Nasir and Matt discuss the IRS deciding that Bitcoin is property and not currency, the recent ruling that college football players may unionize, a lawsuit filed over an asset purchase gone wrong, and why one early investor is not excited about the Candy Crush IPO. They also answer questions about putting the “LLC” designation after your business name, finding the right domain name, and when you can use the trademark symbol.
Also, as mentioned, Nasir’s prediction of 2 perfect brackets didn’t even make it to the second week of the tournament.
NASIR: Welcome to Episode 24 of Legally Sound Smart Business.
This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: Nice formal introduction that time but we’re ready to go.
MATT: Things feel right again. It was thrown off the last couple of episodes.
NASIR: Well, that was the purpose.
MATT: It’s good to be back.
All right, let’s get into this first story for this week and this was a really big one. It’s something we’ve been waiting on.
NASIR: Huge news.
MATT: Maybe not necessarily we but a lot of people have been waiting for the IRS to come down to decide what they’re going to do – not only with Bitcoin, that gets a lot of the press, but just virtual currency in general. I think it turned out as what a lot of people that are familiar with Bitcoin thought was going to happen. They ruled that – well, first things first – they ruled that it’s not currency; it’s property. Any gains on it are actually going to be capital gains.
Like I said, this is what people thought was going to happen but it’s still kind of weird. There’s a lot of little things in here that might shy people away from it but there’s also some positives as well.
NASIR: Well, I’d like to hear the positive because my first reaction was annoyance because the requirements to actually track this stuff is going to be kind of difficult.
Our firm has dealt with Bitcoin in the past and we’re dealing with it now. But, to me, these new IRS rules are just going to be a lot harder to report. Because it’s property, we have to track at the time that we receive the Bitcoin how much it’s worth. And then, if we use it again to let’s say buy a TV, then we have to track that new price that the Bitcoin is currently worth and then calculate capital gains and capital loss at that transaction. I don’t know. It seems like a huge burden upon reporting.
MATT: Yeah, and I definitely agree with that and there’s no doubt that it is going to be more burdensome. There’s an example where you get Bitcoin and you use it to go buy a sandwich. Technically, you have to calculate the potential capital gains or capital loss on that transaction. I guess, in that sense, it’s overly burdensome. But, on the pro side, I was thinking it’s not taxed at ordinary income so that’s definitely a plus – I guess more so for investors.
NASIR: That’s true.
MATT: Or maybe, if an employee gets paid with Bitcoin, I would think that they wouldn’t be taxed at capital gains rates like they’re saying and not ordinary income.
NASIR: The capital gains rate is obviously lower than ordinary income. But then, also, I think the proponents of Bitcoin are maybe upset about this because it’s not considered a currency and because it’s considered almost an investment, people are going to see it that way and not going to be able to use it in the same way that a currency is supposed to be used and it kind of goes against the entire purpose of the Bitcoin itself.
MATT: Overall, I’m definitely siding with it’s more of a negative than a positive. I’m just trying to point out the one or two positives that are there. But we’ll see.
The people I’ve spoken to that are in the Bitcoin world, I think they maybe are a little bit upset about it. But, at the same time, they say that it’s all the more reason to get in Bitcoin because, the more you get into it, the stronger everyone becomes. It’s a positive outlook, I guess. But, underneath, people might be upset.
NASIR: I don’t think this one rule is going to necessarily change how people approach it too much, right?
MATT: Yeah. Like I said, it’s not just Bitcoin; it’s all virtual currencies, all digital currencies. I like how I’m saying “all digital currencies” and it’s not a currency; it’s property.
NASIR: All digital currency is considered as property.
MATT: There’s other agencies that have decided it’s a currency. It’s just weird but IRS always does their own thing.
NASIR: That’s why we love them.
MATT: Yeah, exactly.
This isn’t going to be the last we hear of stories of this nature. Next time something big comes up, we’ll definitely discuss it.
Another one of the few positives, it’s good to at least have something to base decisions off of.
There is one more thing that I thought was pretty interesting how it’s not starting from whenever this decision this week on moving forward. It’s retroactive as well and I like how the IRS came out and said, “You know, you’re responsible for prior years and you still could be subject of a failure to pay penalty even though we might give you some sort of exception.” I was like, “Well, yeah, I hope you give an exception because there was no ruling up until a couple of days ago. How was anyone supposed to…
NASIR: Supposed to know.
MATT: I guess they just want people to assume that they have to pay then most possible then maybe they’ll get a refund. I just thought that was kind of ridiculous but I guess that’s how they operate.
NASIR: It is, that’s their MO.
MATT: All right. Well, let’s get into the first question here for this week.
“Do I have to put the LLC designation at the end of my business name on our sign, on a business card, when I talk to people?”
This is – unsurprisingly – from an LLC located in San Diego.
NASIR: Well, first of all, every state has naming designations. If you’re a limited liability company or a corporation, there are requirements to actually include the words “LLC” or “Limited Liability Company” and I think you can even include LTDCO or some kind of acronym like that for LLCs in California.
NASIR: But he’s asking something different. They’re asking, well, can I drop that basically when I actually advertise or do business or in business cards?
The general rule is that, unless you’re using the exact name that’s registered for your entity, you should file a DBA, a fictitious business name – also called an assumed business name in other states and jurisdictions. If you’re basically ABC LLC and you want to advertise on your business card or some sign “ABC” only, then you’ll have to file a fictitious business name under that particular LLC.
MATT: That’s the easy solution here – just file that DBA and then you can drop the LLC, if you want. Some businesses like to keep that in there – maybe to show that they are a little bit more credible, I suppose, than just a normal sole prop.
NASIR: You’re right, especially if it’s a smaller business, it does differentiate yourself – well, this guy is a little bit serious because they’ve actually gone through the trouble of filing a legal entity. But, I think, more importantly, one of the risks of not putting that designation on there – the LLC or Corp or Incorporated designation in there – is that, in event that you are sued, then the person that’s suing you – whether it’s an attorney or not – is going to look up to see, “Well, who is this entity?” If that entity doesn’t have that designation, they’re going to assume it’s a DBA so they’re going to look to see if that DBA has been registered. If they don’t find it that way, then they could assume that that’s a sole proprietorship and, actually, you lose your limited liability – the very purpose that you registered your actual entity. That is a risk.
MATT: Like I said before, it’s an easy fix. You go to the county building – well, at least in San Diego – you go to the county building and fill out a piece of paper and that’s that. It’s $30 or whatever it is. It’s definitely worth the time and the small amount of money just to take care of that if you want to not put that LLC at the end of it.
NASIR: Yeah, and just to talk about business names for a second, California doesn’t have a state registration. They just register per county. Other states have a state and county registration; some states only have a state. And then, there are some states that I know of that don’t have any kind of registration. A lot of times, also, these registrations are combined with a trade name trademark registration, too. We’re going to talk about trademarks in a second. Each state has their trademark law as well and, sometimes, these trade names and assumed name registries are used in conjunction with registering your state trademark.
MATT: Well, let’s not answer two questions at once here. We do have a question on trademarks later.
NASIR: Yeah, I’m just being prepared.
MATT: I’m going to cut you off before you get too into it.
Let’s jump into the next story.
This is another pretty interesting story. For me, this kind of came out of nowhere. I follow sports pretty heavily and this just came up on the news one day and I didn’t even know what was going on but there was a ruling that was done through some of the players of Northwestern – especially the quarterback from the team, I’m not sure – a ruling that came out that said that these football players on scholarship are, in fact, employees of the school and, therefore, entitled to hold an election and decide whether they want to unionize. Now, they still have to vote to see whether they want to. But, just having this option and being ruled that they’re employees, this is going to have some pretty big effects in college sports.
NASIR: Absolutely. This was I believe decided by the National Labor Board of the United States. They have a very limited scope of what jurisdiction they cover. It’s a lot of federally related only like Indian reservations and federal programs only and so forth and specifically private schools which Northwestern University is.
So, this ruling does not apply to public schools and NCAA was not a part of this but think about the impact of calling a student athlete an employee. That means that they’re entitled to the same kinds of protections that the coveted title of employee is given to other employees around the country – the minimum wage, overtime rights, breaks rights. What if a football player gets injured? Workers’ compensation law – these kinds of things come into play.
If I understand correctly too, this person that decided this is just one person. It’s going to be appealed. But just the interpretation in itself is very interesting.
MATT: Yeah, and I think the injuries aspect of it was really huge for them because I was listening to the quarterback who is kind of the face of this whole thing – at least for now. I was listening to him in an interview. I didn’t even know this was the case, you know.
If you get injured, once you leave the school, they’re not going to cover your injuries. While you’re playing for them, yeah, they’re going to have their medical team work on you because you’re on scholarship and they want you to play.
But what if you get hurt in your senior year or what if you have some injury and it’s lingering and then you reaggravate it after your last season or what have you? It’s not covered. So, you’re kind of left out in the cold in terms of those sorts of medical issues.
Now, you can have your own coverage, obviously, but that’s a pretty big issue.
NASIR: Yeah, and that’s something I haven’t actually thought about because I would assume that they would be covered after school but I didn’t realize that because you would think about it from an employer’s perspective. We’re all paying for workers’ compensation insurance. If one of our employees gets injured on the job, then our premiums are going to increase. And so, now, why should – this is just more of an advocate here and taking a stance but why should a college or university recall these benefits from their student athletes and not be required the same way the other employers are?
MATT: And this is getting into a bigger issue, too. I kind of dislike both sides because, on one side, you have the NCAA which basically plays by its own rules. I don’t know how they even get by some of the things they do and they just say, “These are the rules, this is how it’s going to be,” and you have to live by them. They make tons of money and seem to be very stingy. And then, on the other side, you have all these players, particularly football and basketball, and I think this decision even was only limited to football and basketball but you have all these players that complain, “Oh, we should get paid.”
In this example, Northwestern, I don’t know what their tuition is but I’m sure it’s pretty high. It’s a private school and they’re getting full-ride scholarships plus probably some sort of room and board and who knows what else? All the under the table payments that Kentucky Basketball pays. I just need to take that shot there but…
NASIR: That went over my head. I have no idea what you’re talking about.
MATT: Some people will get it. All these players are basically getting, you know, you can say that money – the free scholarship and all that plus room and board – is essentially a salary in a sense but you’re getting a free education from, in some instances, Northwestern is a very good private school in Chicago. It’s a great education. You’re getting it for free so why do you need to be paid for that? This is getting a little bit off-topic.
NASIR: Well, I think this is a classic discussion but, the more I hear about it, I think the trend is more going towards considering them employees – whether they’re paid or not, whether they actually get the cash or not. The most troublesome thing I think you pointed out is that injury aspect. If they get injured, not only are they not going to be playing their sport after the university but that may affect also their ability to get a job and so forth. If they’re in any employer-employee position, then those kinds of injuries would be covered.
MATT: Yeah, it’s tough and I go back and forth on all these sorts of things. I typically end up siding with the players just because the NCAA is so corrupt and makes so much money and doesn’t seem to care about things.
NASIR: Down with the NCAA.
MATT: This would definitely be interesting to see how this plays out because, like I said, I think it’s narrowed to just football and basketball and it’s only private universities right now but public universities might jump aboard. Who knows what’s going to happen? Like you said before, it’s going to be appealed so who knows what the ultimate decision is going to be but this is a very, very interesting decision that could have a huge effect on college sports.
NASIR: Yeah, very good. I’m interested to see what goes on.
MATT: I’ll get into the next question here. This comes from San Antonio.
“There is a domain name I want to use for my business. It looks to be taken but not used. What are my options to get it?”
NASIR: I don’t know if this is legal advice or a legal question necessarily because you don’t necessarily have a right to the domain name even if your business is the same name. This may get into some trademark law and so forth as far as whether you actually have rights to that name and whether or not they’re infringing upon your trademark. That might be an issue. But, otherwise, you really have no choice other than to try to bid on it or find another domain name is probably the best option to do that.
There is a domain squatting theory which you can pursue and that’s something you can pursue in litigation. However, again, you have to make sure that you’ve established your trademark rights into that name and there’s different requirements for that as well.
MATT: I think you took my answer – covered all the things I was going to say.
MATT: But, yeah, those are the options.
The first option that you should go through is look at a different URL. There’s probably other ones out there. Maybe you have the absolutely perfect one but there’s always other options you can find that are just as good. That’s step number one. Look at that.
Number two I guess you can contact the person who owns it. If they’re not using it, like in this instance, maybe you can go through the hoops and try to go the domain squatting route but maybe it’s not worth your time. I would just probably stay on step one and just find a different URL or a different…
NASIR: Top-level domain, I think that’s what they call it. We went over that, too. Now, they’re coming up with all these new ones like dot-pizza and I don’t know. That’s all I can think about right now.
MATT: Can’t see many people using that.
NASIR: Oh, I’m going to get one – legallysoundsmartbusiness.pizza.
MATT: We probably should at this point. It’s 50 percent of the show.
NASIR: I was going to talk about cybersquatting and domain squatting but the thing is too, even pursuing that strategy, it’s not cheap. We thought about doing that for one of our clients but it just ended up being too expensive in litigation costs. It just made more sense to find an alternative business name, especially now that the actual domain name has less of an effect on search engine optimization – from what I understand – and so, before, maybe if you had keywords within your domain name, it made a bigger difference. But, now, I don’t think that’s as much and having short domain names are important but, at the end of the day, I think there are so many alternatives that you can get but that’s another thing just to think about. When you have a business name, one of the first things people look at is, “Is my domain name available?” but you have to also look at all the alternative versions of it. You have to do a pretty global search to make sure that that trade name is available on a national basis. A lot of times, when you’re thinking about maybe starting in one particular location, one particular state, you should assume that you’re going to expand. The last thing you want is to change your name later after you’ve already been marketing it for a few years.
MATT: That’s kind of the reason I said just find a different option because it is pretty burdensome. It’s really not worth the hassle. To some people, it is, I guess. I don’t know. If you have the money to spend, why not?
Let’s get into the break here. I’m really excited to talk about what I have for the break.
NASIR: What do you have?
MATT: It only took the second round of games for all the perfect brackets to be done with. Your prediction of two perfect brackets fell very short.
NASIR: Well, I mean, they’re not counting my bracket yet, still, right?
MATT: Well, you weren’t in the story. Basically, after the first round of games, there was one guy who had a perfect bracket. He picked all 32 first round games right but he didn’t even enter the 1-billion-dollar contest and people were sending him all these tweets. I don’t know why. I guess they were upset at him.
NASIR: I saw how he responded. It was such that it’s not like he spent any special time to fill in his bracket either. It’s not like he was very literal in his choices. I think he just sorted it out just like anyone else. I don’t think he expected to get that far.
MATT: This is an interesting topic. Let’s say you’re Warren Buffet and you have this 1-billion-dollar thing. If someone had a perfect bracket, game after game after game, at what point would you offer them a potential buyout?
NASIR: is this kind of like Deal or No Deal?
NASIR: Well, as I’ve learned the hard way and reading about it statistically, I think, even towards the very end, it’s still a very low chance. So, I don’t know. It’d take a while. Maybe the final four, I guess?
MATT: Yeah, I think that’s the point because what was there? 63 games – at that point, you would have hit 60 for 60 which is pretty insane but you’ve still got to hit those last three.
MATT: But $1,000,000,000 is a lot of money.
NASIR: That’s true.
MATT: So, even a small buyout is still a huge chunk of money that most people don’t ever see in their lifetimes.
Oh well, we’ll see if he does it again next year. I heard you’re actually doubling your prediction. You said four perfect brackets next year.
NASIR: Yeah, four perfect next year. Give or take, three.
MATT: Okay. All right. Well, let’s get into this next story here.
I would even mention that your hometown team, Dayton Flyers, have made it to the Elite 8 so we’re going to continue on with another Ohio-based story and this deals with a company, E-Waste Systems Inc. I think the company is Las Vegas-based but the people that bought are based out of Cincinnati. The buyer is being sued by the former owners whose assets it bought and it looks like there’s some issues with some leases that were supposed to be paid off and some personal guarantees. I don’t know how much detail you want to get into but, to me, I’m looking at this and thinking, “Was this an issue of improper research and due diligence? Or was this an issue of misrepresentation?”
NASIR: I think due diligence. I think the buyer’s attorney did not represent them well because, first of all, a lease – it was either a lease on personal property or was it real estate property? Either way, this is something very easy to be found and I think the issue was that they should have been properly assigned or the personal guarantees were released at closing.
You know, when you do an asset purchase of a business, one of the first things you look into is what leases and liabilities are left because you’re not taking on the liabilities. But, if you’re purchasing land or if you’re purchasing any kind of property, it may be attached to other things like leans and leases.
And so, those things usually need to be taken care of at closing. There may be circumstances; maybe the landlord or the lessor does not want to assign the contract and so forth and that’s why part of the contingency of closing is usually getting those consents and there may be some exceptions to that but it seems strange to me as to why these kinds of things were not taken care of at closing.
MATT: I think you hit the nail on the head there. That’s a big red flag. But I just don’t understand it. If you’re acquiring these businesses – or I guess the assets of the business – I would look things over as many times as possible. I just don’t understand how these things can arise. That’s why I was wondering if misrepresentation, that’s a different story.
NASIR: They’re claiming that it’s a breach of contract because they’re saying, claiming it broke the contract they had with its part of the sale of the company’s assets – that included E-Waste agreement to pay off leases at the Blue Ash site in New York. My point is that they were relying upon the buyer to pay off these leases. If they wanted that to happen, they should have just had it done at closing. Maybe they didn’t have the cash at that time and that’s probably what’s more likely happened is that it was supposed to be paid off over time and maybe that didn’t occur.
MATT: I don’t know the details. It doesn’t really say but the company that’s getting sued is also in its own lawsuit against the former owners of another related company and that company is also being sued by a landlord for backed rent. It’s this whole messy ordeal.
NASIR: Yeah, then it’s probably more than what’s going on in the surface here.
MATT: So, for people that are looking to acquire assets of a business, just try not to be wasteful.
NASIR: E-Waste-ful. That was horrible but we’ll keep it in there.
MATT: Well, I started it and then I thought something funny would come to mind and it didn’t and then I couldn’t stop.
NASIR: It’s become funny now. So, you’ve done your job.
MATT: Well, before it gets too embarrassing for me, I’ll get into the last question for this week. It comes from an IT solutions firm in San Jose.
“When can I place the trademark symbol next to our company name?”
I’ll let you take this because you were so anxious to answer after the first question.
NASIR: Oh, darn it. Well, the trademark symbol – the little TM – also, SM which is Service Mark – you can put that on pretty much any time. When you’re doing is you’re establishing your common law trademark in the use of that mark. Note that there are some state regulations that do apply to that but most states don’t require any kind of registration for you to place that on there. As soon as you start using that mark in the marketplace, you can use it.
Now, whether you put that little R symbol with a circle around it, that’s what’s called a registered mark. That’s something different. That’s actually governed by the federal government and only can be applied to when you register your trademark.
MATT: I’ll have to apologize. I wasn’t listening to what you were saying so I don’t know what you just covered. This is our worst episode ever.
NASIR: When we do “Best of,” we’ll do “Worst of” as well.
MATT: Yeah, that’s a perfect answer there. There’s not much more I can add. It’s pretty straightforward in terms of what you can and can’t do. I’m glad you didn’t get into this before with the earlier question because this was already short enough as it is and we wouldn’t have been able to even have an answer to the last question.
NASIR: That’s true.
MATT: Let’s get into the last story for this week.
We’re coming back again to Candy Crush. This one’s a little bit different. They went on the New York Stock Exchange this week and I looked yesterday. I think it was Wednesday or maybe it was Thursday. I don’t remember but they went under what they thought was going to go which I don’t know why they thought it was going to be so high because right now it’s all based off of one game. I guess I should mention it’s King…
NASIR: King is the name of the company and Candy Crush is the game.
MATT: Yeah, that’s what I’m saying. King, it’s basically just essentially just Candy Crush. So, a lot of people are going to make money off of this, you would think, but there’s a story that came up this week about one investor who’s not going to make money so he says and it’s because he was an early investor. He’s been involved in some other successful companies but it was all built on a carried interest. And so, how that works is he basically left before any of his interested vested and now he’s just kind of out and the firm he was with who did the investment, they’re going to make tons of money. I forget the exact numbers of how much it’s valued but it’s just kind of a wrong deal for this guy and he doesn’t really seem to care but it’s just unfortunate.
NASIR: Yeah, he doesn’t seem to care. He made it seem the reason he was leaving was because the owner or whoever he was working with was just focusing on an exit strategy and selling off which, of course, an IPO is one of the best ways to do that. But you mentioned the vesting. That’s a good way when you have founders that get together. That gives them incentives to stay around. It’s unfortunate – or fortunate, however this guy wants to look at it – that he didn’t get the interest he was looking for. I don’t know if he lost all of his interest or still has some of it. I’m not sure.
MATT: Yeah, and it might be a little bit but, yeah, it’s just much less than what he could have gotten because we’re talking in the billions now for what they’re supposedly valued at. If that’s what he wants to do, he made the choice and he said he doesn’t seem to really care about it. He said, “I just wanted to get out and do something else.” To him, I guess it’s a non-story. To everyone else, the same people who are money-hungry over the 1-billion-dollar bracket, they’re the ones that probably care.
NASIR: What I don’t get about this whole IPO in general is that King created a successful game – Candy Crush that I still have never played but I know a lot of people who do. How do you replicate the success of that game? I don’t think you can. To go public like that, it almost assumes that you’re saying that you can do that. They’ve had one hit and Candy Crush is going to get old – just like every other video game. Is Candy Crush 2 or I don’t know if that’s even possible or whatever but their next game – is it going to be as good? It’s very unlikely.
MATT: I’m trying to look right now. It started at 19, I believe. Now, it’s down 18.43 and I think they were hoping to get up in the 21 to 22 range. But, yeah, it’s all built on one game and the game is going to become popular at some point. You’re taking a big risk with jumping on that company.
I think there was a similar one – Zynga? They have Words with Friends and some other games. They have other games.
NASIR: They have a few.
MATT: That’s the difference.
NASIR: Farmville, right? Didn’t they do Farmville? I think so. Words for Friends, I actually played, but that’s pretty good. They have multiple successes there.
MATT: Yeah, and that’s the difference. They at least have proven something else but I think the biggest story to come out of this is the fact that I also play Words with Friends and we don’t play each other so you’re basically saying that we’re not friends.
NASIR: Uh, yeah. Honestly, I always win everyone who I play so I literally stopped playing.
MATT: Oh, wow.
NASIR: I’d feel bad, too, because my family would stop playing with me and they’d be like, “It’s no fun,” et cetera. I would also cheat. I think there’ s a way to cheat.
MATT: That’s not fun.
NASIR: Exactly! Actually, I haven’t played it in years. But I used to play it when it got popular.
MATT: I just looked this up. I guess the initial public offering price was 22.50 so it’s fallen a good amount then. Maybe it was at 19 yesterday when I looked, maybe that’s what it was. But that’s pretty significant.
I’m trying to think about Facebook. They went up. It was really fluctuating. It went down for a while. Now, it’s back up.
NASIR: You’re exactly right. It went down for a little bit but I think it recovered.
MATT: We’ll see how this plays out. We like to travel back to other similar stories we’ve done in the past. If something unique pops up with this, I’m sure we’ll bring it back again.
NASIR: Definitely. It seems like we’ve covered Candy Crush before. I wanted to cover Uber again but we’ve done that three or four times already.
MATT: Yeah, take a break from that for a while.
NASIR: Well, they just got sued in Seattle by the Taxi Commission. It’s just interesting law coming out of that but we’ll just skip it, I guess, this week.
All right, guys. So, if you have any more questions for us, send it in to email@example.com. If you’re done asking questions, then that’s fine. We just won’t answer any more questions from now on. Of course, you can also go to legallysoundsmartbusiness.com to ask your questions as well.
MATT: Let’s see. This is Episode 24. We’re coming to a quarter on our next episode. Pretty big time for us.
NASIR: Big time. We’re going to have a huge celebration next time.
MATT: Yeah, we already did a Best of after 20 episodes.
NASIR: We’ll do a Best of for 25. That’s every five. That’ll be good.
MATT: After 30, we’re just going to be replaying old episodes and just record different intros.
NASIR: Oh, it’s great. Well, thank you for joining us.
MATT: Keep it sound and keep it smart!