Do you own the rights to work created for your business??

The single most important clause that should be included in any Employee or Contractor Agreement is the Ownership of Work Product. 

Did you know that pursuant to US laws, all work (intellectual property) created by a contractor on behalf of a business is owned by the contractor absent a written agreement transferring ownership to the company/client?

Imagine paying an assistant, copywriter or graphic designer to create a program, sales page or logo to later learn the work in fact belongs to them.

The work is of no value to you if you do not own the exclusive rights to it.

Conversely, if you are a contractor that provides services to a business that results in the creation of a body of work, it is equally important to include an Ownership of Work Product clause in a written agreement that carves out a reasonable right to your limited use of the work (for instance in advertising/marketing materials). 

With regard to employees, the employer does automatically own the copyright of all work created on behalf of the business; however, the employee maintains patent rights his/her ideas.

Do not overlook this critical clause in your Employee and Contractor Agreements.

Still have questions? Feel free to contact me here.

Managing Client Expectations: A Lesson in Avoiding Disgruntled Clients & Lawsuits

In a service or product-based business, appropriately managing your clients' expectations is one of the most effective ways to avoid legal discord. In fact, a best business practice is to

UNDER-promise and OVER-deliver.

While it may be tempting to commit to a quick turnaround or quote a competitive rate to land a new client or account, be sure to allow yourself adequate time and resources to complete a project and exceed client expectations. Of course, extenuating circumstances may arise that will prevent you from meeting your obligations. It is of utmost importance that you communicate these issues with your client as they arise.

It is also advisable to maintain a record of your work relating to the project. This way, if a client were to ever question your commitment to completing your obligation, you are able to demonstrate your time and efforts which will likely go a long way towards diffusing a potential conflict.

Other tips for managing your clients' expectations? Please leave them in the comments! 

Benefits and Drawbacks to Consider When Selecting a Business Entity

There are several different business entities to choose from when establishing a legal foundation for your business. Below are some important factors to consider in selecting which entity is most appropriate for your business.

1.    Sole Proprietorship

What it is: An unincorporated venture with no distinction between you as an individual and the business.

Potential benefits: There’s a reason this is the most common structure for new businesses… it’s the default. If you do absolutely nothing to set up a business structure, and you have no business partners in your venture, you are conducting business as a sole proprietorship.

It’s also the simplest for tax purposes. Taxes are filed as part of your individual income taxes only. 

Potential drawbacks: While you are entitled to all profits, you’re also responsible for all debts and losses personally. That means you would be held personally liable if someone sued your company. For this reason, I almost always advise against conducting business as a sole proprietorship. Sole Proprietorships are also five to seven times more likely to be audited by the IRS than the other business entities described in this article.

Note: Operating as a Sole Proprietorship does not absolve you of your responsibility for obtaining appropriate permits and licenses necessary to operate in your particular industry or location.

2.    Partnership

What it is: Two or more partners share ownership of the company and each partner contributes to various aspects of the business, including financially. In return, each partner shares in the profits and losses of the business and each is personally liable for the debts and obligations of the business. 

Potential benefits: Similar to sole proprietorships, they are easy and inexpensive to form. If you are conducting a business with partners without having established a formal entity, you are, by default, operating a partnership.

Potential drawbacks: Like sole proprietorships, partners share personal legal responsibility of the debts and obligations of the business, including decisions made by other partners. Personal assets may be seized to pay the business’ debts when necessary.

For this reason, I almost always advise against conducting business as a partnership. 

3.    Limited Liability Company

What it is: An LLC (a hybrid of a sole proprietorship/partnership and a corporation) provides limited liability for owners like a corporation and the tax efficiencies and operational flexibility of a sole proprietorship/partnership.

Potential benefits: Unlike the double taxation of a corporation, LLCs are not taxed as separate business entities. Instead, all profits and losses “flow through” and are the responsibility of each “member” (aka. owner) of the LLC. The business itself is not taxed.

Again, members are protected from personal legal liability for the debts and obligations of the company. 

Potential drawbacks: Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security.

Also, there are limits on who can receive distributions and ownership interests which are often unattractive to potential investors.

4.    Corporation

What it is: Sometimes referred to as a C corporation, a corporation is an independent legal entity owned by shareholders. 

Potential benefits: Corporations are resistant to personal legal liability like several other structures, but they also can generate capital through the sale of stock. 

Shareholders (owners) of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.

Potential drawbacks: Corporations are costly and time-consuming entities to maintain, requiring extra recordkeeping and paperwork as well as start-up, operating and tax costs that most other structures do not require. Further, corporations are actually taxed twice (once to the corporation and again to the shareholders).

5.    S Corporation

What it is: Also known as an S Corp, this is not in fact a business entity at all! S corps are a tax election that avoids double taxation that is generally the case with corporations (once to the corporation and again to the shareholders). The C Corp or LLC may be an underlying entity of the S Corp tax election.

Potential benefits: The most substantial benefit is tax savings. What makes the S Corp different from a C Corp is that the business itself is not taxed; profits and losses pass through to the shareholders’ (owners’) personal tax returns. Unlike an LLC, S Corps often provide savings in self-employment taxes.

Potential drawbacks: S Corps must adhere to the same corporate formalities and maintenance of a C Corporation. Failure to do so may result in back-taxes if the entity were to be audited at a future date.

Also, any shareholder who works for the company must take only "reasonable compensation" (as determined by the IRS) in order to avoid double taxation.

Because there can be significant implications  in terms of profits, tax liability, and legal liability, you want to be sure you make the right decision for your business. You can always contact me here with questions. 

Is That Photo on Your Website Going to Get You Into Legal Trouble? Here's How to Know for Sure.

One of the most common mistakes I see among entrepreneurs is playing fast and loose when it comes to photo usage.

Unfortunately, there’s a lot at stake. Last year, one of the largest photo distributors, Getty Images, filed a litany of copyright infringement complaints over images used without their permission. In fact, Getty is notorious for sending threatening letters accompanied by invoices (demanding that website owners not only cease and desist use of their photos, but also pay for the images that have already been used). Website owners have been forced to pay hundreds and even thousands of dollars just to avoid a lawsuit that could jeopardize their entire business.

Here are six common misconceptions about photo usage, and the truths that you need to know before ever featuring an image on your website.

 1.    Royalty Free does not mean free to use. Many stock photo sources advertise themselves as royalty free, and do little to dissuade users from thinking that means their photos are free to be used anywhere and everywhere.  

Royalty Free actually means that as long as you comply with the terms of the license agreement, no additional royalty payments are owed. So by checking the “I agree with the terms” button and paying $1, for instance, you are complying with the Royalty Free license.

Royalty Free terms differ from picture to picture, and even size to size, so you cannot assume the terms will be the same for all images on a royalty free site.

2.    Not all stock images are Royalty Free. Some are rights managed, which means how you use the photo is limited according to the copyright owner’s wishes. It might be limited by duration of use, industry, or editing rights.  

Particularly if a photo is limited by duration of use, you are better off avoiding it altogether. It’s too easy to use longer than you have rights to do so if it’s just sitting on your website.

3.    A Creative Commons image is not a free-for-all either. Many website owners and bloggers turn to Creative Commons images as an alternative to paying for stock photos, thinking they can use them without any payment or repercussions. Unfortunately, that’s not the case.

Creative Commons licenses simply allow photographers to easily communicate the rights they reserve for a particular image. They are frequently used by amateur photographers.  

A Creative Commons licensed image still may: require attribution or credit, only allow its use for noncommercial purposes, or could even carry a cost. Again, it varies from photo to photo so don’t assume Creative Commons means anything’s fair game.

4.    Just because you didn’t put the photo on your website does not mean you aren’t liable. If a third party contractor, employee, or firm selected the infringing photo and put it on your site, you are liable for its use if the copyright owner takes action. So make sure people working for you know you have a strict policy about photo use and go back through old photos on your site to make sure you’re in compliance.

5.    Non-commercial websites/webpages are not exception. Frequently, site owners will say, “But the picture’s just sitting on my blog. I’m not making any money off of it.” It doesn’t matter. Even a completely non-commercial website can be liable for using a photo without the proper rights.  

6.    If you took the photo, you own the copyright. If you took a photo that someone else is using, Copyrights can work to your advantage. You inherently own the rights to your image, dating back to the time it was taken. However, you would need to register your copyright to proceed with any legal action against infringement.

If you are ever unsure about using an image, I advise you to err on the side of caution and don’t use it. You can always contact me for more details or assistance with copyrights.

The 7 Legal Habits of Successful Entrepreneurs

Set yourself up for success by following a few simple legal procedures when running your business.

 1.    Maintain Your Licenses – Most businesses need a license of one type or another, if not multiple state and federal licenses. Whether it’s a professional license, a tax license, or a license specific to your industry, it’s of utmost importance that you are in compliance with the law. Even home-based sole proprietorships often need a license. The Small Business Administration offers a tool for finding the federal and state permits and licenses for your business.

 2.    Keep Ironclad Contracts – Every client, contractor, vendor, employee, and partner needs to have signed a contract before any work is exchanged between the two of you. It should specify that, in the event they violate your contract, they would pay your legal fees and lost revenue. Review your contracts every six months to make sure everything is current.

By preparing your contracts with foreseeable issues with contractors and clients in mind, you are less likely to actually have any major troubles arise.

3.    Read Everything You Sign – As an entrepreneur, you’re likely signing a new terms of agreement or terms of service nearly each week! How many  are you actually reading and aware of what you’re signing? By taking a few minutes to read what you are agreeing to, you could be preventing problems months or years in down the road.

 4.    Keep an Eye on Trademarks – If you already have trademarks, establish a system or action plan for regularly checking for violators. This may be as simple as a Google Alert for your trademarked term.

If you don’t have a trademark for your business brand or sub-brands yet, do a search immediately. You could be violating someone else’s trademark, which could mean huge repercussions down the road. Trademark violation has been known to shutter many a small business.

Read more on the steps to trademark your business brands.

5.    Copyright Your Work – Obtaining a copyright registration is not as simple as putting the © (copyright symbol) and year on anything you produce. Registering your copyright affords many real benefits in the event of infringement, including much greater likelihood of recovering damages and attorney fees. 

Your books, e-books, products, informational programs, photos, art and articles can all be protected by registering copyrights. Read more about copyrighting your work.

 6.    Share Photos You Own Rights To Use - The other side of copyright infringement is that it’s easy to violate if you aren’t careful, and this is particularly true with photos. Without express, written authorization from the copyright owner, using a photo that you don’t own, even for non-commercial or private purposes, is a violation of the copyright and can lead to legal action against you. Unless you have taken the photo yourself or purchased image rights, such as through a stock photo site, don’t use the photo. Even fair use or creative commons photos can be difficult to use in adherence with the law.

 7.    Tell the Truth in Advertising and Marketing – Your emails, especially, but also other forms of advertising and marketing, including your blog, social media, and ads can be subjected to scrutiny. Don’t set yourself up for trouble by misrepresenting your work or products.

The other habit successful entrepreneurs keep is seeking advice from an attorney when they aren’t sure about the legality of their actions or the best way to proceed. Contact me with questions here.

Source: The Small Business Administration