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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

Franchise Opportunities
By Brett Melson Monday, December 20, 2010

When thinking of a franchise business, many people think of McDonalds, Burger King, and Wendy’s. But there are many more types of franchise businesses. One out of three dollars spent by Americans for goods and services is spent in a franchise business. Homes are bought, sold, cleaned, painted and carpeted through franchised businesses. Cars can be purchased, tuned, and washed through franchises. Franchising is successful because we Americans are people of habit and are brand-driven with our purchases. We trust brands we see often, and tend to be loyal to products or services delivered to us in the same way all of the time. Entrepreneurs have many opportunities to become part of one of these businesses, but have to weigh the advantages and disadvantages of investing their money and time. Franchising is a way to go into business for yourself but not by yourself.

Although there were 10% fewer franchises last year, industry watchers expect a year of slow but steady recovery for the franchise world. An upswing has already begun for recession-proof businesses such as fast food, tax preparation and home repair. Financing for franchises has changed, however. Instead of the ten or twelve big national lenders that would finance new franchises anywhere, entrepreneurs now must go through a regional or community bank. Also many franchisors are making loans themselves, discounting fees, or allowing new franchises to pay fees over time.  Contrary to public opinion, there is money to be loaned for new franchise start ups.

The top 10 franchises for 2010 are:

1. Subway (fast food)

2. McDonalds (fast food)

3. 7-Eleven Inc. (convenience store)

4. Hampton Inn (mid-priced hotels)

5. Supercuts (hair salon)

6. H&R Block (tax preparation)

7. Dunkin’ Donuts

8. Jani-King (commercial cleaning)

9. Servpro (insurance/disaster restoration and cleaning)

10. ampm Mini Market (convenience store and gas station)

Some of the advantages of opening a franchise instead of going into business for yourself include: reduced investment risk by marketing an established product, proven methods and business procedures, start-up assistance, experiencing success sooner, on-going support, advertising, collective purchasing power, and possibly easier financing.

Some disadvantages include: initial franchise fee may be non-refundable, royalty fees may have to be paid even if there isn’t significant income and may be due if you terminate the business early, the right to renew isn’t guaranteed, lack of independence because company controls restrict ability to exercise your own business judgment, franchise agreements tend to favor the franchisor, and the fact that a franchisor’s problem may become your problem. Fundamental to the smooth running of a franchise business relationship is a business model that is profitable to both the franchisor and franchisee. A great deal of research and self-evaluation is needed before deciding whether a franchisor’s business opportunity would be right for you.

If you are entering into a new franchise opportunity, don’t forget to incorporate first!!!!

Interested in America's most popular franchises?

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Meet the HBS Team: Devin Scott, Sales Executive
By HBS Thursday, December 16, 2010

Devin ScottDevin was born in Lewes, DE and attended Cape Henlopen High School and graduated from Delaware State University in 2001. He has been working in real estate since 2004 and recently joined the HBS sales team.

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Process for Obtaining a Patent—Part 1
By Haim Factor Wednesday, December 15, 2010

As part of this IP/patent blog series, we are now discussing the process for obtaining a patent in a two-part blog. An excellent flowchart describing this process appears on USPTO site, and it is reproduced here as a visual aid.

Although this chart looks quite daunting, the first seven steps involve planning  and basic decisions and the last two steps in the chart are fee payment—after all the“hard work has been done. So we need only to focus our attention on five or six of these steps for now.

Step 1—sometimes sometimes called a “prior art search”—is ALWAYS recommended. While your exact idea may not already be patented, learning what is “out there” is very useful, both at the start of and during the entire patent process. You can search databases such as the USPTO’s and many other databases and/or you can hire someone to do your searching.

Since we’re concentrating on a utility patent, we’ll skip step 2. And since for now we’re considering filing only within the US, we will also skip step 3. (We’ll get back to international filing in another blog.)

Step 4 involves the decision to file a provisional patent versus a non-provisional patent application.  A provisional patent application (available for almost 15 years) provides a lower-cost first patent filing option in the United States. Generally, provisional patent applications take less time and less expense to prepare and to file. On the other hand, a provisional patent lapses after 12 months. Filing a non-provisional patent application is the only way to ensure continued patent protection past the maximum 12-month period of the provisional patent application. Some people don’t file a provisional patent application, preferring to write and file a non-provisional application from the start.

We skip step 5, as many people do not need expedited examination. Regarding step 6, while it is highly recommended to have a registered attorney or agent prepare and file your application, because they are experienced not only in all the procedures and forms, but also because they typically can help you formulate a better patent application. Nonetheless, you can write and file your application yourself.

Steps 7 and 8 (electronic filing) are recommended—as opposed to the traditional method of paper filing. In most cases the attorney or agent files electronically for you. If you chose in step 6 above to do things yourself, you can file by paper (usually more expensive) or you need to obtain a USPTO certificate and customer number to file electronically. Especially for “first timers”, this, in itself could also be another reason to allow an attorney or agent to file for you.

Somewhere between steps 8 and 11 are the real “nitty gritty” steps of the patent process.  We’ll continue with a discussion of these steps in part 2 of this blog.

Patent Process

Haim Factor is a registered USPTO Patent Agent with nearly a decade of experience in patent drafting, prosecution, and overall IP strategies. His clients take advantage of his rich experience of over 25 years in business development of a wide array of B2B and B2C products and his experience with intellectual property protection both within the US and internationally.

He can be contacted at: haim.factor@1st-tech-ideas.com and at 302.200.1424.

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Proposed Regulations on the Series LLC
By Brett Melson Tuesday, December 14, 2010

There are many advantageous aspects to a Delaware series LLC, but there are ongoing uncertainities that make it difficult to actually utlize a series LLC. The Delaware series LLC business form reduces the fees incurred in creating and maintaining separate business entities for different ventures or investments; only one filing fee is required to form a series LLC, regardless of the number of series it may contain. In addition, a series LLC is treated as one entity in regard to Franchise Tax and Registered Agent Fee purposes, meaning it is assessed one $300 annual Franchise Tax and one Registered Agent Fee, rather than separate Franchise Taxes and Registered Agent Fees that would otherwise be applied, individually, to distinct LLCs.

If this sounds too good to be true, well, many people think it is. The myriad issues concerning the series LLC, such as the legal separation of the assets and liabilities of each series held in a series LLC, have not been thoroughly tested in court. Although Delaware law clearly provides for the legal separation of series contained in a series LLC, it is unclear whether courts in other states and/or jurisdictions will recognize a legal separation of assets and liabilities within what is, essentially, a single entity. Therefore, even if a Delaware series LLC were operating properly, with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could very well decide not to recognize the legal separation afforded under Delaware law.

Another problematic issue is the mystery surrounding the taxation of the series LLC; however, the Internal Revenue Service is finally taking action by proposing new regulations governing the taxation of this unique and often misunderstood entity. Both the IRS and the Treasury Department have proposed regulations that will clarify the fact that each individual series within the series LLC could be considered a separate entity for federal taxation purposes.

What does this mean? Is the IRS implying that each individual series can elect a tax classification that best suits it? It seems like it, but keep in mind these are only proposed regulations and they have yet to be finalized. 

For more detailed information on the new proposals for the series LLC, view Series LLC Regulations regarding the tax classification of so-called series or cells.

If you'd like to read additonal articles about the series LLC, Harvard Business Services, Inc. has several for you to choose from:  

The Delaware Series LLC: Advantages and Disadvantages

What is a series LLC?

The Delaware Series LLC Operating Agreement and Structure

Free series LLC Operating Agreement template

 

 

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What Is a Patent? | The HBS Blog | Entrepreneurs
By Haim Factor Wednesday, December 8, 2010

Now that we have a basic definition of types of IP (see our last blog on Intellectual Property) let’s take a look at patents. The basis in the law for patents is in the US Constitution. Today, patents are the mechanism “…to promote the progress of science and useful arts…” (U.S. Constitution, Article 1, Section 8, Clause 8).

A US Patent is a property right granted by the U.S. government to an inventor. The inventor is given the right to exclude others from making, using, selling, or offering for sell the invention throughout the United States or importing that invention into the United States. This right is time limited and it is territorial, meaning it applies only to the U.S. and is not worldwide.  (We’ll talk more about international frameworks in another blog.) Finally, a patent is a private right, meaning the owner must enforce it himself.

To receive the right described above, the inventor must disclose his invention to the public through the patent filing mechanism. In exchange the inventor receives, for a limited period of time, the exclusive right to control how the invention is used—as noted above.

There are 3 types of patents awarded in the US: Utility, Design, and Plant patent.  We’ll focus on utility patents here.

Utility Patents

Utility patents are what most people think of when talking about useful processes, machines, articles of manufacture, and compositions of matter having practical utility.  There are three primary requirements in the law for utility patents (the notations in parenthesis are the applicable patent law, 35 United States Code):

  • Utility (35USC, 101) -the invention is useful or has utility
  • Novelty (35USC, 102) – the invention  is new or novel
  • Obviousness (35USC, 103) – the invention is NOT obvious, meaning it is not trivially different than other art known prior to the invention.

While a full discussion of patent law is out of the scope of this blog, it’s important to emphasize that if a useful process, machine, article of manufacture, or composition of matter LACKS any of the 3 requirements above, it simply cannot be called a patent.

A simple example of lack of utility would be for a “perpetual motion machine”. Likewise, most people readily understand when, for example, a machine is proposed that is not novel or new compared to prior art. Probably the most difficult hurdle to overcome when applying for a patent is to show that the article of manufacture, for example, is not an obvious combination of other prior art.

You can get a complete overview of Patent Protection in the United States by looking at USPTO's website.

*Haim Factor is a registered USPTO Patent Agent with nearly a decade of experience in patent drafting, prosecution, and overall IP strategies. His clients take advantage of his rich experience of over 25 years in business development of a wide array of B2B and B2C products and his experience with intellectual property protection both within the US and internationally.

 

He can be contacted at: haim.factor@1st-tech-ideas.com and at 302.200.1424.

 

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