Recently I've been researching possible blog topics and noticed that there is very little legal information out there for people that work from home. And because my law practice works with online entrepreneurs, it dawned on me that many of you probably do actually work from home in your online business.
Now, this post was inspired by my good friend, Mitch Jackson, who recently wrote an article entitled, “9 Legal and Entrepreneurial Tips When Starting and Building Your Online Business” on his Streaming Lawyer blog. In this article, Mitch focuses on two types of businesses, those that have a bricks and mortar operation and are looking to transition to an online platform, and those that are just looking to startup on a digital platform.
While I agree with many of the ideas and the advice that Mitch gave in his article, I felt that some of the “9 things” he discussed needed further explanation, prompting me to put together my own list of “9 Things You Need to Know About Starting an Online Business”.
So let's jump into it, shall we?
Even if You Work From Home, You Need to Have a Proper Corporate Shield
This is the first bullet-point in Mitch's list. And I think that Mitch is correct in that most work from home businesses should be doing business as either an Limited Liability Company (LLC) or a S-Corporation. However, there are plenty of instances where a general partnership can also be a viable option, provided you have a proper partnership agreement in place.
Mitch focuses, (and correctly so), on the limited liability benefits of forming a corporate entity. However, if you are a work from home, internet-based business, the likelihood of you being sued for damages is relatively small (assuming you aren't trying to scam people or defrauding your customers, in which case the corporate shield wouldn't necessarily protect you anyway).
The biggest potential liability for your business will be the debts you incur to startup or run your business. How you acquire this capital will have an effect on whether the corporate shield as available to you or not. If you acquire your capital through a bank loan in the name of the business, then the corporate shield is an important piece of the puzzle. However, I'm confident in saying that just about any bank that is willing to give you a loan will want you to sign a “personal guaranty” which will nullify any liability protection from the corporate veil anyway. The same is true for credit cards, which are typically taken out in your personal name.
In the internet world, you don't necessarily have employees that are doing work that would cause them to get injured on the job, or potentially ruin someone else's property – all cases where the corporate veil would be important.
Is it possible that someone could purchase your online product (whether it is information or an actual physical product), use it, and get injured as a result?
Absolutely – which is why the corporate veil is important. And this is why I agree with Mitch that forming a corporate entity (either an LLC or a corporation) is extremely important. But I just wanted you to understand that the exposure you have if you start out as a sole proprietor or partnership is probably limited.
Protecting Your Intellectual Property
Mitch provides a lot of good guidance here in his article. Namely, this is a complicated area of the law and you are doing yourself and your business a solid by contacting a lawyer to get some advice. However, this attorney does not typically need to be licensed in the state that you live in.
Filing for trademarks and copyrights is a FEDERAL practice area. That means that any licensed attorney that works on these issues can assist you with this. I'm licensed to practice in Florida and North Carolina, but work with clients across the country on these issues. In fact, at present, I don't work with any clients in either of the states that I'm licensed in!
I recommend that you get an attorney involved in the process early on. The reason for this is that I see many client's make the mistake of picking (and using) a name that is already trademarked by a competitor of theirs. This is a no-no.
Another reason you should get a lawyer involved early is that you want to pick a name that can actually be trademarked. Many businesses make the mistake of picking a name that is too descriptive or generic, thereby eliminating their ability to protect their intellectual property, even if the name is not being used by anyone else.
Be an Agent of Your Business
In Mitch's third tip, he suggests that you always preface anything you do online, be it a Periscope Session, Blab, Snapchat, etc. be prefaced by saying that your presentation is brought the listener by your company. That way, nobody can claim that you personally we the party at fault for any type of damages that could result from your presentation.
The same is true for any of your online properties. Especially in this social media world that we live in, it is important that you have an “individual” brand, but you want that brand to be a part of your overall business. So everything you do online should be sponsored by your “parent company”.
Right now, I'm building the online brand – Hawthorn Law. But over time, as Hawthorn Law becomes more well known, I will begin to branch out to develop my own personal brand as a lawyer who works for Hawthorn Law. As such, my videos, Scopes, Blabs, etc. will be “sponsored by Hawthorn Law.”
Put Every Legal Relationship Down in Writing
This is just such an important tip, it probably should be higher up on this list.
It doesn't matter if you are doing consulting work, selling physical products, or selling information products online. It is vitally important that you reduce all of your legal agreements to writing. Here are three agreements that you absolutely, positively, must have right now in your business, whether you are a startup up or an established internet entrepreneur.
- Client Contract. If you are handling client's one-on-one, you must have a contract that outlines what the terms of the engagement are, what work you will do for the client, how much they will pay you for that work and when, and much more. Don't get involved in a consulting relationship with a client without a written fee agreement in place.
Mitch touches briefly on the fact that if you are an influencer making endorsements for other people's products and services, you must be careful to follow all FTC disclosure rules, especially where there is an affiliate relationship and you are making money by endorsing another product or service.
Mitch's next tip is to embrace technology. While this doesn't quite qualify as a “legal” tip, it is certainly good advice for an entrepreneur that is starting a work from home or online business.
In order to build and grow an online business, you need to be where your customers are. If they are on Facebook, you should be on Facebook. If they are on Snapchat, then as much as you might hate it, you should be on Snapchat. You need to know where your people are, and interact with them and provide value on those platforms.
You won't always know whether your efforts are paying off or not, but I promise you they are. Here is a great video from Gary Vaynerchuk talking about the ROI of Social Media in comparison to the ROI of his mother… It's classic.
I agree with Mitch on this issue from a purely practical and business building point of view. If you are not actively engaged on a social media platform right now, it may not be clear to you how powerful this media is. But I promise you, once you do engage and start talking to people on these platforms, the results will come. The ROI is there… trust me.
Help, Share, and Add Value
Again, this is not a “legal tip” per se, but it is a valuable piece of advice that should not be ignored. One of the things that draws me to Mitch Jackson is that everything he does comes from a place of trying to give first. His first priority in every interaction he has had with me over the past two years is to find a way to help me first. And to date, he has never asked me for anything in return.
He didn't ask me to write this blog post and help promote his content – but I'm doing it. I'm doing it because I like what Mitch has to say and I like that he is looking out for all the other people that he comes into contact with.
So be like Mitch. Strive to help others. Be a giver. If you haven't read Bob Burg's latest book, “The Go Giver”, then go pick it up today (affiliate link). This is a short, quick book that talks about the power of giving, and how it can have a profound impact on your business.
Essential Clauses for your Contracts
The last three nuggets of advice from Mitch's post are three separate contract provisions that you should be aware of when drafting the contracts for your online business. If you hire a lawyer to draft these for you, in all likelihood they will include these provisions in the contracts they draft for you. Look over your contracts, if they don't include all of these provisions, then make sure and ask your lawyer why they aren't there.
Alternative Dispute Resolution Provisions
This is typically a fairly standard provision in most contracts. In fact, if you look through the terms of service and contracts you have in place with your cell phone company, credit cards, mortgage documents, your lawyer (if you have one), etc., chances are that you will see an alternative dispute resolution provision in the contract.
This is a clause that says that prior to going to court, if there is a dispute over the terms of the contract that you entered into, both you and the other party agree to submit that dispute to some form of alternative dispute resolution first.
Alternative Dispute Resolution (or ADR) can come in various forms. The most common form of ADR is arbitration, This is where both you and the other party present evidence to an arbitrator (who is kind of like a judge, but is chosen by the parties involved in the dispute), and they make a decision. Their decision is final and binding, and typically there is no appeal. You can see why this might save you a great deal of money over going to court and fighting through hearings, trials and appeals.
The second major type of ADR is mediation. This is where you and the other party go to a mediator to help you resolve the dispute. The mediator cannot force you to do anything, but they will help you work through the issues with the end goal that you reach a settlement. In some cases, if no agreement is reached, the mediator becomes an arbitrator and reaches a decision on their own. This is known as “Mediation-Arbitration”.
Every state has different rules on mediation and arbitration, but having an ADR provision is something that you definitely want to include in all of your contracts, including your website terms of service.
Clause for Attorney's Fees
This is a provision in a contract that allows for the payment of attorneys fees from the losing party to the winning party. This is a great provision in that it will reduce the likelihood of someone filing a frivolous lawsuit. The thought of having to pay their lawyer in addition the lawyer for the defendant if they lose is just enough of an uncertainty that clearly false and unsubstantiated claims will never be brought.
In my opinion, this is one of the most important provisions in your contracts, including your terms of service. This tells any prospective plaintiff that if they want to sue you, they will have to come to your state. If you are a smart business owner, this is a clause that is definitely in your contracts.
Here's how this works. If you live in Wake County, North Carolina, and someone from California wants to sue you, and you have a venue clause in your terms of service, then they will have to travel to North Carolina to hire a lawyer and prosecute their claim in the Wake County Courts.
This is a great way to deter frivolous claims and keep your legal expenses in check. A small amount of money paid to a lawyer now can have a tremendous impact on your bottom line later.
I don't typically do conclusions in my blog posts, but in modeling this post after Mitch's, I thought this would be a good way to wrap things up.
The key takeaway to everything that has been discussed in this blog post is that you need to be prepared. And getting prepared means doing the little things like talking to a lawyer early, before you have a legal dispute that forces you to hire a lawyer. It also means to be doing the right things in your business – i.e. helping others and providing value. Finally, you want to meet your clients where they are at, be it snapchat or a Facebook group.