A lot of people expressed concern that they didn’t even know what they needed to be worried about.
One person said: “I am afraid that I will miss something crucial that will haunt me later. I don’t even know where to start to cover my bases. . .”
Another person worried about “incurring some onerous liability without knowing it.”
Yet another entrepreneur put the concern plainly, saying the biggest concern is “knowing what legal stuff I need.”
These responses weren’t all that surprising to me because that is a common theme that I hear in talking and working with entrepreneurs.
The reality is that very few entrepreneurs actually have a good handle on their “legal stuff.”
I was pleasantly surprised that so many people in my audience recognized this blindspot because entrepreneurs who realize that they don’t know what they need are ahead of the game.
You’re In A Legal Minefield. . .
I love metaphors, and one that vividly portrays the situation online entrepreneurs find themselves in is to recognize that they are standing in a legal minefield.
There are legal landmines all around, and stepping on one of them could destroy your business (or at the very least cost you thousands or dollars or more in harm).
To safely navigate the minefield, there are basically three steps.
First, you have to recognize that you are in a minefield. In other words, you need to wake up to recognize that there is “legal stuff” you need to handle. Recognizing that there are things you don’t know is good enough on this first step (which is why I was pleasantly surprised to see so many respondents recognizing this fact).
Second, you need to figure out where the legal landmines are. In other words, you need to go from someone who doesn’t know what the issues are to an entrepreneur who understands the common legal issues that you face (and will face).
Third, you need to map a course to avoid the legal landmines. This involves putting a plan in place, consciously deciding how to handle the issues, and putting the right agreements, policies, etc. in place.
The Second Step Is The MOST IMPORTANT. . .
Ultimately, my goal is to help entrepreneurs avoid the legal landmines they face. But they can’t start to avoid issues until they recognize the common legal issues.
In law, we have a concept known as “issue spotting.” The idea is that the biggest challenge is often seeing that there is an issue that needs to be addressed.
What you probably don’t know is that lawyers spend pretty much their entire time in law school learning just this one skill – issue spotting (heck the exams are called “issue spotters).
There’s no way that law schools could teach lawyers how to actually solve all the legal problems they will face. . . but if lawyers can spot potential issues, it’s not too hard to figure out how to solve them.
Like the public service announcements in the old G.I. Joe cartoon said: “Now you know, and knowing is half the battle.”
My experience reinforces the belief that getting people to spot issues is the most important step along the way.
I’ve seen some really disastrous mistakes made by entrepreneurs. Like the time a client had made a paperwork mistake way before hiring me that cost them tens of millions of dollars.
Yeah, you read that right, a paperwork mistake cost a client tens of millions of dollars. . . but more on that another day.
That client didn’t intentionally screw things up and wasn’t being cavalier about the whole thing. . . they simply did not spot the issue. So they did not know there was “legal stuff” that needed to be done.
And that’s been the common theme in the disasters I’ve seen. Its entrepreneurs who didn’t realize there was an issue until it was too late.
I’m tired of seeing this pattern play out. I want to help you avoid the legal landmines.
So I figured the best thing I could do right now is to give my readers a roadmap of the basic issues that nearly every entrepreneur will face, so you can start to spot the issues.
What follows is a broad stroke description of six issues that you need to consider. I obviously can’t address each of these in-depth in a single blog post, but I wanted to get you thinking.
Issue 1: Corporate Organization
Every entrepreneur should make a reasoned decision about whether to form a corporation or not. And what type of corporate entity to create if you decide you need one.
This is WAY too big of an issue to really dive into in a single post, but generally there are three benefits to starting a corporation.
First, creating a corporation can help you protect your personal assets. This is not a simple matter, and some people have the misconception that forming a corporation is a magic bullet. It isn’t. But if you form a corporation and run it right (which means keeping your business and personal affairs separate), you can shield your personal assets from many types of liability.
Second, creating a corporation can have some tax benefits. Again, this is a complicated subject, but you should understand that forming a corporation (depending on the kind you create) could allow you to deduct some income, avoid self-employment taxes, and set up certain kinds of retirement accounts (to sock away money tax-free).
Third, creating a corporation or a partnership allows you to have co-owners. If you are working in conjunction with someone else and sharing costs and profits, you should have a formal entity set up.
The downsides of incorporating generally come from the administrative burden and the fees associated with forming (and keeping alive) your corporation.
Depending on your personal situation, making the right decision on this one issue could save you tens of thousands of dollars and give you peace of mind about your personal assets.
Can you really justify just going with inertia on this issue?
Didn’t think so. You should be making a conscious decision about whether to form a corporation based on the benefits for your particular situation.
Issue 2: Naming Rights
One of the first decisions you likely made was to create a name for your business . . . and then for your products . . . and then for your blog, podcast, etc.
This is an area where many online entrepreneurs make a HUGE mistake. They don’t do their due diligence to make sure they can use the name legally.
You need to make sure that no one else has trademark rights in the name before you start building your business around the name.
Or you can ignore this issue . . . and spend your time, money, and effort building your brand only to discover months or years down the road that you have to change the name and lose all the goodwill you’ve built.
Seriously, don’t ignore this issue.
So how do you do this “due diligence” you ask? Simple. You run a trademark search. You can do it yourself with a little guidance or you can hire a company to do a more thorough search for you.
Issue 3: Written Agreements
Under the law, most agreements don’t HAVE to be in writing, but some do. As an aside, this is what tripped up my client with the millions of dollars lost because of a paperwork mistake (but more on that some other time. . . ).
Even though the law doesn’t require you to have your agreements in writing, you should get every agreement that is important to your business in writing.
Why you might ask? Well there are tons of benefits, including:
- Making sure you are actually in agreement on key terms
- Creating a written, tangible piece of evidence about the agreement
- Creating a simple way to resolve any disputes that arise
A good rule of thumb is to adopt the mantra: “If it isn’t in writing, it didn’t happen.”
These agreements don’t have to be overly complex, the point is simply to get them down on paper and signed by everyone. Sure, there are provisions that every lawyer will want in there that will make things better, but don’t let that stop you from at least getting something written down.
To get started on this point, you should start thinking through the important agreements and relationships in your business. Create a list. . . then start knocking out agreements one-by-one.
Issue 4: Protect Your “Secret Sauce”
Your confidential information is valuable. Actually, let me go a bit further:
For most online entrepreneurs, your confidential information is your MOST valuable asset.
Think about all the different proprietary aspects of your business. You know, like. . . your customer list, your CRM database, your method of doing whatever it is you do, you pricing, your costs, your behind the scenes automations, and on and on.
All of that is hugely valuable to your business. And you don’t want other people to be able to use it against you. . .
But who would use it against you, you might ask?
- Independent Contractors
- Potential Business Partners
- Joint Venture Partners
I know, you only work with awesome people and you have nothing to worry about. . .
Guess what, that’s what everyone thinks and that’s what everyone tells about why they didn’t worry about this issue until after it blows up in their face.
Don’t be fooled. There is a very real risk here.
If you take the right precautions and have the right documentation in place, these people can’t use your confidential information to compete against you later.
But if you don’t take the time to get the right precautions in place, any one of these people could walk out with your confidential information and use it to set up a competing service.
To address this issue, you will need to set up basic physical and electronic protection systems and have written agreements (there’s that idea again!) in place with your partners.
Issue 5: Avoid Getting Sued
Look, I’m going to level with you on this one. There is no way that you can ensure that you will never be sued. But you should take some basic steps to minimize the chances that you’ll end up in a dispute.
The biggest vulnerabilities for online entrepreneurs come from the chance of being sued for infringing on someone else’s intellectual property.
If you routinely use copyrighted material without permission, you will eventually face a nasty letter, a demand for money, potentially the loss of your platform, and maybe even a lawsuit.
Similarly, if you trade on someone else’s name, image, or likeness without permission (in other words imply an endorsement), you will eventually get sued.
And if you hire employees away from competitors and then use confidential information they bring over with them to build your business, you are begging to be sued.
To minimize your risks, you need to make sure that you understand copyright law, the right to publicity, and trade secret law.
But understanding isn’t enough. Once you learn about these areas of law, you need to establish some basic procedures to ensure that you are not stepping on anyone’s toes.
Issue 6: Website Issues
Okay, this should be an easy one. If you have a website, you need to have at least two pages with “policies” in place (and maybe three).
There’s lots of what we lawyers call “boilerplate” language in here (stuff that everyone should include). But then there are the parts that are specific to your business.
You will have a dispute resolution provision that sets out how disputes will be resolved (and where). You’ll have information about your money-back guarantee (if you have one) and how people can cancel an ongoing membership. And on and on. . .
You also need a Disclaimer. You can either handle this as a stand-alone document or you can choose to put it in your terms of service. A Disclaimer will specifically disclaim that you are giving certain types of advice (for example, I’m not giving you legal advice. . . I’m giving you legal education).
The disclaimer is also where you make clear that “results are not typical” and that you aren’t promising anyone that they will get the results that others have gotten from your product or service.
Whew, that sure is a lot of stuff. . .
That’s a heck of a lot of stuff to worry about. Look, I’m not going to lie to you. There are A LOT of things that you need to know.
And let’s be honest, this post just scratched the surface and probably raised a bunch of questions for you. . .
I couldn’t possibly answer all these questions for you in a single post. And that wasn’t my point. Because I truly believe that “knowing is half the battle,” my goal was to get you focused on the issues so that you could start asking the right questions.
As part of my quest to help online entrepreneurs, I’m going to be creating a TON of content about these issues over the rest of 2018. I can’t promise that I’ll answer every question, but my goal is to help you navigate your way out of the legal minefield you are in.
So stay tuned as we take a deeper dive on the individual issues you face.