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Nifty Things You Can Do in the LLC Structure

LLCs are very flexible forms for business organizations.  Our LLC operating agreement provides for management of the entity to be under the control of the members, who may also delegate some or all of that control to a manager.  By default, profits are distributed according to a member’s percentage of membership, although the members have the flexibility of distributing profits according to any formula the members agree upon.  This structure works well for a business operated in the manner of a sole proprietorship or a partnership.  However, there is virtually no limit to the kinds of structures that owners of a LLC can create within this business form.  For example, many small businesses obtain financing from parents, siblings or friends that do not want to participate in the business.  Accordingly, you can give one group of investors certain rights to profits, a second group of investors other rights, the founding...

How do you protect your trademark?

Trademarks are protected under common law and statutory law through the registration of the trademark with state or federal agencies.  The common standard used in all trademark protection is the concept of “likelihood of confusion”.  Likelihood of confusion generally exists when a consumer would likely confuse the goods or services offered by your business with the goods or service offered by another business based upon a similarity of images used by the businesses. The business that first, and continuously, uses the image in the stream of commerce generally has the right to prosecute an infringement lawsuit against a subsequent user.  A business can sue another business on common law trademark infringement, but only recovers out of pocket damages and may not be able to recover the attorneys’ fees needed to prosecute an infringement suit.   A business that chooses to register the trademark may be entitled to greater recovery in a...

How to Know if your Workers are Employees or Contractors

Virginia law provides a long list of factors, generally tracking those identified by the IRS, to determine whether or not your workers are employees or may be treated as independent contractors.  This distinction is important since the employer is required to withhold taxes from employee and to pay business taxes associated with the employment, but do not have to do that for independent contractors.  Furthermore, improperly categorizing employees as contractors can expose the employer to later payment of unpaid business taxes throughout the employment, as well tax penalties and interest.  Although many factors are listed, the primary determinant is whether or not the employee controls the means and methods of performing the work.   A worker may be considered a contractor, If the employer just gives general instructions regarding the work and does not provide the equipment or other means to accomplish it.  Otherwise, the worker will likely be considered...

What happens when a member of a Limited Liability Company dies?

The operating agreement of a limited liability company should provide the rules for dealing with the death of a member, because the death of a member can be as devastating to the LLC as it is to the beneficiaries of the decedent’s estate.  In general, a membership interest in an LLC is intangible property that passes to the heirs of a decedent estate upon the death of the member.  Under Virginia law, death causes the decedent member’s membership interest to become dissociated from the LLC.  The dissociated membership interest will have a right to the fair market value of the decedent’s membership interest and to share in any profits, but will not be able to participate in the management of the LLC unless the other members agree.  Absent contrary provisions in the operating agreement, an estate has the right to sell the membership interest and force the LLC to accept...