Entrepreneurship: Day Zero Considerations

By: Ben Forbes

There’s an old saying that “an ounce of prevention is worth a pound of cure.”  This saying rings especially true when you are starting a business. Entrepreneurs are problem solvers by nature. They develop innovative solutions that create value in their business. As an entrepreneur, it is your business to address the problems that have already occurred, but you can save yourself a lot of headaches and late nights by preparing to address certain issues before you actually go into business. The purpose of this post is to provide would-be entrepreneurs with a brief overview of some issues they should consider before starting their business.

The Planning Phase 

An entrepreneur should conduct research and develop a plan long before starting the business. Even a great idea can fail due to insufficient planning. Developing a business plan is a great start. A business plan can make you more marketable to lenders and investors when you are seeking investment. Investors are more willing to buy in when they can see the projected course of the business. The Small Business Administration’s (“SBA”)  and the Pennsylvania Business One-Stop-Shop have some helpful tools to assist you in starting your business and developing your business plan.

Personal Liability

It may be tempting to just jump right in and start doing business without formally creating an entity through the Pennsylvania Department of State (“DOS”), but doing so leaves you open to personal liability for the business’s debts. An individual who begins doing business without filing has created a sole proprietorship (“SP”) if they are acting alone and a general partnership (“GP”) if they are carrying on business with one or more partners. These entities provide no liability protection, so the owner(s) can be sued directly for the debts of the business. To avoid personal liability, you should consider one of the many entities that have built-in liability protection such as a limited partnership (“LP”), limited liability partnership (“LLP”), or a limited liability company (“LLC”).  For more information about entity types and personal liability you should consult DOS’s “Guide to Business Registration.”

Tax Implications

The type of entity you elect to create also has substantial tax implications. The owners of SPs and GPs are not viewed as separate entities from their business. This means that owners of SPs and GPs must report their share of the income from their business on their own tax filings and can also use the business’s losses to offset other reported income. This scenario is referred to as “pass-through taxation.”

These tax consequences can also affect the profitability of a business. Some entities may elect to utilize pass-through taxation. Pass-through taxation allows an entity to pass its tax obligations on to its owners so it can reinvest its income into growth. The owners of pass-through entities may also claim the losses of the business to offset their income from other sources. LLCs and S-corporations are common examples of entities that may elect pass-through taxation.

Certain entities, like C-corporations may not elect to use pass-through taxation. These entities are taxed on their income and then shareholders are also taxed on any distributions they may receive. This is commonly referred to as the “double tax.” You should consider your goals for yourself and for the business when deciding which tax scenario is most beneficial to you and your business. For more information about the taxation of business entities, see the Internal Revenue Service’s website.

funding and raising capital

Every business needs a certain amount of capital to get started. The first step is determining how much capital you believe you will need. You consider factors like equipment, facilities, supplies, research and development if you are selling a product, filing fees, and legal fees. Each business comes with its own unique expenses that you consider when assessing your capital needs.

The second step is how. Small businesses that do not require substantial amounts of capital may want to consider debt financing. Debt financing is just that: financing a business through bank loans. For new businesses with little or no credit, the bank will likely require one or more owners to sign a personal guarantee for the loan. Some small businesses may have trouble obtaining loans, and those businesses should consider applying for loans guaranteed by the SBA. The SBA guarantees loans from certain lenders to make capital more available to small businesses. To learn more about these loans, the qualifications for borrowers, and for help finding a qualified lender, visit the “Funding Programs” portion of the SBA’s website. Small businesses can also seek loans from private investors such as friends and family members. Finally, a small business can seek capital by adding partners or offering equity in exchange for investment.

Larger businesses with more robust capital needs, such as businesses that need a substantial amount of capital for research and development of a product, should consider investment from venture capital (“VC”) firms. VC firms are groups of investors who invest in new or unproven business ventures that carry more significant risk in exchange for equity in the business. The downside is that you are giving up a portion of the control and ownership in your business. The upside is that the investor is willing to invest in your idea as opposed to a more mature business that has been well-tested. Your business must generally be a C-corporation to seek investment in the form of VC. There are also laws that govern the sale of stock to VC firms. You may only sell shares to certain qualified investors and can only sell a certain amount of stock each year. Additionally, a company cannot generally advertise that they are selling stock. VC deals are complicated in nature and you should seek the help of an attorney if you decide to raise capital through VC funding.

Advance planning can make your life as an entrepreneur or small business owner much easier, and it will prevent legal issues and other problems from harming your business.

For more information please see:

Small Business Administration Business Planning Page:

https://www.sba.gov/business-guide/plan-your-business/market-research-competitive-analysis

Pennsylvania Entities Law (Title 15 Pennsylvania Statutes):

https://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=15&div=0&chpt=82

Internal Revenue Service Business Tax Section:

https://www.irs.gov/businesses

Picture Sources:

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcT9ToAhwcAO0I2oAlS92OWmh0xJnnqhqGM7cxMHFR27eAPbSpgWzw

https://www.google.com/search?q=liability+protection&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiehIybnLXjAhWZKM0KHdjgBWcQ_AUIESgC&biw=942&bih=540#imgrc=8fK7wYyS03IU0M:

https://broadway.bank/Portals/1/Images/icons/022_SBALoans.jpg?ver=2017-10-13-162812-083


Ben Forbes, at the time of this post,  recently graduated from Penn State’s Dickinson Law.  He is from Orwigsburg, Pennsylvania and is a graduate of Kutztown University of Pennsylvania. After completion of the Bar exam, Ben will start his career as an associate at Williamson, Friedberg & Jones, LLC representing and advising small businesses.

So, you found a name you like, now how do you keep it? An intro to trademarks for entrepreneurs

By: Alex Phillips

There aren’t many things as important, and unfortunately, as overlooked, in the world of small businesses as trademarks. For many entrepreneurs, the trademark application process can seem rather daunting, but it is important to start it as soon as possible. Below are some of the most important things to understand when creating a trademark for your new company.

WHAT ARE YOU PROTECTING WITH YOUR TRADEMARK?

Trademarks help you protect the goodwill that your company obtains throughout its existence, as well as distinguish your products from those of your competitors. Essentially, trademarks are there to protect consumers, making sure that they know what products or services they are getting, and who they are getting them from.

WHAT GOOD WILL REGISTERING YOUR TRADEMARK DO? 

It is worth mentioning that you do not necessarily need to register a trademark, because standing to sue is based on the use of the trademark, not registration. That being said, in most situations, it is preferable to have your mark registered with the USPTO. Registering also gives you enhanced benefits, some of which are mentioned below.

One of the biggest benefits of registering your mark with the USPTO is that there is nationwide constructive notice of your use of the trademark. This means that at trial, any infringing party in the U.S. will automatically be deemed to know that you are using your trademark in commerce.

A second, albeit less exciting benefit, is that you can use ® next to your trademark, showing that it is federally registered, and possibly deterring would–be infringers. You can still use “TM” to provide notice if you don’t register, but that’s all it does.

HOW LONG CAN YOU KEEP YOUR TRADEMARK REGISTERED AND PROTECTED?

In most cases, you can keep your trademark protection as long as you show that you are still using your mark in commerce consistently (you need to file forms with the government telling them how much you’ve used your mark every so often.[1])

You can also lose protection by allowing others to freely use your mark. Be careful who you let use your mark, and make sure you oversee that use.

WHAT DOES YOUR COMPANY DO OR MAKE, AND WHY DOES THAT EVEN MATTER?

The field your new company is in or will be in is an important part of creating and registering a trademark. This is because other companies being in that field may affect what marks you can choose. (For example, zigzag piping, and zigzag backpacks).

WHAT MAKES SOME TRADEMARKS “STRONGER” THAN OTHERS? 

One of the most important rules of thumb to keep in mind with trademarks is that the more your mark describes your product or service, the weaker it is. In essence, this means that it is better for you to be as creative as you can when coming up with your mark.[2]

WHAT IS A TRADEMARK SEARCH, AND HOW DO YOU CONDUCT AN EFFECTIVE ONE?

Conducting a trademark search essentially means looking to see if the trademark you intend to register is already in use. As odd as it may sound, the first step you can take in conducting an effective trademark search is simply searching via internet search engine the mark you would like to register. Then search the USPTO’s official search engine to look for that mark and marks that will be either visually or phonetically similar.

WHAT IS TRADEMARK INFRINGEMENT AND HOW CAN YOU KEEP FROM COMMITTING IT? 

Trademark infringement occurs when you use a mark that is similar to a mark already being used by someone else. Committing trademark infringement can be a costly endeavor with the litigation that follows. The best way to avoid infringing on another person’s mark is to make sure that you are effectively conducting your trademark searches and being as creative as you can be when creating your mark.

HOW CAN YOU APPLY FOR TRADEMARK REGISTRATION?

To apply for a trademark, your mark needs to be at least descriptive of the goods/services that your company provides. If the mark is merely descriptive, then it needs what courts call “secondary meaning.” “Secondary meaning” is when a mark establishes a connection between your company and a product or service. Because of this requirement, it is better that your mark is suggestive (requiring an imaginary leap to relate to product/service), arbitrary (unrelated to product/service), or fanciful (an entirely made up word).

Once you have a distinctive enough mark and have done all of your searches, then you can file an application and accompanying fees with the USPTO.

Following the filing of an application, the USPTO examiner may either deny the application or point out issues to fix in order to get it passed.  If, and when your application has been granted, it will be publicized on the federal register and opened for challenges (if challenges arise, you can either abandon your mark or defend it). If there are no challenges in 30 days, then the trademark will be registered.

FOOTNOTES: 

[1] Specifically, you need to file section 8 declarations of use between the 5th and 6th years after registering your mark along with a specimen showing how you are using your mark in commerce, and you need to file for renewal every ten years.

[2] In many cases, a mark can be too weak to register in the first place. For more on distinctiveness, see Abercrombie & Fitch Co. v. Hunting World Inc., 537 F. 2d 4. This case creates the Abercrombie spectrum, which consists of Generic on the weak end, Descriptive, Suggestive, and then Arbitrary/Fanciful on the strong end.

This post was originally posted here on February 6, 2019, and has been reproduced with Alex’s permission.


SOURCES:

Kaufman Fasttrac: Trademarks 101 for entrepreneurs https://www.fasttrac.org/blog/trademarks-101/

IP Watchdog: What Entrepreneurs Need to Know About Securing and Protecting Trademarks https://www.ipwatchdog.com/2018/10/07/trademarks-entrepreneurs-need-know-trademarks/id=102067/

Abercrombie & Fitch Co. v. Hunting World Inc., 537 F. 2d 4.

IMAGES: 

https://www.pinterest.com/pin/create/button/?guid=hy1BtSrSDcDU&url=https%3A%2F%2Fajphillips150.wixsite.com%2Fwebsite%2Fhome%2Fso-you-found-a-name-you-like-now-how-do-you-keep-it-an-intro-to-trademarks-for-entrepreneurs&media=https%3A%2F%2Fstatic.wixstatic.com%2Fmedia%2F657d93c686e44e2d9b543a6e1e42cbca.jpg%2Fv1%2Ffit%2Fw_4933%2Ch_3283%2Cal_c%2Cq_80%2Ffile.png&description=So%2C%20you%20found%20a%20name%20you%20like%2C%20now%20how%20do%20you%20keep%20it%3F%20An%20intro%20to%20trademarks%20for%20entrepreneurs

https://www.google.com/search?q=protection&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj44b7P5JjjAhVLLs0KHcFWA2kQ_AUIECgB&biw=1275&bih=657#imgrc=ioHOuIEITfqJyM:

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Alexander Phillips, at the time of this post, is a rising 3L at Penn State Dickinson Law planning to graduate with a certificate in Entrepreneurship Law and a concentration in Intellectual Property. He currently lives in Maryland, and hopes to one day practice trademark law in Washington, DC.

Agriturismo Serafina | A Family of Entrepreneurs in Italy | July 2019

By: Samantha Prince

FURORE, ITALY. Happy to introduce to you the Fusco family – owners of Agriturisimo Serafina. Since we are on break for the summer, I thought it fitting that I write a post about this entrepreneurial family that I had the pleasure of visiting last month.  I am hereby dubbing them our July Entrepreneurs of the Month.

In planning our trip to Italy, it was important to my son and I to visit the Amalfi Coast but do so in a manner that was more adventurous than simply staying in a busy town hotel.  Additionally after being in Rome for a few days, and hiking up Mount Vesuvius, a quiet place to relax was warranted.

In comes our visit to Agriturisimo Serafina!  This 4-generation family run mountainside farm opened its doors to expand its business from agriculture alone to a B&B and restaurant experience that is unparalleled!  The view from there is spectacular as you can see in this photo.

Rosa (one of two daughters in the family) met us upon arrival and enthusiastically showed us their kitchen and farm.  One could easily tell that she was a hard worker (she carried my 45lb suitcase on her shoulder down a very steep flight of stairs), but if there was any doubt, she explained that since they are on the mountainside, all farming needs to be done by hand – no machinery.  They grow what they need in order to provide for their family and guests: Lemons, grapes, mandarin oranges, tomatoes, garlic, olives, etc.  They also sell food items they’ve made.

What’s in a Name?

Choosing a name can be a daunting task for an entrepreneur starting a business. Some choose names that are descriptive and some choose names for the meaning.  In 1996, when Domenico and his wife Giuseppina opened their farm to the public, they had to select a name.  They chose the name “Agriturismo Serafina,” after Domenico’s grandmother.  Why? Serafina was a strong woman who took care of the farm, family and animals but was also known in the village for her generosity: primarily sharing food with lower paid farm workers in the village so that they could feed their families.  In essence she was an early social entrepreneur!

Expanding FarmING into Tourism

Some entrepreneurs change business direction, or include an add-on when they see a need in the marketplace but some expand out of financial necessity.  Given the taxes and other stresses for agriculture in its area, the family farm needed to do something to survive financially.  The answer was to open to the public in the form of a B&B and restaurant, or “agriturismo.”

However, no matter what your initial motivation is when expanding, a conscientious and successful business owner must prioritize customer service and provide quality products. The family at Serafina exemplifies this philosophy.  For example, dinner was from 8-11 and all of the prepared food was grown or raised on their farm.    During those three hours, we were served course after course of delicious fresh food.  Also, each time Rosa brought something to our table, she gave us an explanation.  I’d be remiss if I didn’t mention the wonderful homemade wines and liqueurs that accompanied the meal as well!

Know the Laws

No matter what your industry is, you must know the laws that apply.  When expanding your business, you must learn more laws as now additional ones may apply.  In going from solely an agricultural business to one that has overnight guests and a restaurant,  Agriturismo Serafina had to learn about and abide by laws such as hygienic laws governing dwellings and food safety.  Being compliant can take a lot of energy but it is better than violating the law and dealing with the consequences thereafter.

Conclusion

Running a farm is a large endeavor; adding the layer of having guests arrive and attending to them is an even larger endeavor!  Before we departed, Domenic0 handed my son a Serafina card and a bottle of homemade mandarincello and said “tell your friends.” Good service, good marketing, solid business philosophy… or simple kindness?  All of the above!

The Fusco family are a multi-generational family of social and agricultural entrepreneurs.  We were happy to get to know them while on our travels.

 

Dean’s Spotlight | Gary S. Gildin on Entrepreneurship

By: Rachel Tunney

Gary S. Gildin has been a professor of law since 1979. He served as the interim dean from 2013-2016 and was appointed dean in 2016. This July, both Dean Gildin and the school will welcome Danielle Conway from the University of Maine School of Law as the new dean of Penn State Dickinson Law.

Do you remember your first year of law school? What stood out? Who was there in the early few days, making an impact? For 1Ls at Penn State Dickinson Law, that would be Dean Gildin. He is not a figurehead that is aloof and unavailable. He gets involved with his students from their very first day.  1L Orientation: it was filled with activities and workshops, advice and wisdom and an assumption that we would get a quick intro and a wave from our Dean Gildin. But instead, the man begins a presentation without any evidence of distraction from the multiple administrative tasks that must be buzzing away on his calendar and to-do list.

The first-year students have the privilege of taking an entire course in their first semester with Dean Gildin. He uses the class strategically, not only providing lessons on the importance of authority and theme but to check in on his students. He reminds them to make time for themselves. Along with his list of skills that have led to accomplishments and achievements, there appears one clear quality that outshines the others: he cares.

Dickinson School of Law’s transition to Penn State Dickinson Law involved moments of entrepreneurship and an emergence of a leader who made that transition positive and successful: Dean Gildin

How do you spell ‘Entrepreneur’?

Dean Gildin humorously admits that the term ‘entrepreneur’ was not found in his day-to-day vocabulary before serving as Dean. He believed as many do, that entrepreneurs belonged to the corporate world, surrounded by business models day in and day out. Dean Gildin’s most significant take away once he had to put on his Entrepreneurial Hat’ was that an entrepreneurial mindset “is so opposite to how we train lawyers.” Lawyers guard their clients against risks, avoid risks. Entrepreneurs embrace them.

To hear more of Dean Gildin’s thoughts on the entrepreneurial mindset, click here.

a good leader = a good person

Leaders: we all want to be them, few become them.

It is hardly believable that someone could become Dean after serving as a faculty member for over thirty years without knowing a thing or two about what makes a good leader and possessing those qualities themselves. Dean Gildin’s secret for effective leadership? The answer is not complicated. Reflect basic human decency.

“If you’re not a decent human being and not treating people well, you are not going to motivate them by fear or intimidation.”

Dean Gildin’s advice on leadership emphasizes the significance of what he refers to as the “servant mindset”: serving both your entity and the people who are part of it.

To hear more of Dean Gildin’s thoughts on what makes a good leader, click here.

when the going gets tough, change gets easier

Dean Gildin mentioned that in 2010, law schools across the country saw significant drops in the number of applicants, which forced many deans to become accidental entrepreneurs. Law schools had to take a close introspective look at how they were currently attempting to attract students and figure out what steps needed to be taken to increase the attraction. Dean Gildin’s accidental entrepreneurial position saw with it less resistance to the implementation of change because of the apparent need for it with decreasing application rates. In situations like this, when a change is so obviously needed, people are more willing to try something new.

To hear more about how Dean Gildin has had to be entrepreneurial in his position as Dean of Penn State Dickinson Law, click here.

Dickinson law: public interest and entrepreneurship 

One unique facet of Dickinson Law is the apparent student interest in desiring to make an impact with their professional degree. Dean Gildin mentions that the student body is composed of many who have passionately declared themselves for the public interest sector; others have dived into the entrepreneurial world and acquired business knowledge that was otherwise unavailable previously. The student who wants to enter public service and the student who wants to be an entrepreneur have more in common than people think; they both want to make an impact.

To hear more on Dean Gildin’s thoughts on entrepreneurship and public interest, click here.

promoting entrepreneurship

“It is our school’s obligation to prepare students for an ever-changing professional marketplace for lawyers.”

Dean Gildin reflected on how much has changed since his days as a law student. Back then, he reminisced, you could drift through law school and have a guaranteed job upon graduation because there was so much work to be done. You didn’t need to think about market disruption or about cultivating a unique skill set or mindset to make yourself more attractive to prospective employers. However, times have changed, and now you do. Dickinson’s Entrepreneurship Certificate program coupled with its ability to provide entrepreneurial skills to law students through experiential courses, prepare the student body to understand both clients and business in a way that will make them attractive to future employers or to become entrepreneurs themselves.

To hear more about Dean Gildin’s thoughts on the changing marketplace for lawyers, click here.

Dean Gildin demonstrates an evident enthusiasm over the cultivation of a lawyer’s logic and creative way of thinking. His classes, lectures, and conversations remind us that using only one part of the brain will do our clients and us a disservice. Dean Gildin has made law possible to those who fear they might not be able to achieve success as a lawyer due to a lack of a specific major, family connections or having lived as an ex-wannabe-Broadway-performer (Just me?). Dean Gildin is shaping his students into well-rounded attorneys and humans. It is this emphasis on wellness and creativity that will set them apart.

Dean Gildin, in every sense, was the “keeper of the culture,” of Dickinson Law; a culture that made the community part of its core values. It is because of his dedication towards service and leadership that all of his students will graduate with the ability to Practice Greatness.

We wish Dean Gildin the very best as he embarks on his next chapter. We are incredibly blessed that we will not have to say farewell, but that we will continue to have an opportunity to learn from him in the classroom.

And we still have much to learn.

Book Recommendation

Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization

By: Dave Logan, John King & Halee Fischer-Wright

Dean Gildin mentions that this work discusses how the most effective organizations are composed of people who are working for a higher purpose, one beyond their own self-interest/self-satisfaction.

Sources:

https://news.psu.edu/story/555097/2019/01/21/academics/conway-named-dean-dickinson-law

https://www.barnesandnoble.com/w/tribal-leadership-dave-logan


Formerly a professional dancer/singer in New York City, Rachel Tunney at the time of this post is a rising 2L at Penn State Dickinson Law. Before her law school career, Rachel obtained a B.S. in Fitness, Conditioning, and Performance at Auburn University and designed three original fitness classes at their Recreational Facility. Upon graduation, Rachel Tunney moved to New York City where she completed Broadway Dance Center’s Professional Semester Program and was hired as their Group Services Assistant. Witnessing discrimination and civil rights issues within the entertainment industry led her to pursue a legal career. Rachel is a proud volunteer for the Distinguished Young Women of America program where she has served as a participant, judge, and choreographer.

 

The Façade Easement: Adding a New Dimension to Your Business

By: Marisa Halm

A façade easement allows a person or business to use the surface, or façade, of an adjoining building. In recent years, the façade easement has been adapted for use between businesses. This post will explore the business potential of the façade easement, as it can create tax breaks, build ambiance, and build positive publicity for the business. This post will also explain why drafting a written façade easement should be standard practice and give some general contract recommendations to consider.

Historical Façade

Façade easements are traditionally used to promote the preservation of historically significant graffiti, historic murals, or historic advertisements. The “historic significance” of a place depends on the “location, design, setting, materials, workmanship, feeling and association [that] adds to the district’s sense of time and place and historical development.”

Even though the Tax Court held in Harbor Lofts Assoc.s v. Comm’r that only the owner of the building may obtain a tax deduction, it could still be worth mentioning to your neighbor if their historic façade adds value to your business; you both could benefit from its preservation!

The tax deduction amount is based on the value of the easement, which is determined by the difference in the property’s appraised fair market value before the easement exists and the property’s appraised fair market value after the easement exists. This fair market value can depend on many different factors, including the amount of local historic preservation ordinances already in effect and potential development restrictions. Unfortunately, the Tax Court has a few inconsistent rulings that can make declaring a federal tax deduction rather complicated. For instance, in most cases, a retained easement must be given to a historical non-profit organization in order to be tax deductible. Yet, as seen in Big River Development LP et al. v. Comm’r, if the building has depreciated to such an extent that a tax break would attribute a negative value to the building, then a deduction is not awarded. Rulings like this create a very specific set of guidelines and circumstances for tax deductions, and a talk with a tax attorney will help determine what options are available at both state and federal levels.

Ambiance and positive publicity

Historic conservation can also contribute to the ambiance of the business. In Wilmington, DE, the Trolley Square Oyster House is embracing this practice.

This restaurant is located next to railroad tracks, which might seem like a disadvantage if trying to attract guests to sit outside and mingle. However, the Oyster House’s rooftop dining space is bordered by an old building with a huge historic advertisement that portrays a train and promotes an old brand of beer. This advertisement adds historic value to the building it lies on and creates a fun nod to both the beer and railroad industries of the area. By preserving the historic advertisement, the business transforms a weakness in the space into a full dining experience.

If done right, this ambiance can be a large part of what makes your business successful. For instance, in Philadelphia, PA, the Graffiti Bar has become a social media hotspot. It is a shabby-chic rooftop bar that showcases graffiti and honors the art form, as it is widely prevalent throughout the city. It has both commissioned murals and authentic graffiti throughout the interior, all of which attracts a crowd that is constantly taking pictures, posting and tagging the business, and promoting it on social media. This form of marketing is crowd-sourced and, best of all, free. There is also a large mural on the building next to the bar that can be seen from the street and has been tagged in so many posts that it now acts as an unofficial sign for the Graffiti Bar. Though the business does not receive tax breaks because they hired the artist, the mural beckons curious passersby into the space and creates a recognizable establishment in the Philadelphia nightlife scene.

The Façade easement itself 

If your neighbors own the building, they can grant a façade easement. When negotiating a façade easement, you should always have a written legal document drawn up to reflect the terms and conditions of the easement. As with all legal documents, it is best practice to hire an attorney to assist with drafting and negotiations to account for business considerations that are specific to your industry and situation. Generally, it is prudent to include the following:

  • The Duration: The façade easement should ideally be granted in perpetuity, or as long as your business remains open next door.
  • The Parties: State the name(s) of the property’s owner(s) who is/are granting the easement and your business’ name. This way if you end up selling your business, the easement is attached to your business, not you as an individual.
  • Additional Terms: This would include any additional terms and conditions that either party would wish to impose. For instance, this could be permission to use the façade as long as there are no offensive images on it, or the agreement to maintain the historic integrity of the façade and the wall of the building.
  • Full Disclosure: Though it is not required, it would be wise to ensure that the property owner(s) understand that the written easement does transfer to future owners of the property. The property owners will then know to inform prospective buyers of the easement and may help you coexist with future neighbors.

If the new neighbors do not approve of the usage of their building and you have a written façade easement, you will likely have a strong case if you choose to go to court. It is important to evaluate whether you have the means to finance the court costs and legal fees. It is a good idea to hire an attorney to assist you, as he or she will be able to find relevant historical conservation statutes and case law that may prohibit alterations to the wall.

Explore your options, be creative, and think outside the walls of your business; think façade easements!

This post was originally posted here on March 31, 2019, and has been reproduced with Marisa’s permission.


Sources 

The National Historic Preservation Act, 36 C.F.R. § 67.2(a)(1).

Harbor Lofts Assoc.s v. Comm’r, 2018 U.S. Tax Court LEXIS 46 (2018).

Big River Development LP et al. v. Comm’r, T.C. Memo 2017-166 (2017).

https://www.law360.com/articles/958457/tax-court-calls-developer-s-7m-facade-easement-a-donation?copied=1Ambiance

https://www.irs.gov/businesses/small-businesses-self-employed/tax-aspects-of-the-historic-preservation-tax-incentives-faqs

https://www.nps.gov/tps/tax-incentives/taxdocs/easements-historic-properties.pdf

Image Sources

Trolley Square Oyster House, Yelp.com, uploaded by Renee D.

Graffiti Bar interior, Yelp.com, uploaded by Amber L.

Graffiti Bar mural, photo taken by Christian Carollo.


Marisa Halm, at the time of this post,  is a rising third-year law student at Penn State’s Dickinson Law. She is from a small town near Greensboro, North Carolina, and went to Allegheny College before coming to Dickinson.  Marisa has taken several different business law-related courses.  Her interests in this area likely stem from having entrepreneurial parents.  You can find out more about Marisa here.

Tuning-Up: Music Licensing Considerations for Mobile Applications

By: Anahita Anvari

Many mobile applications include background music, or play videos that include background music. Mobile application developers should be aware that even background, or “incidental,” music requires permission (a “license”) for use. This blog post details the procedure and costs necessary to legally use background music in mobile applications.

What Requires a License?

The United States copyright law requires anyone who publicly performs copyrighted music to obtain permission (a “license”) from the copyright owner. Music licensing includes both musical compositions and sound recording copyrights.

A copyright on a musical composition (a “song”) protects the melody and lyrics. The songwriter or publishing company typically owns the copyright. A copyright on a sound recording protects the specific recording. There may be multiple sound recordings for the same song, such as when different musicians record the same song. Record labels typically own sound recording copyrights. Click here for more information about differences between songs and sound recordings.

Background music in mobile applications likely qualifies as the use of a sound recording. Therefore, this blog post only addresses licenses for sound recordings. Consult with an attorney for further assistance if your mobile application includes a live or original version of a song because that may require a different license.

Where Do I Get a License and What Will it Cost?

You must obtain a license if your mobile application includes any public performance of a sound recording. A public performance” of music is one that either (1) occurs in a public place where people gather, or (2) that transmits to the public, for example, TV broadcasts and via the internet.

Under copyright law, owners of a sound recording have a “performing right,” which is an exclusive right to play their music publicly and to authorize others to do so. A “performing rights society” (PRS) is an association, corporation, or other entity that licenses the public performance of musical works on behalf of certain copyright owners, ensuring that these individuals receive the appropriate royalties for the use. Each PRS represents different repertoire of copyright holders (songwriters, composers, and publishers). Therefore, you may need to obtain licenses from more than one PRS.

The three major PRS’ in the United States are the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, Inc..

A. American Society of Composers, Authors, and Publishers (“ASCAP”)

ASCAP represents artists like Lana Del Rey and the Beastie Boys. Click here for more information about ASCAP artists.

ASCAP offers a license for mobile applications through its “Build my License” feature. The annual license fee ranges from $255.00 to $1,499.00. The licensee must pay the greater of the minimum license fee and the amount determined by applying the Licensee’s Service Threshold to the Rate Schedule applicable at the beginning of the contract year.[1] The chart below is a sample rate schedule. ASCAP does not offer a trial period for its services, but a licensee may give thirty-day notice to cancel the license. For more information, fill out this Build my License application.

B. Broadcast Music, Inc. (“BMI”)

BMI represents artists like Lady Gaga and Pit Bull. Click here for more information about BMI’s artists.

BMI offers a variety of “blanket licenses” that permit use of its full repertoire of sound recordings. The Website Music Performance Agreement (“WMPA”) is a blanket license used generally for any commercial entity that has the potential to generate revenues from operating a website or a mobile applications, but does not constitute a Music Service. A “music service” means that the central focus of the app is to transmit audio-visual material that features music, such as a music streaming service. A mobile application with only background or incidental use of music is not a music service, and will likely qualify for a WMPA.

Regardless of the license used, all BMI licenses require a $365.00 annual minimum fee. BMI requires an additional annual license fee dependent on either gross or music revenue. BMI does not offer a trial period for its services, but will provide a refund for termination of use upon appropriate written notice.  For more information about fees, fill out this WMPA application.

C. Society of European Stage Authors and Composers (“SESAC”)

SESAC represents artists like Axl Rose and Kesha. Click here for more information about SESAC artists.

SESAC offers an Internet Performance License (“IPL”) for software applications and websites. The annual minimum fee for an IPL is $660.00. SESAC does not provide detailed pricing information on its website. For more information about the IPL and pricing calculations, contact SESAC by filling out this form.

What Happens If I Do Not Obtain a PRS License?

While a PRS can streamline the licensing process, using one is not the only option. In lieu of a blanket license from a PRS, you may reach out to individual copyright owners to use their sound recording. While this process may be tedious, it may also be beneficial if your mobile application only uses one or a few sound recordings. Consult with an attorney to determine the best option for you.

Whichever method of licensing you choose, the license is vital to avoid violating the copyright law. A public performance of any copyrighted song without authorization may constitute a violation of the copyright (an “infringement”). The copyright holder may choose to sue you for infringement. This could cost you anywhere between $750 and $150,000 per song.

For example, the fitness company, Pelaton, sells at-home fitness videos that include background music.  Pelaton is currently facing a $150 million lawsuit for failing to license the sound recordings that play in its fitness videos.

The cost of obtaining a license is far less than the potential economic and public relations damages from a violation. You should consult with an attorney to ensure your business is complying with the applicable copyright law.

[1]“Service Threshold” means the revenue and session threshold set forth on ASCAP’s rate schedule.

 


*This post was authored on March 31, 2019 and has been reproduced with Anahita’s permission.  Her original post can be found here.

Anahita Anvari, at the time of this post, is a rising third-year law student at Penn State’s Dickinson Law. She is from Southern California and is interested in business and healthcare law. Anahita founded the Health Law and Policy Society and is a Senior Editor of the Dickinson Law Review.

 

Mark Landgren | Entrepreneur of the Month | June 2019

By: Rachel Tunney

Mark Landgren ‘92 is a graduate of St. Lawrence University and Dickinson Law. He served as an aide to the late Senator Daniel Patrick Moynihan of New York in the late 80s, founded and sold two successful athletic apparel companies in the early 2000s with Paige Wingert, another graduate of Dickinson Law. Mark went on to establish the boutique law firm Corporate Legal Partners with his wife in 2003. Mark joined a global digital media start-up as Chief Operating Officer and General Counsel in 2008 before joining The Nexxus Group in 2009. Mark served as the COO and General Counsel back in 2009 for The Nexxus Group before transitioning into his current role of CEO and owner

pLEASANTRIES AND PEANUT bUTTER 

When he arrives for his interview, Mark Landgren immediately fills the space with his presence. His persona is at first intimidating, but that might only be due to my observation of someone well over six feet in height when I barely reach five. Once he approaches the table where I sit, his kind eyes and words make you relaxed and intrigued to hear whatever it is he has to say. As we wait for the video and lighting tests to be complete, I learn one of his secrets to his successful career:

An English muffin with peanut butter.

It is his go-to breakfast at the office. It is an eating routine that he has had for quite some time. And routines create habits. And habits, especially in the morning, can have a significant impact on the rest of your day. The benefits of habit formation go beyond just health, he says. Getting into the habit of smiling at people on the street, making eye contact, can also significantly impact your life. It appears, from listening to his words, that even an English muffin can bring out the best in you. Like a fish to a hook, I’ve bitten the line, and I am excited to have the opportunity to hear more from him.

Leaders: visionary, integrity, collaborative

Our motto as Dickinson law students is not “Practice Greatness” without reason. We hope to be leaders in our prospective legal fields. We aspire to be the next generation of innovators, policy implementors and judges. Mark spoke of three essential qualities that he finds in good leaders:

1)  Visionary: “In order to be a good leader, you have to have a vision. And that vision has to go beyond tomorrow, next week, next month, next year. You need to be able to see into the future.”

Every good idea starts with a vision. When it comes to being visionary in the entrepreneurial sense, a good leader understands the importance of viewing the longevity of the project beyond the company’s current position.

2) Integrity: “If you are not authentic and do not have integrity, it’s really hard to rally people around you, to support you. And you’ll find that no great leader can do it by his or her self.” The journey of an entrepreneur is not a solo adventure.

3) Collaborative: “You have to be willing to fail and have to let others fail.” You need innovation to be successful, and innovation will only arise if you fail.

To hear more of what Mark believes makes good leaders click here.

Improve your entrepreneurial mind: focus on your “lens”

“I have a different outlook on life.”  The Entrepreneurial mind is special, different. Mark described it as having the ability to view the world through a special lens: seeing problems not as annoying roadblocks but as opportunities. Okay, opportunities not problems. I’ve heard that before. But when Mark gave an example of what he meant, I had to smile because it was a brilliant example of this special “lens”:

On his drive down from Massachusetts, Mark explained how he saw a heap of trash on the side of the road. Instead of thinking about how that trash disturbed the pleasant drive through Pennsylvania, he began to wonder how someone might be able to take those abandoned, used plastic bottles and make eyeglasses out of the material. “I wonder what the cost would be. How would you gather it, first of all, and where would you ship it?” Talk about having an entrepreneurial mindset.

To hear more of Mark’s remarks regarding the entrepreneurial mind, click here.

Go to law school: the j.d. was worth it

Someone who has a J.D. but who is not practicing law could never possibly believe that the hours spent at Dickinson Law with casebooks, citations and footnotes was possibly worth it, right? Mark argued otherwise. When I asked him if a J.D. had any impact on his career, he responded with a resounding, “Yes.” Mark stated that J.D. education is crucial to finetuning analytical skills. He said understanding that there are two sides to every issue and learning how to become an expert in a particular side of that issue puts you at a clear advantage regardless of whether or not you become a practicing lawyer. Mark mentioned that when he and his wife, Trish, (also an Alumna whom he mentions frequently and fondly) presented business plans to a bank, the institution was surprised at the level of skill demonstrated by the proposal. He said that law school taught both of them the importance of detail and time, which was evident in their proposal. This degree, according to Mark, will help “no matter where you go.”

To hear Mark’s advice to law students, click here.

one hat, two hat

When it comes to guidance and wisdom for young entrepreneurs, Mark’s advice is to be eternally optimistic but to check yourself along the way. “You think the idea you have is the most brilliant idea in the world…often times, you’ll go too far.” He mentioned that an entrepreneur wears two hats:

Hat One: Operator [Leader]

Hat Two: Investor [Shareholder]

A truly successful entrepreneur, according to Mark, can put one hat on at a time. Mark said a business becomes your baby. Your whole life can depend on its success. It can become your purpose for living. This phenomenon presents a problem. Stepping away can be a struggle. However, the most successful companies will continue to thrive well after their operator and investor is gone. That business succeeds because you were able to teach your team how to manage even in your absence.

To listen to Mark’s advice for entrepreneurs, click here.

An obvious key to success: relationships

My past life in the theater industry made me learn quickly that success in that industry comes with a hefty price: minimal opportunity for a family. I left a world that demanded insane working hours, extensive tour routes and harsh demands for your body to look a certain way at all times. All of these factors discourage family creation and spousal relationships. It was refreshing to hear how essential Mark’s relationship with his family has been throughout his career. “You need to put family first.” Mark lights up with a grin when asked about balancing family and work. He said that support is essential for someone who is handling the challenges that entrepreneurial work brings. He makes it a priority to disengage from work when its family time.

To hear more of how Mark manages to balance family and running a company, click here.

Mark is not only a successful CEO, but he is also an overall great person who makes an effort to establish a great relationship with his employees. Word to the wise should you find yourself working for him someday: Be careful sharing your birthday information. Should he come to know that it is your special day, you can guarantee you will find Mark and an eager grin right at your office desk with a rendition of “Happy Birthday”.

Reading suggestions:

Never Split the Difference: Negotiating as If Your Life Depends on It

By: Chris Voss with Tahl Raz

Mark mentioned this book, and it sounded intriguing enough that both Professor Prince and I bought it. My classmates have heard me complain numerous times about how hard I find negotiating simulations; not anymore! In this book, a former international hostage negotiator for the FBI offers his advice on high-stakes negotiations. Life is a series of negotiations, he writes, and this book gives you the tools to handle those situations with his proven techniques and tips.

How to Win Friends & Influence People

By: Dale Carnegie

A classic bestseller, this book will teach you how to become a truly likeable person while chasing your dreams. The wisdom within these pages teaches you how to win over individuals with your concepts and ideas, encouraging communication without arousing resentment. Carnegie’s advice in this book has aided many successful individuals in their climb to the top in both their personal lives and businesses.


Formerly a professional dancer/singer in New York City, Rachel Tunney is currently a 1L at Penn State Dickinson Law. Before her law school career, Rachel obtained a B.S. in Fitness, Conditioning, and Performance at Auburn University and designed three original fitness classes at their Recreational Facility. Upon graduation, Rachel Tunney moved to New York City where she completed Broadway Dance Center’s Professional Semester Program and was hired as their Group Services Assistant. Witnessing discrimination and civil rights issues within the entertainment industry led her to pursue a legal career. Rachel is a proud volunteer for the Distinguished Young Women of America program where she has served as a participant, judge, and choreographer.

Links/Sources:

thenexxusgroup.com

https://distinguishedyw.org/

Picture Sources:

https://www.walmart.com/ip/Non-Prescription-Round-Circle-Frame-Black-Clear-Lens-Glasses/450992744

http://www.doe.virginia.gov/instruction/graduation/index.shtml

Davy Mellado Photography

Enhance Your Business by Becoming a Certified Organic Producer

By: Sarah Phillips

The ability to market your products as “Certified Organic” will benefit your business. In addition to the rapidly growing consumer demand for certified organic products, you will have the ability to create marketing campaigns that demonstrate your commitment to the organic values that customers prioritize.

The National Organic Program (“NOP”) is a government sponsored program that allows qualifying participants to use the “Certified Organic” seal on their products. It is facilitated by the United States Department of Agriculture (“USDA”) in accordance with the Organic Foods Production Act (“OFPA”).

The process to become certified organic is long and costly. However, the demand for organic products is expected to last, and those products can be sold for a high premium. Many agricultural entrepreneurs are taking advantage of this consumer trend and selling a variety of organic meats, organic produce, and other farm fresh organic products.

There are many steps that you will need to carefully follow in order to become a certified organic producer. Failure to do so could cost you thousands in lost fees and property improvements, as well as a denial of your organic certification application.

Step 1: Adopt Organic Practices

Title 7 of the United States Code of Federal Regulations contains the applicable rules and guidelines for operating a certified organic farm. Before you are permitted to apply for a certified organic license, you must adopt, and be able to sufficiently demonstrate, that you have implemented all of the required organic practices on your farm. For example, one section of the organic certification laws require that the farmer maintain or improve the natural resources of the operation, including soil and water quality.

It is important to decide on your type of agricultural operation first before you start making plans. Different production areas have different regulations that must be strictly followed. Livestock operations are required to adopt certain protocols for feeding their animals, administering medication to sick animals, and acquiring new animals. Similarly, produce farms have specific regulations that must be followed regarding crop nutrient management plans and fertilizer application.

It is important to adequately plan, document and implement your organic processes before you take the next step. Failure to prepare effectively will delay your ability to obtain a certified organic license, which will cost you and your business significant time and money.

Step 2: Select a USDA Accredited Certifying Agent

The USDA has partnered with accrediting agents who are on the ground in regions across the country to work with you throughout the application process. You must go through one of these accrediting agents to become a certified organic producer; they are the only agents permitted to issue an organic certificate. The USDA’s website provides an online database of certifying agents, where they are located, and how to contact them.

Certifying agents are familiar with all of the regulations in the NOP, and can serve as a valuable resource in making sure that you and your farm have complied with every legal requirement necessary.

Step 3: Application Review and Inspection

Once you have selected your certifying agent, you will need to complete and submit a lengthy application that outlines, in detail, how your operation complies with the USDA’s organic regulations. After the USDA receives and conducts a preliminary review of your application, your operation will be open to an inspection. This inspection will ensure that your operation is complying with all the regulations. One of the major components of passing the inspection is adequate compliance with The National List of Allowed and Prohibited Substances.

This list identifies the substances that are both permitted and prohibited for use on an organic operation. Therefore, it is crucial to understand how substance use will impact your operation and confirm that you are not using anything that could jeopardize your organic production processes.

Generally, most synthetic substances are prohibited. Antibiotic use is never allowed when raising organic animals, even if that animal is sick with a disease easily treatable with an antibiotic. If an antibiotic is used, the animal must be removed from the operation immediately, or you risk losing your organic certification.

Additionally, many consumers equate organic with “pesticide free,” which is simply not the case. The list outlines both synthetic and non-synthetic substances that can be used in organic crop production. As a producer and entrepreneur, aside from understanding this list to protect your organic certification, it is important to understand what substances you can use, why and how those substances impact the product and the environment. It will be one of the most common questions asked of you by consumers, and a proper understanding will help you develop more effective, truthful and accurate marketing strategies.

Steps 4 & 5: Inspection Follow-up and Approval

After the inspection has been completed, your certifying agent will review your application again, as well as conduct a review of the inspection report. After review, if you meet all of the legal requirements, you will be issued a license to use the official USDA certified organic seal on your products.

Ongoing Considerations

Once you receive your organic certification, your operation is open to continued inspections. Additionally, as you modify the farm, your production, or your practices, you must update your organic practices plan. It is important to always follow protocol and stay current with changing regulations; doing so will ensure your ability to use the certified organic seal.

Finding the funds to facilitate your operation’s transition to a certified organic farm can be difficult. The USDA offers different grants and a cost-share program to assist farms in obtaining the financial means to move forward with the three-year transition. To learn more about those programs, click here to read a previous blog post that highlights the programs’ important features.

Selling organic products is not the right business decision for every operation. By researching other organic operations, and thoroughly learning the legal requirements to market your products as organic, you will be able to make the right decision for your farm.

*This post was authored on March 31, 2019 and has been reprinted with Sarah’s permission. The original post can be found here.


Sarah Phillips, at the time of this blog post, is a rising third year law student at Penn State’s Dickinson Law. She is from West Amwell, New Jersey and has interests in agricultural, land use and business transactional law. She is currently serving as a Honor Code Representative and a Law Lion Ambassador.  Moving forward to her 3L year, Sarah will be the Editor-in-Chief of the Dickinson Law Review.

Sources:

https://www.ams.usda.gov/services/organic-certification

https://www.ams.usda.gov/services/organic-certification/certification

https://www.ams.usda.gov/services/organic-certification/becoming-certified

https://www.ecfr.gov/cgibin/retrieveECFRgp=&SID=58ce67d13764a8b1f47ffa11058f7e97&mc=true&n=pt7.3.205&r=PART&ty=HTML

https://www.thebalancesmb.com/before-you-transition-your-farm-to-certified-organic-2538059

Pictures Sources:

What You Need to Know About Organic Fraud in the U.S. — And Why It’s So Important to Take Action to Protect Organic Standards

https://bit.ly/2WHhoeT

Prepare To Make Your Farm Certified Organic

Granted: Considerations for Businesses When Applying for Government Grants and Other Incentives

By: Ian Brinkman

Recently, the news was abuzz with talk of state and local governments trying to entice Amazon to establish a second headquarters in their communities. Things got even more interesting when those same governments were criticized for offering too sweet of incentives, such as deferred taxes. While most businesses might not see the fanfare experienced by Apple and Amazon, there are plenty of opportunities to reap the benefits of government grants and tax incentives. This is not a simple process, but with some thought regarding the legal and non-legal issues surrounding grants and tax incentives, businesses of all kinds can make starting up, expanding, or moving to a new area more feasible.

Grants

To help fund public initiatives, stimulate the economy, and support the general welfare, governmental entities distribute grants. Unlike a loan or a tax credit, grants offer direct infusions of capital for a business, without the obligation to repay the grantor. However, government grants have stringent qualification, application, and reporting requirements, which often necessitates assistance from financial and legal counsel.

What’s Available

Federal 

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs offer businesses federal research and development dollars to help develop scientific and technological innovations. The thrust of these grant programs is to stimulate the economy by helping businesses commercialize their innovations. The end goal is for these businesses to ultimately contract with the federal government and other buyers. The STTR seeks to accomplish the same goals, but also requires the business to collaborate with a nonprofit research institution, which can be an invaluable experience for a new business.

Pennsylvania

The Global Access Program (GAP) is designed to build the capacity of businesses in exporting their goods. The Pennsylvania Office of International Business Development (OIBD) will reimburse 75% of expenses, up to $5,000 per year. Businesses can use this money to participate in international trade shows, make their website international user-friendly, or even hire a translator.

The Pre-Apprentice and Apprenticeship Grant Program offers 3 years of funding to help businesses establish apprenticeships and facilitate talent recruitment and development. Employers can receive $3,000 per apprentice for every year of the program.

Legal Issues

Grants offer businesses another avenue of funding during any stage of their lifecycle. However, because the money does not need to be repaid and is ultimately coming from taxpayer dollars, the eligibility, application, and reporting processes can be exhaustive. Businesses need to make sure they are complying with the contours of the program at every stage.

Eligibility

Sometimes for a business to be eligible to receive grant money, it simply must fall into a specific category, such as woman or veteran run or meet certain size requirements. However, many grants require a checklist of qualifications that must be met before an application can be submitted. Some examples include access to capital requirements for grants that help build on existing capacity or proof of current agreements establishing collaboration with other businesses or entities.

Application/Reporting

At both the application and reporting stages, businesses need to keep in mind that when it comes to obligations associated with receiving money, grants are much like loans. When applying for and receiving a grant, a business is entering into a contract with the grantor. Similar to a bank, the grantor will require the business to report out what it is doing with the money. However, the requirements can go well beyond reporting. Some grantors require the right to inspect the company’s financials and, in part, restrict how a company does business and who with. Additionally, these grant contracts incorporate a host of federal and state laws. Businesses should consult an attorney when interpreting and negotiating these contracts. Involving counsel at the application stage can also allow pre-planning for reporting and other requirements during the life of the grant.

Tax Incentives

If a business is not an Amazon or Google, the most likely tax incentive it will receive from the federal or state government is a credit for locating operations or investment in an opportunity zone.

At the federal level, 2017 legislation created Opportunity Zones (OZs) in economically distressed areas throughout the United States. For investors, the capital gains tax is waived until 2026 on gains used to invest in businesses or tangible property located in OZs. Furthermore, if the investments are held in the OZs for ten years, the gains on those investments are free from any federal income tax.

In Pennsylvania, a business located on certain parcels in any of the 12 Keystone Opportunity Zones (KOZS) can receive state and local tax abatement in the areas of sales and use tax, corporate net income tax, personal income tax, and various insurance taxes, among others. Continued eligibility requirements include increasing full-time employment by 20% or a 10% capital investment based on revenue.

Legal Issues

In addition to the reporting issues outlined in the grants section, businesses should be aware of several things when thinking of taking advantage of state and federal tax incentives. While paying less tax may seem enticing, the type of tax that is relieved might not have much of an impact on the business. If a certain zone offers incentives for sales tax rebates and the business is not subject to sales tax, or it requires investment in a corporate form, contorting an existing business into eligibility may not be financially or legally sound.

Additionally, businesses should involve counsel in the due diligence process because tax incentives are often subject to political and economic pressures. Once a grant is distributed, it is difficult for the governmental entity to claw that money back. However, if a business relies on the promise of ten years of tax deferral from a program that is only funded for five years, an attorney can advise as to how these considerations might affect the long term health of the business, and what contingencies can be put into place to avoid unexpected outcomes.

This post has been republished with permission from the author, Ian Brinkman.  The original post can be found here.


Ian R. Brinkman, at the time of this post, is a new graduate of Penn State’s Dickinson Law. He is originally from Central Pennsylvania and will start his legal career at Gibbel, Kraybill and Hess in Lancaster, PA as an associate in its Corporate practice group.

Resources

https://www.usa.gov/grants

https://www.grants.gov/web/grants/learn-grants/grants-101.html

https://www.sba.gov/funding-programs/grants

https://www.dced.pa.gov/program

https://www.revenue.pa.gov/GeneralTaxInformation/IncentivesCreditsPrograms/Pages/default.aspx

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

http://www.klgates.com/op

Brick and Mortar or Brink of Morgue? (Online Sales)

By: Idan Ghazanfari*

So, you’ve found the idea that you wish to build your business around.  What’s the next step?  There are a variety of answers to that question depending on who you ask, but chiefly among them should be solving the riddle of, “How am I going to profit off of this idea?”  Traditionally, when people wanted to buy a product, they all went through the same general routine: 1) figure out what they want to buy 2) find where the product was sold 3) go to where the product was sold 4) buy the product 5) rinse and repeat.  To facilitate this transaction of products, business owners would open up brick and mortar store locations locally to make this consumer cycle accessible to potential customers.  And then, the internet.

With the foundation-shattering internet revolution over the last 20 years, business owners have had to fundamentally rethink this customer-facing, physical storefront business model.  This revolution has been so game-changing that it has essentially required business owners to have at least some kind of online shop if not operate entirely online.  How transformative has selling goods online become?  Roughly 80% of the world’s internet users have bought goods and services online.  When people first began Amazon shopping and eBay bidding in 1995, the entire online shopping market was valued at just $131 million and the likes of Paypal had not even been invented yet. In 2015 when almost all major retailers are now online and customers are increasingly shopping on their phones with multiple payment options, e-commerce is valued at a staggering $1.55 trillion![1]

The Pros and Cons To ONline Selling

So, what are the positives and negatives to selling goods and services online?  One of the most obvious answers is that business owners would not have to shoulder the initial cost to construct a physical storefront or rent a commercial space.  Although entrepreneurs may not be burdened with the financial cost of opening up a brick and mortar storefront, selling goods and services through an online platform comes bundled with its own set of legal concerns: Taxes, payment gateways, trademarks, copyrights, patents, shipping restrictions, inventory, age restrictions, business insurance, licenses, permits, and payment card industry compliance to name a few.[2]

How it must have felt reading that list of potential legal concerns

As the method of selling goods to consumers has evolved, so have the rules and regulations facilitating such an exchange.  In a recent Supreme Court ruling[3], the Court tackled the question of whether states should expect retailers with no physical state presence to collect a tax that residents of those states are obligated to pay.  The court held that the previous rule requiring a physical presence to collect sales tax was no longer valid.  The court referred to the proper relationship to collect sales tax as a substantial nexus.  This language leaves room for interpretation, but definitively makes it known that the standard for collecting state sales taxes has changed.[4]

Marketplace Facilitators

Becoming an online retailer, however, is not the only way to establish an internet sales presence.  One of the ways small business owners and entrepreneurs can break into the online storefront market is by utilizing the services of a marketplace facilitator (e.g. Etsy, or eBay).  As defined by the Pennsylvania Department of Revenue, a marketplace facilitator is one who facilitates the sale of goods and services by: 1) Advertising goods and services for sale in a physical or electronic forum; 2) Collecting payment from the purchaser on behalf of the seller either directly or indirectly; and 3) Remitting payment back to the seller.[5]  By choosing the services of a marketplace facilitator, budding small businesses can alleviate some of the daunting legal considerations mentioned above.

https://blog.taxjar.com/marketplace-facilitator-explained/

In addition to the recent Supreme Court ruling, potential online platforms dedicated to facilitating transactions for aspiring business owners, including Etsy and eBay, have revamped their policies regarding sales tax as well.  Based on applicable tax laws, eBay will calculate, collect, and remit sales tax on behalf of sellers for items shipped to customers.  The collection process will apply to all sales, whether the seller is located in or outside of the United States.  As of 2019, eBay has begun to collect sales tax in four states.  eBay has also announced plans to scale this practice out to multiple other states, including Pennsylvania around July of 2019.  The good news for business owners is that once eBay starts to collect tax, no action is required on their part, and there will be no charges or fees for eBay automatically calculating, collecting and remitting sales tax.[6]

The rules and regulations governing the online sale of goods vary from state-to-state as well as from good-to-good.  Before diving head first into deciding whether to open up a candle store at the mall or to create a website to sell screen-printed t-shirts, make sure to check any and all relevant federal, state, and local laws.


*This post was authored on March 31, 2019 and has been reprinted with Idan’s permission. The original post can be found here.

Idan Ghazanfari, at the time of this post, is a second year law student at Penn State’s Dickinson Law. He was raised in Central Illinois where he enrolled in the University of Illinois and earned a B.S. in Finance.  He is interested in leveraging his undergraduate business background into private firm work with a corporate law focus upon graduation.  Idan is currently serving as President of the Phi Alpha Delta legal fraternity and as a member of the Middle Eastern Law Students Association at Dickinson.

Sources/Footnotes

[1] https://www.altushost.com/the-history-of-e-commerce-online-shopping-evolution-and-buyers-behaviour/

[2] https://www.bigcommerce.com/blog/online-business-laws/

[3] South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018).

[4] https://www.ecommercebytes.com/C/abblog/blog.pl?/pl/2018/6/1529591988.html

[5] https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Types%20and%20Information/SUT/MarketPlaceSales/Pages/Marketplace-Facilitators.aspx

[6] https://www.ecommercebytes.com/2019/01/04/ebay-starts-collecting-sales-tax-with-more-states-to-come/