, but once your business becomes profitable, you face an increasing risk of problems. If your business is a very small part-time business, forming an LLC on your own may make sense. If you have multiple owners or are working in your business full-time, it probably makes sense to hire an attorney to form the LLC for you, which includes some basic tax planning, legal guidance, and LLC documents to prepare your business for success.

Every trademark attorney knows that a generic term cannot be trademarked. However, using a small exception to that rule, Best Buy registered a federal trademark in “best buy,” even though a court had previously ruled that “best buy” was generic. For a great summary of the situation, read Best Buy, Resurrected From the Trademark Graveyard?

The doctrine permitting a generic term to be deemed no loner generic is called the “Singer doctrine,” named after the Singer sewing machines. Best Buy’s trademark application explains:

The ability of a trademark owner to recapture a term that has become generic is explicitly recognized in Singer Mfg. Co. v. Briley, 207 F.2d 519, 522, 99 U.S.P.Q. 303 (5th Cir. 1953). Singer began making sewing machines in the mid-nineteenth century. By 1896, however, the name SINGER had become a generic designation for a distinctive style of sewing machine. As a result of Singer’s continuous and exclusive use and advertising of the SINGER mark, by 1953, the Fifth Circuit held that the mark had been “recaptured” from the public domain.

Similarly, in the present case, Applicant first began using the mark in late 1983. Prior to that time, the predominant treatment of the mark by the PTO was as a descriptive rather than a generic term. This is supported by the many third party registrations of the term BEST BUY . . . .

Based on this argument and others in its trademark application, Best Buy obtained a federal trademark registration in the term “best buy.”  If you want to read the full version of Best Buy’s successful argument, see page 47 of this 54 page PDF document: Best Buy’s Trademark Application on Minnesota Lawyer.

Northfield, Minnesota is known as the home of Carleton College, St. Olaf College, and its historic role in damaging the Jesse James Gang. Northfield is located about 30 minutes south of the Twin Cities in Minnesota. I lived in Northfield for a few years—it’s a beautiful city with a “small town” feel that still has many of the benefits of a big city, including an excellent hospital, good shopping, and good schools.

At times, I have received calls from residents and small business owners in Northfield seeking legal assistance. However, our office is quite a drive for someone from Northfield seeking a lawyer.

It’s my pleasure to recommend an excellent Northfield attorney, Jim Prichard, who has lived and worked in Northfield for over 20 years. Jim is a private Northfield lawyer providing legal counsel and representation in estate planning, business law, and real estate law.

Jim has also been a personal friend of mine for over 20 years. If you need legal assistance in Northfield, Minnesota, contact Jim Prichard through one of the following websites: Northfield Attorney & Northfield Lawyer.

As an attorney, I get two types of questions related to noncompete agreements:

1. Is this contract not to compete enforceable?
2. Would you draft a noncompete agreement for me?

1. Enforceability of NonCompete Agreements

Whether the contract is called a “noncompete” or “do not compete” agreement, the intent is the same: the employer seeks to bind the employee from leaving employment and competing with the employer. Whether they are enforceable depends on a number of factors to be analyzed by an attorney. These factors are explained generally in these articles:

• Will Your Noncompete Clauses Stand Up in Court?
• Litigating Covenants Not to Compete

Before you ignore a noncompete agreement, you should consult with an attorney to analyze the contract. An attorney can give you a legal opinion regarding whether the noncompete is enforceable. The consequences of breeching a noncompete agreement may include a temporary restraining order preventing you from working in violation of the noncompete along with a lawsuit for monetary damages.

2. Drafting NonCompete Agreements

The laws involving noncompete agreements varies across the United States. A noncompete agreement that is enforceable in one state may not be enforceable in another. For this reason, understanding Minnesota law is important. Also, noncompete contract forms purchased on the internet may be inadequate for parties in Minnesota.

When I draft a noncompete agreement, the process involves carefully applying relevant Minnesota law to ensure the contract remains enforceable. Properly written noncompete agreements are routinely enforced by courts in Minnesota. However, mistakes can void the agreement. For this reason, you should consult with an attorney if you need a noncompete agreement drafted.

2009 Update

Three 2008 Minnesota court cases may make noncompete agreements easier to impose on employees and enforce on ex-employees who signed noncompetes. Three Minnesota Court of Appeals cases upheld noncompete provisions under a variety of circumstances:

• Tenant Construction, Inc. v. Mason, 2008 WL 314515 (Minn. Ct. App., Feb 5, 2008) (unpublished).
• Sealock v. Petersen, 2008 WL 314146 (Minn. Ct. App., Feb 5, 2008) (unpublished).
• Witzke v. Mesabi Rehabilitation Services, Inc., 2008 WL 314535 (Minn. Ct. App., Feb 5, 2008) (unpublished).

Witzke is especially interesting because the court held that “continued employment” for a long duration after signing the noncompete will qualify as “consideration.” Previously, the general rule was that a noncompete must be accompanied by “independent consideration” (normally some sort of financial compensation) to be enforceable on a current employee.

If you are not an attorney, you should consult with an attorney to determine whether your noncompete is enforceable.

About the Author: Attorney Aaron Hall is experienced in noncompete agreements and is available to analyze noncompetes or represent parties with noncompetes. He is licensed to practice law in Minnesota. His work is largely in the Twin Cities, Minneapolis and St. Paul, MN. He provides legal counsel to businesses, business owners, and individuals.

Yes. An LLC can be taxed as an S Corp, assuming it qualifies for S Corp taxation status. An LLC can also be taxed as a C Corporation.

An LLC is a very flexible business type because it can be taxed as a corporation or S corp.

Option 1: LLC electing to be treated as a Corporation

A. Single Owner LLC:

If the LLC has only one owner, the IRS will automatically treat the LLC as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation. An LLC may elect corporate tax treatment using IRS Form 8832 (Form 8832 Entity Classification Election).

B. LLC Owned by More than One Person:

If the LLC has two or more owners, the IRS will automatically treat the LLC as if it were a partnership unless an election is made for it to be treated as a corporation. An LLC may elect corporate tax treatment using IRS Form 8832 (Form 8832 Entity Classification Election).

Option 2: LLC electing to be treated as an S Corp

An LLC may elect S Corp tax treatment by filing IRS Form 2553 (Form 2553 Election by a Small Business Corporation). However, sometimes the LLC must file both Form 8832 (see Option 1 above) and Form 2553. To determine whether your LLC can file Form 2553 alone, or whether Form 8832 must also be filed, see page 1 of the Instructions to form 2553 or talk with an LLC attorney in your state.

Tips for an LLC Taxed as an S Corp:

Electing to have your LLC taxed as an S Corporation involves a couple procedural changes in paying and filing your taxes.

1. Quarterly Filings for an LLC Taxed as an S Corp

Keep in mind that if your business is treated as an S Corp, it must pay estimated taxes. But this inconvenience is often offset by the tax benefit of an S Corp (self-employment tax savings).

2. Income Taxes at the End of the Year

Also, an S Corp must file different income tax forms at the end of the year (Which Forms Must I File?).

Shareholder-employees will receive two tax documents from the S-Corporation at the end of the year: a W-2 wage statement (income as an employee) and a Schedule K-1 statement (income as an owner).

3. No Self-Employment Tax for an S Corp Owner-Employee

Shareholder-employees of an S-Corp (including an LLC taxed as an S Corp) do not pay Self-Employment Tax because their wages are reported on a W-2, with Social Security and Medicare taxes already withheld. By contrast, the owner of an LLC that is taxed as a partnership or sole proprietorship (not an S Corp) does pay Self-Employment Tax. Self-Employment Tax is figured at the end of the year on Schedule SE of IRS Form 1040.

This article explains whether RSS feeds are copyrighted. In short, the answer is YES.

What is RSS?

Websites are norally accessed with a web browser. RSS is a technology that allows a webpage (blog, etc.) to be accessed without a web browser. RSS can be accessed by many tools, including an RSS reader, which is software that allows you to view the RSS feeds of many websites at once.

Are RSS Feeds Copyrighted?

In the United States, the author of any written material generally owns a copyright on that material. Since RSS is merely a way to access that material, the material is still copyrighted. RSS doesn’t change anything. Whether you use an RSS tool or a web browser to access material, the material is still copyrighted.

In other words, laws apply to new technology just as they would to traditional materials (books, brochures, etc.).

Are Scrapers Violating Copyrights?

Scrapers are software tools that copy material off one website and post the material to a website owned by the person using the scraper.  When scrapers copy material without permission of the copyright owner, copyright infringement occurs.

What Can I Do if My Website is Illegally Copied?

I answered this question and some others on these posts:

• Copyright & Trademark for Blogs and Domain Names
• Can I Copy Another Blogger’s Text? 

If you want to protect your material, or if you need to defend yourself in a copyright lawsuit, I would be glad to talk with you about your situation.

Minnesota business owners in a partnership may desire to limit the fiduciary duties they owe each other. They may ask their lawyer to draft a partnership agreement providing limitations on their duty to disclose to each other. They may also ask their lawyer to include a provision allowing the partners to compete with the partnership.

The rationale for such provisions may be based on the fact that the partners already compete, but they want to have a partnership together without the fiduciary duties that are usually imposed on partners because those duties would impede their other businesses. But are such fiduciary duty limitations enforceable?

The issue may more easily be understood with a short example:

Imagine that Sue owns a gift shop, and across the street, Jenny owns a gift shop. The two shops compete. One day, Jenny learns that space in a shopping center one block away is available for rent. Jenny can’t afford to rent the space alone, so Jenny asks Sue if Sue would be interested in going into a partnership with Jenny by starting a gift shop in that space. In short, Jenny and Sue agree that they will start a new gift shop together as well as continue to run each of their individual gift shops. Jenny and Sue also decide to make Terrence an owner in their business because Terrence is willing to help fund the operation.

They all agree that since Jenny and Sue have existing gift shops in competition with each other, they don’t want to owe each other the default fiduciary duties. That is, Jenny and Sue want to allow competition with their jointly owned business rather that being bound by the duty not to usurp a partnership opportunity. Also, Jenny and Sue don’t want the duty to disclose business opportunities to each other. The question is whether Jenny and Sue can effectively limit these fiduciary duties that they would normally owe each other.

This question was recently considered by the Eighth Circuit Court of Appeals in Triple Five of Minn., Inc. v. Simon, 404 F.3d 1088 (8th Cir. 2005) (PDF) (HTML) and anayzed in a recent law review article, Unenforceable Fiduciary Duty Limitations: Why Drafting Partnership Agreements Limiting the Duty to Disclose and Partnership Opportunity is More Precarious After Triple Five of Minn., Inc. v. Simon, 404 F.3d 1088 (8th Cir. 2005), 33 William Mitchell Law Review 1483 (2007). The district court’s decision is available at Triple Five of Minnesota, Inc. v. Simon, 280 F. Supp. 2d 895 (D. Minn. 2003).

In short, the article states that, under Minnesota law, a lawyer could carefully draft narrow and specific fiduciary duty limitations that would probably be enforceable, but broad fiduciary duty waivers certainly are not enforceable.

The first half of the article reviews the history of fiduciary duty limitations in Revised Uniform Partnership Act and the recent Minnesota case, Triple Five of Minn. Inc. v. Simon case, where the court held that a broad fiduciary duty waiver was not enforceable. The article then considers other related cases.

Most useful to Minnesota business lawyers will be the final part of the law review article, which provides practical advice for Minnesota business lawyers seeking to draft agreements that limit fiduciary duties.

To learn more about fiduciary duties in Minnesota partnerships, you might be interested in reading the following:

• William Mitchell Law Review article titled Unenforceable Fiduciary Duty Limitations: Why Drafting Partnership Agreements Limiting the Duty to Disclose and Partnership Opportunity is More Precarious After Triple Five of Minn., Inc. v. Simon, 404 F.3d 1088 (8th Cir. 2005)
• Larry E. Ribstein’s blog article titled The joys of partnership: Triple Five
• Triple Five of Minn., Inc. v. Simon, 404 F.3d 1088 (8th Cir. 2005) (PDF) (HTML)

The Minnesota Federal District Court is currently hearing arguments regarding whether a company can use Google AdWords to place ads on a SERP (search engine results page) when someone searches for a competitor’s name.

The strategy makes perfect sense from a business perspective. If someone is using Google to search for your competitor, get your advertisement displayed on the search engine results page. That’s what MTS Systems Corp. did when someone search for its competitor, Hysitron.

The problem is, according to Hysitron, use of Google Adwords in that way violated Hysitron’s trademark. MTS Systems disagreed, and tried to get the case dismissed on summary judgment. The Minnesota Federal District Court denied the motion on August 1, 2008, allowing the case to move forward.

The court discussed the legal issues in the case.

Trademark Legal Standard

A Lanham Act claim requires that the trademark be used in commerce. See DaimlerChrysler AG v. Bloom, 315 F.3d 932, 939 (8th Cir. 2003).

Trademark: Use in Commerce

“Use in commerce” is defined in the Lanham Act (15 U.S.C. § 1127) as:

“the bona fide use of a mark,

(1) on goods when-

(A) it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sales, and

(B) the goods are sold or transported in commerce, and

(2) on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce[.]“

The court recognized that some courts have decided that the use of keywords in online advertising was not a “use in commerce” under the Lanham Act:

These decisions reason that using a trademark to generate sponsored links or other advertising is an internal utilization of the mark and that, “a company’s internal utilization of a trademark in a way that does not communicate it to the public is analogous to an individual’s private thoughts about a trademark.” 1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400, 409 (2nd Cir.2005) (finding no use in commerce where the defendants generated internet pop-up ads by including another plaintiff’s trademark in an unpublished directory of terms); see also Rescuecom Corp. v. Google, Inc., 456 F.Supp.2d 393, 403 (N.D.N.Y.2006) (finding no use in commerce where a company used another company’s trademark for sponsored link advertising in internet search engine).

However, the court agreed with other courts who have held a different view:

The majority of courts that have addressed the issue have disagreed with the Second Circuit’s reasoning and found that using a competitor’s trademark to create a sponsored link or other advertising does constitute a “use in commerce.” See e.g. N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1219 (11th Cir.2008); Playboy Enters., Inc. v. Netscape Commc’n Corp., 354 F.3d 1020 (9th Cir.2004); Boston Duck Tours, LP v. Super Duck Tours, LLC, 527 F.Supp.2d 205, 205 (D.Mass.2007); Edina Realty, Inc. v. The MLSonline.com, No. Civ. 04-4371, 2006 WL 737064 at *3 (D.Minn. March 20, 2006) (Tunheim, J.). These cases reason that a company’s use of a trademark to generate advertising is a “use in commerce,” even when the customer never sees the mark.

The court reasoned that “use” is merely “use,” and not limited to “use” that a consumer might observe:

This Court adopts the majority view that using a trademark to generate advertising constitutes a “use in commerce” under the Lanham Act. This approach adheres to the plain meaning of the Lanham Act’s definition of “use in commerce.” The language used in the definition suggests that a “use in commerce” is not limited to affixing another’s mark to one’s own goods but also encompasses any use of another’s mark to advertise or sell one’s own goods and services. MTS used the HYSITRON mark to generate a sponsored link as part of its effort to advertise and sell its own goods over the internet. Johns Decl. ¶ 12. Under the plain language of the Lanham Act, MTS used the HYSITRON mark in commerce.

However, attorney Eric Goldman points out on his blog and in his keyword law paper that the “majority view” is just barely a majority.

Trademark: Consumer Confusion

The next issue in this trademark infringement claim is whether any “consumer confusion” existed. The likelihood of consumer confusion is determined by evaluating a number of factors:

1. the strength of the plaintiff’s mark;
2. the similarity between the plaintiff’s and the defendant’s mark;
3. the degree to which the allegedly infringing product competes with the plaintiff’s goods;
4. the alleged infringer’s intent to confuse the public;
5. the degree of care reasonably expected of potential consumers, and
6. evidence of actual confusion.

Davis v. Walt Disney Co., 430 F.3d 901, 903 (8th Cir.2005).

This issue has not yet been determined in this case.

Trademark: Actual or Potential Harm

The final issue in this case is whether an infringement caused actual or potential harm. This issue hinges on whether consumers were confused. Thus, this issue remains unresolved for now.

Commentary: Trademark law should not prevent PPC advertising based on trademarked keywords

Search engine keyword advertising cases like this are interesting to watch. Adwords is one of many PPC (pay-per-click) online advertising programs. Keyword PPC advertising appears to be beyond the original purpose of trademark laws. That is, trademark laws are intended to prevent the use of one merchant’s mark in a way that would confuse consumers into thinking a competitor’s products were made by a holder of the trademark. Trademark laws were then expanded to include trademark dilution. However, the application of trademark law to keyword purchases on Adsense seems outside the scope of trademark law.

Buying keywords on Adsense is similar to buying a sign next to your competitor’s building. Assuming that the advertisement doesn’t trick consumers, there is nothing wrong with promoting your company in the same vicinity. Of course, using trickery to lure web visitors to your link would be wrong. But reminding search engine users that your company exists when they search for your competitor is just well placed advertising.

This case will be interesting to watch. Regardless of the outcome, a diversity of opinions are arising in courts across the country. I predict that the prevailing view will ultimately be to allow advertising purchases using a competitor’s mark as long as the advertisement itself does not confuse consumers or dilute the competitor’s mark.

Note: This case is available at Hysitron Inc. v. MTS Systems Corp., No. CIV 07-01533 ADM/AJB, 2008 WL 3161969 (D. Minn. Aug. 1, 2008) (Slip Copy).

Some people find themselves in a situation where they cannot pay their IRS tax debt. For example, a taxpayer may owe taxes but cannot pay because the taxpayer has little money compared to the taxpayer’s debts.

If the IRS is convinced that the IRS will probably not recover the amount owed, the IRS may make the taxpayer an offer to pay a reduced amount in a short period of time. This offer is called an “Offer in Compromise.”

An Offer in Compromise is subject to IRS regulations. Taxpayers who are evaluating an Offer in Compromise may be benefited by understanding these IRS regulations. Taxpayers may also benefit from knowing strategies for negotiating an Offer in Compromise.

A tax attorney can help taxpayers who are dealing with IRS debt or an Offer in Compromise. However, those with tax debt often cannot afford to hire a tax attorney. Fortunately, there are some good resources online for taxpayers who want to handle their Offer in Compromise without the assistance of a tax attorney.

Two articles provide some general help with an Offer in Compromise.

• Negotiating Offers In Compromise
• The IRS Offer in Compromise

If you decide that you would benefit from hiring a tax attorney, I would be glad to talk with you. Please call to schedule an appointment.

Small businesses are often looking for free advertising. Online directories provide a few benefits:

• free directory listing
• calls from new potential customers
• sometimes a free link to your website

Directory listings are especially valuable to small businesses that target a local geographic market, such as real estate agents, retail stores, accountants, attorneys, etc.

You can add a free business listing and a link to your website here:

• Google. This listing helps your search engine optimization (SEO) in Google, and causes your business to be listed near the top of searches for your business type in your city. Sign up now for a free local listing for your business: https://www.google.com/local/add/
• Superpages. SEOMOZ reports that Google looks at Superpages (among other sites) when Google considers what local businesses to display for searches. So by signing up for Superpages, you get a free directory listing, a link to your website, and some help in search engine rankings. Sign up now for a free local listing for your business: https://advertising.superpages.com/spportal/business-listing
• YellowPages. YellowPages doesn’t give you a free link to your website, but since YellowPages is such a popular site, you are likely to get new leads from people looking up business types in YellowPages. However, once you sign up, be prepared for a sales call from YellowPages trying to sell you upgrades to your listing. Sign up now for a free local listing for your business: http://store.yellowpages.com/post/.
• Best of the Web. BOTW gives you a free directory listing, a link to your website, and some help in search engine rankings. Sign up now for a free local listing for your business: http://local.botw.org/helpcenter/jumpstartproduct.aspx.