Internal Investigators: 7 Key Traits

Sometimes, things just go sideways.

Despite the best intentions of your organization’s Board, Officers, staff, and key volunteers, one misstep can threaten the entire mission. Whether there are allegations of financial malfeasance, inappropriate conduct, insufficient entity formalities, or some other variant, the Board of Directors must take quick action to decide if an internal investigation is warranted.

Once you know you need independent inquiry, who should you call to help you?

At the very least, your internal investigator must be unbiased. Ideally, an investigation is conducted by outside counsel or a special committee. And, your choice of investigators is an important as what they uncover.

In order to be productive and get meaningful results, your investigator should:

  1. Understand the culture of your organization.
  2. Commit to interviewing the correct parties, including individuals who were involved with the organization at the time period under investigation.
  3. Be well versed in how to conduct an investigation and how to evaluate credibility.
    –(Remember, this is NOT a case of “he said/she said, so we’ll never know. Part of the investigator’s job is to make credibility assessments).
    –Your investigator should know how to rely on asking open ended questions.
    –Your investigator should have a delicate approach to asking questions that telegraph the subject or intention of the investigation, and should know when to ask them.
  4.  Be adept at conducting interviews with emotional witnesses.
  5. NEVER use the services of an investigator unless they are licensed or subject to a licensing exemption. In Colorado, employees, attorneys, and CPAs for the entity may conduct an investigation under an exemption. Other exemptions do exist. But, for the most part, your wise and level-headed HOA President is not an appropriate person to conduct the investigation without an independent relationship to the organization.
  6. Always work with an investigator who understands the importance of defining the scope and purpose of the investigation with the board at the outset. In particular, you should understand what standards of proof will apply to the findings and recommendations. Miscommunications on scope will not only waste time and energy, but may result in a contaminated investigation. Once interviews have been conducted, it is difficult to revisit witnesses and receive answers that are free from outside influence or revisionist reflection.
  7. Always work with an investigator who has the expertise to identify and recommend ways that your organization can strengthen its policies, procedures, and formal documentation. The most productive investigations will help you minimize risks in the future.

Once your investigator has completed the investigation, the Board of Directors should use the findings and recommendations to come to a good faith, well informed decision about how to respond. Only independent Directors, those who are not implicated in the underlying issue, should make the decision. As always, Directors have a duty to act in the best interests of the organization. Hiring a competent investigator will not only help the organization reach a reasoned decision, but will protect the Board from individual liability.

If your business or nonprofit organization needs assistance with an internal investigation, contact our offices at (303) 763-1600.

Your Website: Tips to Stay Out of Legal Trouble – Part 2 (Domain Name/Trademark)

An Internet domain name can be vital to branding and marketing, so it’s important for business owners to be familiar with some of the legal rules related to domain names, including the intersection of domain name rights with trademark rights.  This post also reviews actions you can take to dispute domain names that may infringe upon your trademark rights.

A domain name is the primary “address” of a web site, and nearly all website owners want to have a domain name that is identifiable and easy to remember.

If my company is called “Betty’s Plumbing, Inc.” and I have a trademark for “Betty’s Plumbing”, it would be most logical for my website to also be “www.bettysplumbing.com”.  This would be the best way for current and potential customers to find me online.

Domain Names vs. Trademarks

A trademark is a word, name or symbol used in commerce to indicate the source of the goods or services and to distinguish them from the goods or services of others.

Trademarks and domain names are not synonymous, but the two concepts often meet when there is an issue of whether use of the domain name is a trademark violation.

The United States Patent and Trademark Office (USPTO) has made clear: “Registration of a domain name with a domain name registrar does not give you any trademark rights.”  The USPTO also states that simply using a trademark as part of a domain name does not necessary serve the function of “indicating the source” of goods or services.  In other words, using someone else trademark in your domain name is not automatically infringement.  However, additional uses of the trademark by your business beyond your domain name could lead to trouble!

The biggest takeaway is that the issue is not black and white.  Generally, we recommend that before you spend money on acquiring a certain domain name, you do some research to make sure your desired domain name does not contain a trademark belonging to someone else who has not given you permission to use it.  Trademark violations occur when there is “confusion in the marketplace” – when a consumer could confuse the business represented by the domain name with another business represented by a trademark contained in the domain name.

Further domain name registrars such as GoDaddy and Google Domains do not perform any trademark ownership verification before registering a new domain name for you so it is your responsibility to consider intellectual property matters!  If you need any assistance with this, please contact our Intellectual Property team.

Domain Name Disputes

Domain name disputes often involve companies battling over the ownership of domain names from “cybersquatters.” Some cybersquatters register domain names with the intention of selling them at high prices to the companies who own the trademarks. Others exploit domain names by taking advantage of the online traffic that popular brands attract and misdirecting consumers to the cybersquatters’ own websites for such business as selling counterfeit goods, or at worst, websites loaded with viruses, malware, and other malicious content.

The Anti-Cybersquatting Consumer Protection Act (ACPA)

You can file a federal lawsuit to challenge a domain name under the ACPA, a law enacted in 1999.  ACPA allows you to challenge domain names that are similar to your business name and other trademarks.  ACPA makes it “illegal to register, “traffic in” or use a domain name that is identical or confusingly similar to a distinctive or famous.  If a trademark owner successfully wins a claim under the ACPA, the Court will grant an order that requires the domain be transferred back to the trademark owner.  In certain cases, the Court can also award monetary damages.

Uniform Domain-Name Dispute-Resolution Policy (UDRP)

Another (and likely cheaper) way to challenge a domain name is through the Uniform Domain-Name Dispute-Resolution Policy (UDRP), a process created by the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit corporation that manages and controls domain name registrations. UDRP provides a relatively quick legal mechanism to resolve a domain name dispute by providing a streamlined procedure to transfer or cancel ownership of domain names.

Beyond offering a quicker dispute resolution process beyond federal court litigation, UDRP proceeds are also nice because it does not matter whether the trademark owner and domain name holder live in different countries.  Filing a lawsuit in U.S. federal court generally comes with jurisdictional issues that are tricky if the domain name holder lives in another country.

If your business needs help with a trademark or domain name issue, please contact us today!

 

IRS Penalties & Small Business

There are many kinds of tax penalties the IRS can assess against a small business, and the facts and circumstances behind when they may be applied are very different.  What they all have in common, however, is they can significantly increase your tax bill!

This post will provide a quick overview[1] of some of the tax penalties you may encounter if you are a small business owner.  This post also provides information on how to abate or waive tax penalties the IRS may have imposed.

Background

The IRS uses tax penalties to “encourage voluntary compliance” with the federal tax system.  However, the tax code and rules are admittedly complex.  Some taxpayers are unable to comply despite their best attempts to do so.  Many small business owners have so much on their plates, they make mistakes.

The good news is the tax code authorizes penalty relief for taxpayers who may have made a mistake.  The bad news is the IRS tends to do a very poor job of administering these tax relief programs in a fair or consistent manner, especially if the taxpayer is not being assisted by a tax professional such as a CPA or attorney.

Understandably, the IRS would rather not waive penalties – it means less money for them!  The IRS is also chronically understaffed, and does not choose to devote much of its limited resources to those certain departments that work on taxpayer penalty abatement requests.

As such, successfully obtaining relief from tax penalties usually requires the assistance of a tax professional who is familiar with the IRS’s various internal offices and administrative procedures.  If you would like to speak with us about your tax penalty problem after reviewing the information below, please do not hesitate to contact us.

Delinquency Penalties

There are 4 kinds of delinquency penalties that frequently hit small businesses:

  1. Failure to File (I.R.C. § 6651(a)(1))

This penalty is assessed when you file your tax return late.[2]  If you properly request for an extension on filing due dates, it can alleviate this penalty.  However, some kinds of returns, such as the quarterly Form 941 employer tax return, cannot be extended.

  1. Failure to Pay Tax Shown on Return (I.R.C. § 6651(a)(2))

This penalty is assessed when you don’t pay the entire amount of your taxes showing as due on your returns on time.[3]  If you file your return and make the payment late, you will be hit with both penalties.

Remember, even if you correctly request an extension on a tax return, you do not get an extension to pay your taxes, only an extension to file!

  1. Failure to Pay Tax Not Shown on Return (I.R.C. § 6651(a)(3))

This penalty is assessed if you owe additional amounts after an audit or adjustment on your return, and you do not pay the new amounts within 21 days.  If you owe more than $100,000 after the audit or adjustment, you have only 10 days to pay the bill![4]

  1. Failure to File Informational Returns (I.R.C. § 6721)

This penalty is assessed against a small business that did not file its annual W-2 or 1099 forms.  There are 2 tiers of penalties here:

  • Negligence Standard

The first is similar to the “Failure to File” penalty above.  It is a negligence penalty, meaning you simply forgot or made a mistake.  This is calculated at $100 per return up to a maximum of $1,500,000.  Thus, the more employees or contractors you have working for you, the higher this penalty can be.

  • Willfulness Standard

The second is a willful “intentional disregard” standard, calculated at $250 per return or 10% of the aggregate amount of the items reported on the W-2/1099 forms.   This goes beyond forgetting or making a mistake – you purposefully refused to file the returns or tried to hide information from the IRS.

So, if your total payroll was $500,000 that year, your penalty would be $50,000 – a sum that might be equal to the cost of another employee!  Paying this level of penalty would be unsustainable for many businesses.

In my experience, when the IRS notices a business did not file its W-2/1099 forms, it assumes the “intentional disregard” standard and slaps you with the higher penalty.  Once it has done so, the burden will be on you to prove you did not fail to file the returns willfully.  Usually, simply sending in the missing returns after receiving notice the government is missing them is not enough.  You must submit a statement explaining your late filings were due to a mistake or unplanned accident.

Unfortunately, nothing in the IRS notices or letters informing you of the missing returns or your new Section 6721 penalties will inform you about the lower “negligence” penalty level!  If you have been impacted by this kind of penalty, please contact our tax resolution team at once.

Accuracy-Related Penalties (I.R.C. § 6662)

This penalty comes up after an audit or other adjustment on the tax you reported on your returns.  The policy behind this particular tax penalty system is to make sure taxpayers are taking reasonable and well-researched positions in support of the numbers they list on their returns.  In layman’s terms, if you take a position that is so far out there and completely unreasonable, you will be at risk for this penalty.

The IRS will hit you with a 20% accuracy-related penalty if your incorrect position was due to negligence, a disregard of rules and regulations, or a substantial undervaluation misstatement.

The IRS will hit you with a steeper 40% accuracy-related penalty if your incorrect position was due to gross valuation misstatements or undisclosed transactions or information.

Reasonable Cause

All the tax penalties discussed above can be abated or removed if you can show your delinquency was due to “reasonable cause”.  You must show you exercised “ordinary business care and prudence” in preparing your return,  determining what you owe, and when/how to pay it, but nevertheless, were unable to prepare an accurate return, file it on time, or pay on time with suffering undue hardship, due to circumstances beyond your control.

The internal IRS offices require taxpayers to meet a very high burden under the reasonable cause standard before they will waive penalties.  Undoubtedly, the IRS has heard every excuse under the sun!  You will have to demonstrate your “ordinary business care and prudence” in managing and operating your business, and then carefully document your special set of “circumstances beyond your control.”

Major illness, death, strikes/riots, and natural disasters are surefire “circumstances beyond your control” that will allow for penalty abatement.  Sometimes, a business’s severe economic distress can also justify penalty abatement, but only if this is argued very carefully before the IRS.  For example, perhaps your biggest customer filed for bankruptcy and did not pay you for tens of thousands of dollars of product or service.  If you can carefully draw the line between losing that anticipated income and missing your tax payment deadlines, this may justify abating tax penalties.  (In my experience however, a lot of employees at the IRS will assert financial distress never justifies paying your taxes late, even though this argument is provided by the Treasury Regulations and discussed by many tax court cases!)

Importantly, if you try to blame your tax noncompliance on a bookkeeper, accountant, bad office manager, or any third party who you brought on to help with your taxes, this will never be reasonable cause.  The IRS holds the taxpayer ultimately responsible for compliance, and this is a nondelegable duty.

Unfortunately, convincing the IRS to waive your penalties is generally an uphill battle.  More often than not, you will be summarily denied and will have to file an administrative appeal to get the IRS to actually look at your case carefully.  There are also some tricks and special programs that may help you, but the IRS does not readily provide this information to taxpayers.  If you need any help with a penalty abatement or even understanding if you may qualify for one, contact DTG Law today.

_____________

[1] Please be aware that the tax code is complicated, and this is by no means a comprehensive summary of all the issues and technicalities behind tax penalties!

[2] The FTF penalty is assessed at a rate of 5% of the tax due on the late tax return up to 25%.

[3] The FTP penalty is assessed at 0.5% per month update to 25% of the amount of tax that was not paid by the due date.

[4] This penalty is assessed at 0.5% per month update to 25% of the amount of tax that was not paid by the due date.

Independent Film Finance

Filmmaking is rarely a cheap endeavor.  Even a “budget” independent film may require tens or hundreds of thousands of dollars to produce, market and distribute.  Here are the most common ways an independent filmmaker can finance his or her project:

Studio Financing

 This is where a studio agrees to pay for the costs of the film in exchange for the right to distribute the film.  It is difficult to get this type of funding without some proven money-making element attached to the film, for example, a well-known director, screenwriter or actor, or valuable story rights to a bestselling novel, comic book or game.

Investor Financing

This is where the film is financed by one or more persons who either buy shares of the company through which the film will be produced, or execute some form of “investment contract” related to the future revenues of the film.

Be VERY aware of state and federal securities laws that may kick in, depending on the form of your production entity or the number of investors involved.  Even if you plan to finance your film with friends and family investors, reviewing state and federal securities laws with a knowledgeable attorney is mandatory.  Consequences of violating securities laws can include rescission (meaning you must legally give all the money back, even if you’ve already spent it!), civil fines, or even criminal liability.

Crowdfunding

This is becoming a more common and more popular avenue for film financing.  Spike Lee raised nearly $1.5 million via Kickstarter to produce his film, Da Sweet Blood of Jesus.  The team behind 1998 cult classic SLC Punk also raised money for the sequel, Punk’s Dead:  SLC Punk 2, through Indiegogo.  If you go this route, be sure you review individual website rules carefully to ensure compliance.

Self-Funding

 You may just be lucky enough to have a significant amount of spare cash or disposable income to devote to your independent film.  If so, the tales you may have heard about Hollywood’s creative accounting aside, keep in mind that only about 20% of all films actually turn a profit.  Hollywood’s multibillion dollar production companies play a numbers game – hoping a few hits can cover all the other films that lost money that year.  You probably don’t have the business model or resources to follow a similar plan.

If you do decide to proceed with self-funding however, consider taking advantage of local film tax credits. Numerous states offer tax credits for productions made, at least in part, in their state. Such tax credits can also be sold to a third party, typically at a discount, to raise cash for the production or marketing of the film.

The Colorado Office of Film, Television & Media, for example, offers a 20% cash rebate program for up to $100,000 of eligible production costs.  Nevada’s revamped film tax credit law took effect in 2014 and allocated $80 million in credits to be issued to qualifying productions over a 4-year period.  Other states offering tax incentives include California, New York, Louisiana, Georgia, and New Mexico

Limit Your Liability!

Keep in mind that, as with most other business ventures, you should ultimately work through a corporate shield for protection from personal liability.  The form and timing of establishing this shield (typically an LLC) will depend on your particular circumstances.

However, if you’ve already started some activity for your independent film, make sure that all the contracts you have already entered into (or are imminently about to enter) are freely assignable.  That way, you can assign those contracts to your new entity without problem.

If you need assistance with any of the legal issues discussed here, please do not hesitate to contact our Arts & Entertainment team at DTG!

10 Legal Documents Every Startup Should Have

  1. Bylaws / Operating Agreement

 A company’s Bylaws (in the case of a corporation) or Operating Agreement (in the case of an LLC) provide the legal backbone for how it operates.  If your company does not have bylaws in place, state statutes will control how the company is run.  However, these default rules might not be the best fit for your company, so it is much better to strategically think through how you would like your company to be run.

For example, if there is a major disagreement among the owners that “deadlocks” the company from being able to do anything, generally one of the only remedies under state statutes is that an owner can file a lawsuit asking the court to wind up and dissolve the company.   This is usually a lose-lose for everyone, especially if the company was doing well prior to the deadlock.  The owners could avoid this scenario by having certain dispute resolution provisions in the bylaws, or by having a limited, advisory-only member of the company who effectively acts as a tie-breaker, the process for which would be set forth in the bylaws.

  1. Insurance

After establishing a well-thought out corporate structure and executing governance documents, every company should make sure that they have good insurance coverage.  This may not come cheap, but it’s an important investment for any business to make.

Beyond a general commercial liability policy, insurance can cover anything from cyber liability to director/officer liability to life insurance for key founders.  Also, if you are selling any kind of product to the public, consulting with an attorney who specializes in products liability is advised, as they will be able to assist you in mapping out this additional exposure to risk and preparing any contracts or disclaimers to include with the sale of your product.

  1. Shareholders’ Agreement

This agreement, which also may be called a “Founders’ Agreement” or “Buy-Sell Agreement”, can help you govern the relationship between the owners of your company.  You and your business partners may be on the best of terms now, but running a company might put a strain on your relationship sooner than you think.  Interpersonal conflict between founders is one of the most common and predictable reasons for why companies fail.  Thus, a shareholders’ agreement goes a long way to protect your investment in the new business.

This type of agreement should contain vital information such as who can be a shareholder or serve on the board of directors, what happens in the case of a shareholder’s death or impairment, or what happens when a shareholder files for bankruptcy, resigns, retires or is fired.  It should also outline how much shares of stock are worth and who will be required to purchase the shares of the owner who is leaving.

  1. Non-Disclosure Agreement (NDA)

NDAs protect the confidential information of your business.  They are used when one or both parties in a relationship wish to disclose confidential information, but want to ensure that the person or organization who receives it does not disclose it to anyone without consent.  For example, if you are looking for a manufacturer to produce your company’s new widget on a mass scale, you should probably have each potential manufacturer you interview sign an NDA so that they can’t turn around and start making your widget anyways.

Keep in mind, NDAs are worthless unless they are actually signed by the party against whom you wish to enforce it.  No matter what verbal promises were made before or after information was disclosed, it is advised you get your NDA in writing and signed by both parties before any confidential information is shared.  This way, both parties clearly know their duties and privileges as they are receiving business information from the other.

  1. Intellectual Property Agreement

This document is mandatory if you wish to acquire, sell or license intellectual property (e.g. copyrights, trademarks, patents).

If you are giving or receiving all the rights to a certain piece of intellectual property, that is called an “assignment”.  If you are giving or receiving only a few rights related to the intellectual property (for example, the right to print and distribute someone’s copyrighted book), that is a “license.”

Whether you are just starting out or a well-established business, intellectual property or “IP” is often a significant piece of your business’s value.  An IP agreement protects this value.

A good IP agreement should be comprehensive, covering the financial compensation, date of the assignment/license, the rights and obligations of the Assignor and Assignee and timelines for payment, representations and warranties, indemnities, and more.

  1. Privacy Policy

A privacy policy is essential for online businesses because data privacy issues are being subject to more legal scrutiny than ever before.  Your privacy policy should outline how your business collects information on customers, what that information is used for, and how it is stored and managed.  It should also explain the rights and control of a customer’s personal information.

Currently, data privacy laws are a patchwork of various state laws and federal regulations.  Some industries, such as education and finance, are also subject to special rules.  Some states, such as California, have enacted laws for any business that targets customers in that state.  If you have concerns about whether you are following the law in this complex area, consulting with an attorney is strongly advised.

  1. Terms & Conditions

This item is essential if you conduct any business online.  Your website’s terms and conditions regulate the online transactions where you sell your products or services to clients.

Well drafted website “Terms and Conditions of Use” will deal with issues such as returns and refunds, consumer guarantees, deliveries, disclaimers and competitors.  They will also have the effect of limiting liability for any information and material that may be on your site in relation to third party information or content that is included on your site.

Additionally, it should lay down the rules for people visiting the website as well as explaining that any intellectual property on the website is protected.  Your website’s terms and conditions should be easy to read and accessible before a transaction takes place.

  1. Founders’ Assignment of Intellectual Property

Each and every person who works in any manner for the company, including the founders, should execute an agreement assigning their creations to the company.  A founder’s IP contributions could be anything from patents, software, logos and marketing materials, customer data, and more.

Especially during the startup phase of a company, almost all of the value of the venture will be tied up in the IP, so if the company cannot prove it actually has legal title to these assets, the company is essentially worthless.

  1. Employee Contracts or Offer Letters

 Having a easy to understand contract or offer and acceptance letter with employees is essential for setting forth expectations and ensuring the employee is tied into the team.  Topics that could be covered in an employee contract or offer letter include who the employee reports to, who will own the employee’s work product, basic expectations, required commitments, share vesting and all other “rules” the employee must abide by. This prevents misunderstandings and thus can go a long way to protect the company from HR-related disputes.

  1. Liability Release Forms

 Startup companies tend to have a variety of fun work events that may involve risk.  For example, maybe your company has an annual dodgeball tournament against an important vendor or maybe you want to organize a company “hiking day” for bonding and team-building.  If so, you should have all employees sign a liability release form so that your company doesn’t become liable for an unexpected accident.

B Corps vs. Benefit Corporations: What Are They & What’s the Difference?

As socially conscious entrepreneurship becomes more visible and viable, you may keep hearing the terms “B Corp” and “Benefit Corporation” or “Public Benefit Corporation.”  What do these terms mean and how are they relevant to a Colorado small business owner?

Many use the terms “B Corp” and “Benefit Corporation” interchangeably, but they are in fact very different things!

B Corps

A B Corp is a for-profit entity that has obtained a voluntarily certification from a certain nonprofit organization headquartered in Wayne, Pennsylvania, called B Lab.

As of the date of this posting, there are 1,925 certified B Corps in 50 different countries spanning 130 different industries.  Some nationally-recognized Colorado B Corps include New Belgium Brewing Co. and Bhakti Chai.

Obtaining a B Corp certification requires passing the B Lab Impact Assessment, which analyzes a company’s operations and provides a score based on meeting higher standards of transparency, accountability, performance and impact on the community.  Passing the assessment test requires a score of at least 80 out of 200 points.  There are many workshops and boot camps available in the Front Range area for business owners looking to hit the Impact Assessment’s various benchmarks.  After passing the assessment, B Corps must pay a membership fee based on annual revenues.

Obtaining B Corp certification allows a business to join a community dedicated to creating a more just and conscious economy yet still driven by profit motives.  B Corps organize various gatherings around the world, including an annual retreat, and such events provide opportunities to network and support other like-minded business owners.

Benefit Corporations

A Benefit Corporation is a type of business entity (i.e., a special kind of corporation) that is authorized by state law.  As of the date of this posting, 31 states  – including, as of April 4, 2014, Colorado – have recently enacted legislation to allow for these entities.   This legislation allows socially conscious entrepreneurs another entity option when starting a business.

The Benefit Corporation movement, largely spearheaded by B Lab, was to fix what many saw to be a major limitation in standard corporate law.

As you may know, the business and affairs of any for-profit corporation must be managed by a board of directors.  Traditionally, the individuals on the board of directors have a legal duty to manage the affairs of the corporation in the company’s best interest.  If they do not follow this duty, they could be liable to the corporation’s shareholders for breach of their duties.

So…what does “in the company’s best interest” actually mean?  Some perceived it to mean only the maximization of shareholder value.  This would severely limit the goals and the general ethos of the socially-conscious business/B Corp assessment movement.  If a board of directors was trying to decide between two options, with Option 1 promising high profits but harm to the environment and Option 2 resulting in lower profits but no harm to the environment, the maximization of shareholder value theory would require the board of directors to pick Option 1.

Benefit Corporation legislation has thus been enacted to address this limitation in traditional corporate law.

Beyond corporate doctrine, however, forming a business as a Benefit Corporation may be important for reasons of marketability, relaying a message to current and potential employees and customers, and signaling participation in the socially-conscious business movement.

Colorado Public Benefit Corporations

The Public Benefit Corporation Act of Colorado (“PBCA”)[1] contains the relevant provisions for those electing to operate their corporations as a Public Benefit Corporation (a “PBC”).  A Colorado PBC is a for-profit corporation that is “intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.”[2]

What would be considered a “public benefit”?  The PBCA defines public benefit as “one or more positive effects or reduction of negative effects on one or more categories of persons, entities, communities, or interests other than shareholders in their capacities as shareholders, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature.”[3]

A key thing to realize is that PBCs are still subject to the rules and requirements contained in the regular corporate statutes, including the Colorado Business Corporations Act and the Colorado Corporations and Associations Act.  The PBCA merely imposes “additional or different requirements, in which case such additional or different requirements apply.”[4]  The primary differences are:

  • A PBC’s Articles of Incorporation must list one or more public benefit which the company must strive to achieve.[5]
  • A PBC’s name must contain the words “public benefit corporation” or the abbreviation “PBC” or “P.B.C.”[6]
  • A PBC’s board of directors must manage the company to balance (1) the pecuniary interest of the shareholders; (2) the best interest of those affected by the company’s conduct, and (3) the public benefit(s) listed in the Articles of Incorporation.[7]
  • A PBC must prepare an annual benefit report with (1) a description of how the company promoted the benefits listed in the Articles of Incorporation and any obstacles the company faced in promoting those public benefits and (2) an assessment of the overall social and environmental performance of the company against a third-party standard.[8] This annual report must be provided to each shareholder of the PBC and posted on its website.[9]
  • Any share certificates of the PBC must consciously state the company is a public benefit corporation.[10]

A PBC is formed the same was a traditional Colorado corporation would be formed – by filing Articles of Incorporation with the Colorado Secretary of State.  Thereafter, all other documentation used to organize a PBC is extremely similar as what is used to organize a traditional Colorado corporation.

The PBCA specifically protects directors of a PBC from lawsuits by third parties who are interested in the public benefits listed in the Articles of Incorporation and by people who may be affected by the PBC’s conduct.[11]

This section is meant to be a general summary of the PBCA and if you are thinking of creating such an entity or converting your current corporation to a PBC, consulting with an attorney is strongly advised.


[1] Section 7-101-501 et cet., C.R.S. Added by Laws 2013, Ch. 230, § 1, eff. April 1, 2014.

[2] Section 7-101-503(1), C.R.S.

[3] Section 7-101-503(2), C.R.S.

[4] Section 7-101-502, C.R.S.

[5] Section 7-101-503(1)(a)-(b), C.R.S.

[6] Section 7-101-503(4), C.R.S.

[7] Section 7-101-506(1), C.R.S.

[8] Section 7-101-507(1)(a)-(b), C.R.S.

[9] Section 7-101-507(4), C.R.S.

[10] Section 7-101-505, C.R.S.

[11] Section 7-101-506(2), C.R.S.

Creative Entrepreneurship

The stereotype of the starving artist, one who endures a life of poverty for a labor of love, is a common cultural conception. Indeed, many creative individuals ultimately choose to forgo any professional pursuit of their creative endeavors because of a perceived uphill battle of “making a living” in the arts.

However, today a growing “do-it-yourself” mindset is allowing artists, designers, engineers, architects, and other creators to invent jobs for themselves that didn’t exist a decade ago.  More now than ever, business- and technology-savvy individuals are branding, marketing and networking their way into successful creative careers.

Creative Industry Companies

Brian De Herrera-Schnering is the founder of Colorado-based video production company, Pinto Pictures.  Prior to moving to Colorado in 2007, he was employed full-time as a video editor at a company that produced healthcare education films, but was unable to find similar full-time work upon relocating to Colorado.  Nevertheless, upon establishing his own business he found Denver housed a robust, collaborative community of film, animation, and video design professionals, and his business has thrived ever since.  His company now specializes in a wide range of film-based projects and has worked with a number of local companies and nonprofits in Colorado, as well as national major entertainment brands like Discovery Channel, TLC, Root Sports, and Dish Network.

Another success story is LA-based entrepreneur KamranV, who has mashed technology, marketing and music to build a diverse creative industries company called CyKiK.  CyKiK has successfully undertaken a wide range of creative business endeavors, including developing Interscope Records’ mobile business; designing POP-AUT, a payment system for music, games art and other creative projects; producing DVD-Audio projects for artists like Beck and Nine Inch Nails, and taking over the production of Moogfest.  KamranV is also one of the founders of Bedrock.LA, a converted manufacturing building that houses music rehearsal and showcase rooms, recording studios, and an equipment rental and repair shop.

As these two examples show, there are many opportunities to thrive as a creative entrepreneur, whether pursuing film, music or technology and a mash-up of multiple mediums.

Career Entrepreneurship

The emergence of the “creative entrepreneurship” movement has been fueled by several factors.  By far the biggest is the emergence of technologies that unbundled creators from the traditional hold of studios, book publishers, concert promoters, record companies and museums.   Artists today have the ability to distribute and make money from their works in ways that were never available to prior generations.

New, web-based technologies have also generated innovative ways of project collaboration.  One clear example of this is crowdfunding.  Sites like KickStarter and IndieGogo have made the process of raising capital significantly easier for artists and startups.

Finally, the national economic slump that began in 2009 led to a lack of good-paying employment opportunities for millions of young people and recent college grads, and also resulted in layoffs for other workers who had been working their way up the traditional career ladder.  A number of these individuals realized they could no longer rely on an employer or a large established company to train and mentor them towards their dream career.  

 Business Planning and Awareness of Legal Issues

Today, designers, artists and creators mix artistic expression with business skills in order to thrive and sustain their endeavors. These individuals recognize they can utilize new resources and platforms to form their own businesses that contribute to media, arts and culture.  However, there are many legal pitfalls that could take a fledgling creative-industries business owner by surprise. 

One of these is the unfortunate receipt of a Cease and Desist Letter for either trademark or copyright infringement.  When forming a new business, people may spend a lot of time and energy coming up with a great brand name, designing a great new logo, and planning an interactive website, only to learn, after a large investment has already been made, that the name is being used by another company.  This happened to Judith Mendez, an entertainer who went by the name Dita de Leon.  Ms. Mendez decided to expand her business by offering jewelry, clothing and leather goods featuring her stage name “Dita”, but was sued for trademark infringement by luxury sunglasses brand, Dita, Inc.

Another pitfall for new businesses is improper business planning or the incorrect reporting or calculation of taxes.  This topic certainly isn’t very exciting or sexy, but extremely important.  For example, running a business a certain way, especially if there are two or more owners, or misunderstanding the filing and deposit requirements from having employees can have huge financial repercussions.  Even if you acknowledge your mistake to the taxing authorities and try to work something out to resolve it, the impacts of not knowing the intricacies or administrative rules of the tax system can be devastating and shutter an emerging business altogether.

Do you need help starting a new creative business or dealing with a tax problem under your current enterprise?  Contact us today to schedule a consultation with an attorney.