So you are just starting out on your own in business. You’ve researched your market, you found an area where you can provide value, and now you are ready to launch your business/website…
Hold on just a sec.
Do you know which legal traps to avoid as you are getting started?
I’ve been a lawyer and an entrepreneur for close to 12 years, and starting dabbling in online business back in 2007. Things were a lot different 10 years ago, but not by much.
Over the past 10 years, the law has caught up to what Internet entrepreneurs are trying to do.
What does that mean for you?
It means that there are more rules for you to follow to make sure you don’t get smacked down by the FTC (that’s the “Federal Trade Commission”, a federal agency that makes sure that US consumers are protected).
So what do you need to do to protect yourself and your online business? Here are a couple legal traps you need to be aware of and the simple (and inexpensive) ways that you can steer clear of them.
Legal Traps for the New Entrepreneur
Failing to Set Up Your Corporate Structure
Failing to set up a legal entity always tops of my list whenever people ask me what they should do to protect their business. People inherently know that they need to incorporate, but the question is always “when is the right time”?
The answer is, to be honest with you, as soon as you feasibly can.
If you are still working another job and starting an online business on the side, maybe you don’t need to incorporate just yet, especially if your web site isn’t getting any traffic or sales.
But as soon as you start getting meaningful traffic to your site, and more importantly, start generating sales (affiliate commissions, product sales, etc.), then you should give some serious thought to forming an LLC or an S-Corp.
As a quick aside, unless you are a non-resident/non-citizen of the US, an LLC is a good entity to start with. This will vary based on which state you live in. Once you start earning more than $30-50k per year with your business, you should consider converting to an S-Corp to save money on taxes.
There are two primary reasons you need to incorporate.
The first is that it will ultimately save you money because you will pay less taxes at the end of the year. As a business, you will be able to take legitimate business deductions for more of your expenses. Without that legal entity in place, the IRS could look at your business as a “hobby” if they ever audited you.
Second, by having some sort of corporate shield in place, you are protected from liability related to the advice you are giving on your website, or the actions that visitors take either on your website or as a result of the advice you provide on your site.
This liability protection is extremely important, especially if you are giving health, fitness, or other professional advice, or promoting products in those industries.
If you are selling affiliate products and your website will “cookie” your visitors, you need to tell them that. If you are collecting email addresses or taking orders (and payment) on your website, you need to explain that to the visitor as well.
An affiliate disclaimer is a notice to visitors to your website that you will be paid if they purchase the products you recommend on your website.
Including an affiliate disclosure is not optional. This is another “must have” for those of you that are promoting products on your website and will be collecting a commission from those products.
And here’s the thing – a link to an affiliate disclosures page in your website footer is NOT good enough.
The new FTC rules actually require that you place a statement at the top of each and every page that includes affiliate links in it.
Here are the basics that you need to know about how and where to include these disclosures.
First, it is helpful to remember the acronym “FCC”. This stands for frequent, clear, and conspicuous.
By frequent, the FTC wants you to have a disclaimer on each and every page or blog post that contains affiliate links. I already mentioned this above, but it’s worth mentioning a second time. Remember, a link in your footer won’t cut it.
Second, the disclosure must be clear. You don’t need a lawyer to draft this for you. If you are receiving a commission for promoting a product, then include a statement at the top of your blog post that says something like, “I may be compensated through the links in the post below, but the opinions are my own.”
Finally, the disclosure must be conspicuous. The reader shouldn’t have to dig around for it or click an extra link. It should be easily visible when viewing the content in your post.
When in doubt, err on the side of disclosing the relationship. If you don’t like this policy, then sell your own products and don’t run affiliate sites.
And by the way, if you received a product for free to test out and write a review on, you need to disclose that as well, even if you weren’t paid a fee.
Terms and Conditions
The next most important piece of information for your website is the terms and conditions page.
This is a legal contract between your website/business and the visitors to your site. You can include anything you want in this page, but here are some of the most important sections:
- Limitation of Liability – You can use this page to limit any damages that the user of your site could sue you for.
- Forum Selection – Let’s say you are operating your website in Florida, and someone in Alaska decides to sue you. Without a forum selection clause, you would need to go to Alaska to defend the lawsuit. Not fun.
- Intellectual Property – You can grant yourself a license to use any of the materials that are published to your website by your users. That means comments, images, etc. (Testimonials anyone?)
- Disclaim any warranties – By disclaiming warranties, you are telling the end user that the information on your site is for information only and not professional advice of any kind. Hell, the information may not even be correct! You need to tell the visitor this.
You can also (and should also) include provisions regarding the ownership of your own intellectual property, governing law, arbitration, and more.
This is a very important legal document, and I don’t recommend just copying and pasting it from someone else’s website.
Wrapping Up – Must haves for starting a business
In addition, if you are giving advice or telling someone how to do something on your website, you must have an appropriate legal disclaimer (which can be linked to in your footer).
You don’t absolutely, positively need a terms of conditions page right away, although it is highly recommended.
Finally, we recommend that you form a corporate entity, such as an S-Corp or an LLC, as soon as you possibly can by after starting up your business.
Cover Photo (c) Ben Heine
About the author
James Hart is an Internet entrepreneur and attorney. He is the founder of Hawthorn Law, an online, virtual law firm that works with Internet businesses to help them achieve their freedom lifestyle by applying legal protections to their businesses. For more information on Jim, you can visit his website at www.hawthornlaw.net.
great post. something everyone should read
Bookmarking this, and tweeting for other entrepreneurs. I am scrambling to finance all the legal stuff as i start my business!
You are not alone! Thank you for spreading the word!