Wondering whether your online business is covered legally? Check out this post to see what you need to know and grab my FREE checklist.
One of the biggest obstacles I hear from online entrepreneurs is they feel uncertain about dealing with their legal stuff. They tell me that they don’t even know what they don’t know about the law.
Look, I know the legal stuff isn’t fun. But, if you’re an online entrepreneur, you need to be thinking about these kinds of questions.
Should you set up a corporation?
How do you name your business?
How do you protect your “secret sauce”?
How can you stay out of legal hot water or avoid being sued?
What are the issues you need to avoid with your web presence?
Let’s dive deeper into the major issues online entrepreneurs struggle with.
Set Up A Corporate Entity
If you’re serious about your online business, you should set up a corporate entity.
Now, legally, you don’t have to do so. You can run your business without doing anything. You need to get a license in most states, but you could run your business as a sole proprietor.
When you do that, there’s no legal distinction between you and your business. That means that if you sign any contract on behalf of your business, you’re signing that personally.
That also means you’re on the hook for anything and everything that comes into play with your business.
Basically, you’re a sole proprietor when you don’t set up a business entity.
On the other hand, if you set up a corporate entity, you’ll be treated as a separate person from your business.
You’ll still be the one to sign contracts, but you’re signing on behalf of your corporate entity. It won’t be attributed to you as a matter of law.
This also means that your finances get separated. You don’t end up being personally liable for a contract if you have set up a corporate entity of some sort.
Now I also want to make it clear. Having a corporate entity isn’t a silver bullet.
A lot of people think that if you have a corporate entity, you’re not liable personally for anything that happens in the corporation. That’s not true.
You’re still the one taking action, so clients may still come from you and your company. It’s not a silver bullet, but it has advantages.
Naming the Business
The naming comes in early on in your business. The key concept here is that you have to pick a name that you can use legally. At the same time, you may want to think about other matters like how you can prevent other people from using it as well.
We’re talking about trademark law here. Broadly, it can cover just about anything but think of it primarily as a brand name, a slogan, or a logo. The law attaches the rights of a trademark to something that identifies the source (your company) of a good or service.
Think of Nike and its checkmark swoosh logo and the slogan “Just do it.” Those are protected by Trademark Law, and when you see those on a product, you know that it’s Nike.
Now the most important thing you need to do as an online entrepreneur when you’re thinking about a name is to make sure that someone else doesn’t already have the exclusive right to that name.
If someone has a trademark, whether it’s registered or not, and they’re already using the name in the same or related field, then you can’t use the name.
It can be tricky. What if they’re using a very similar name, not exactly the same, but in a different area of business? You have to make a judgment call.
The guidance I always give to online entrepreneurs, especially those who are just starting, is to pick a different name. You can’t afford a dispute because disputes are expensive.
So if you find a naming issue, your best bet is to pick a different name, no matter how much you love it.
You’ll find another name that you’ll like just as well if you think it through and do some brainstorming.
Next, you need to think about registering a trademark for your brand name. It doesn’t have to be a painful process. You can find options that will allow you to get a trademark for about $400 instead of hiring expensive lawyers.
So if you’re serious about it, if it’s your brand name that you intend to use for the foreseeable future, $400 is a worthwhile investment.
You should get your agreements in writing for a lot of reasons. Written agreements have a ton of value.
Think of your written agreements as lawyer repellent. You don’t want to be dealing with lawyers in your business, and you especially don’t want them coming after you in a dispute where you don’t have written agreements.
Here’s the problem. If you don’t have a written agreement, you and the other person would end up having different memories of what you agreed to orally or in a handshake deal.
It’s just the nature of human memories. We tend to remember things as favoring us more than they actually do.
If you have different memories of the agreement, you’d end up in a dispute. How are you and your commercial partner going to resolve the issue?
One outcome is you get lawyers involved and you spend a bunch of money, but it doesn’t always happen this way. I’m not going to make you think that you’re going to end up in a lawsuit every time you don’t have a written agreement and have a dispute. You’re not because lawyers are expensive.
Another outcome is that one of you is going to cave in. But whoever it is who caves feels like they’re getting screwed in the deal, and that’s going to poison your relationship.
If someone else asked them about working with you, they’re not going to have good things to say about you.
Nothing good comes out of not having agreements. But when you have agreements in place, there are several benefits, such as:
- You and your commercial partner actually work out all of the details
- If a dispute comes up in the future, it’s easier and faster to figure out who’s right and who’s wrong and solve the problem
You’ll need various agreements, but the general rule is that every important agreement in your business needs to be in writing. Every commercial relationship, everything you have needs to be in writing to make sure that you’re protected.
Confidentiality issues are where a lot of entrepreneurs don’t take the protection that they need or don’t take the time to do so. It’s a big mistake.
Your confidential information, believe it or not, is probably some of your most valuable information. But more importantly, it’s the easiest to protect.
Many entrepreneurs worry about protecting their content and about someone stealing their blog posts or scoping these things. Honestly, protecting that stuff is going to be hard. You’re going to be legally right. People are going to copy it. It just is what it is, so you have to accept that.
The area where you need to focus your efforts is with the people who are inside your business. They’re the independent contractors you work with, employees, and business partners.
You can protect yourself against them stealing your information, your methods, etc., with confidentiality principles and clauses.
If you have a virtual assistant (VA) who has access to lots of confidential information, you need to have limits on that.
If you have a developer who has access to your backend system, you need to have protection because that’s confidential information.
Your leads list, your CRM database, your proprietary method of doing something, those are valuable information that you’ve taken time to build up. You need to protect them.
The confidentiality clauses in your agreements would prevent them from stealing valuable information from you and using them to build their own business and even go after your clients.
Remember these principles:
- Only give access to information to people who need to know
- Don’t give anybody access until they’ve signed a confidentiality agreement
Intellectual property is a fancy word, but it’s intangible. It’s for anything you can own or have rights to other than something you can hold in your hand. It’s things like copyrights and trademarks.
Think of it as your content and ideas. You need to learn enough about these areas of law to understand what you can and can’t do. This includes the areas of copyright law, trade secret law, and the right to publicity.
You also need to understand that other people have rights, and you can’t use their material without their permission. Otherwise, you’ll be called a copyright infringer.
One of the common issues is using images. When can you use them, when can’t you, and what kind of permission do you need to get?
You can’t just grab an image on the internet. You need to have a license to use the image, and you need to get the right kind of license.
The same is true for music. One of the big mistakes people make is when they think they can use a little bit of music without a problem. No, you can’t do that.
You can’t just grab a CD and play it on your podcast. You can’t play music in your Facebook lives or Instagram stories or YouTube videos if you don’t have the right to use the music commercially.
Another place where people get in trouble is with copying content. You can’t copy other people’s content.
You can quote, refer, cite, and link back to the original source. But the problem is when you start grabbing big blocks of texts and using them without attributing them to the owner.
Another place where people get in trouble with this is on social media. People have the misconception that if someone puts something on social media, they lose all rights to it. They don’t.
Now, you can use it within the rules and the bounds of the social media platform. But you can’t, for example, copy that material and then use it somewhere else. That’s generally not allowed.
The trade secret law relates to the issue we were talking about with confidentiality. It’s information that’s not generally known and has value to your business.
It’s not generally known because it’s secret and is protected by trade secret law.
To avoid any issue with this, you need to be careful if you have an employee or a contractor coming in who’s going to want to tell you, “Oh, well, I got all this really good insight and good information when I was working for (fill in the blank).” If they’re talking about one of your competitors, that may create an issue for you.
That would be a red flag. That’s not allowed. You can’t have your outside employees bringing that information to you. It’s probably not going to come up, but you just need to be aware of it.
Right to Publicity
It’s important to understand the concepts behind the right to publicity. It’s an area of law that says you can’t use someone’s name, image, or likeness for a commercial purpose without their permission.
This is what allows for celebrities to get paid, endorse things, etc. As an entrepreneur, there are a couple of places that this comes in for you.
One is for testimonials. You need to get a written release before you use a testimonial because you’ve got to get that protection.
Another is when you have guests on your platform. My podcast guests, for example, have to click a button agreeing to waive or release the right to publicity before they’re able to come on my show.
You need the same thing if you were to have someone come onto one of your courses and help you teach or if you have guest bloggers or other guests coming onto your platform. You need to get them to waive their right to publicity.
Website Legal Issues
You have to protect your website and email practices because you’re online and you’re doing business online. There are special rules that apply.
There are three core legal policies that every online entrepreneur should have on their website.
Terms of Service
While you’re not legally required to have a terms of service page, you’d be silly not to. You’re gonna put a lot of things in there that you need to have.
For example, there’s a law in California that requires you to disclose certain information. In Europe, there’s the GDPR, which has requirements that even businesses outside the EU have to comply with.
The disclaimer has a few roles. One is you’re going to say that you’re not giving professional advice. This always confuses people. But what I mean by that is your website is not giving people professional advice but education and information.
The notion is that to give someone professional advice, you need to be working with them one-on-one, and your website could never be that. So you need a disclaimer, which you should tailor to whatever type of business you’re in.
You need to put other things in your disclaimer. Some of them are legal boilerplate saying, “You can’t sue me for X, Y, and Z.” Other things are meeting your requirements under the Federal Trade Commission’s general rules that you have to be truthful and give people various information.
If you’re going to do affiliate advertising, you’re going to need to put in your disclaimer that some of the links are affiliate links.
You may also need an earnings disclaimer that says the earnings you mention are representations of what your customers have achieved. They’re not typical. That’s what they actually got, but your results are going to be based on your efforts and your facts.
If you do reviews, you need to tell people that you get products for free or at a reduced price, etc. It’s a catch-all where you’re saying here are all the financial incentives you get.
You should love the disclaimer document because it’s all about preventing people from suing you.
In your email practices, you need to make sure you’re complying with the Canadian Anti-Spam Legislation (CAN-SPAM) and the General Data Protection Regulation (GDPR).
Those are the six areas that you need to get up to speed on with your online business. You don’t have to be an expert in them, but you need to have the working knowledge of them to make decisions.
If you do, you’re going to be leaps and bounds ahead of where most online entrepreneurs are, who are just kind of ignoring their legal stuff.