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Read MoreIt's one of those industries that has been around for a long time. but it is only getting its notoriety now due to new technology and the use of social media. It is also the industry where we see its activity in everyday life.
It could be a commercial with a celebrity endorsing a product. It's also in the image of a girl on your Instagram feed who is claiming that she just got this brand new bathing suit, for example. We know that the celebrity got paid. What we don't know is whether the girl in your Instagram feed paid for that swimsuit on her own or a brand has gifted the swimsuit in exchange for a post. Or maybe she did get paid to wear the swimsuit and to post about it.
It is these gray areas where the FTC of the Federal Trade Commission is watching. Not like Big Brother watching but the FTC is in news feeds and reviewing descriptions of what people are posting.
Influencers, this post is for you. Because the first issue we need to tackle is what you're doing. If you are accepting money or gifts or some sort of incentive to post about a particular brand or product, you are a business. It’s a trade. Let's not pretend that you are not an entrepreneur because you are one. So all entrepreneurs should know the rules and regulations around their business.
Brands, this post is also for you. You should understand the rules and regulations about working with influencers in social media. You should be aware of what the influencers are putting on and having clear rules that you and your own team follows.
Make sure any ad is truthful and not misleading. Just because it's social media doesn't mean that there is a lesser standard for truthfulness. So all tweets, Facebook posts, Pinterest boards, Instagram posts, Snapchat posts, YouTube videos, etc need to be truthful. Sometimes influencers like to exaggerate. Or they sometimes think adding additional things to make the ad to make it look a bit more interesting will help you keep the brand as a partner. Don’t do this. Avoid this. Only post what is given to you or get permission for any editorial additions or changes with the brand. Brands, don’t peddle lies into social media. It doesn’t help you in the long run and your reputation will be tarnished. Protect yourself and your business.
You have to substantiate all advertising claims. Sometimes this aimed at medical, health and beauty products but it can be anything. If you saw a cereal advertisement on TV claiming to have fortified iron in it, then you would feel pretty confident about that claim. Because you know there are rules about what can be said. They have to maintain some truth or that they have some reports to show that their claim is true. The FTC rules this area and its the same for any kind of claim made on social media.
This includes anything expressly said such as “This will cure cancer.” And it also includes implied claims. An example would be a video of a girl putting on lotion and the lotion in the video clears up her acne. If you are the influencer, it’s a good practice to ask if the claims made by the brand are true. Don’t be afraid to do this - remember your own business is linked to this. Brands, you better be ready to back up any claim you are making about your product. The proof is in the report.
When you're dealing with advertisements, you have to disclose that it's an advertisement. What does that mean? It means that within the body of social media posts, it should clearly say that this is an ad.
You would be surprised about many ways where you can go wrong with this. For instance, the FTC does not want to see your #ad lost within your description or your other hashtags. I would even say the best practice would be to make sure that the #ad is at the very beginning. So consumers seeing the post will automatically know that this is an advertisement.\
Also, simply just saying thanks to a brand is not enough to disclose. You'll have to say “paid partnership with the brand” in order for it to be considered a disclosure. Avoid using links to be the ad disclosure by itself.
The way that the FTC sees it is that there should be no question to the consumer about whether the social media post is an ad. If they have to do more then simply looking at it to know that it is an ad, the disclosure is not up to snuff.
When the FTC realized that their reasoning for sending out letters to influencers about the stuff that they were doing wrong, they wrote an enforcement guide. Everyone in the influencer marketing industry should know it. Here are some of the highlights:
Having a social media policy is a must for brands;
Training agencies, employees and influencers about the social media policy;
Preparing contracts governing the behavior of advertisement companies and social media influencers;
Reviewing sponsored content to ensure that all rules have been followed; and
Being prepared to take action against ad companies and influencers for failing to follow policies (read: terminations).
Though the list above seems more centered on brands, the FTC also has some guidelines for influencers. One major thing to take away from the guide is that every single interaction with a brand should be done in writing. Anything promised, anything gifted, anything expected should be in writing and should be signed off by the influencer and the brand. All of this is done to ensure that there is transparency and there is a clear understanding of what each party should get out of this relationship.
If you can follow these four things discussed here, then you can be pretty sure that the FTC will not be looking at your profile or brand too hard unless they really liked it and they want to buy something. Or just admire you. Either one.
If you have any questions about anything discussed here or are curious to know how you can better protect yourself, your brand and your business, feel free to contact me. We do offer a free consultation and free website review for anyone interested.
Often, we are asked, as lawyers, what is the difference between having an in-house counsel versus having outside counsel (meaning someone who has a separate office outside of regular operations). What the benefit of having either one? Do you need both?
Short answer: It depends.
When you have an outside counsel, it means that you have hired a law firm to represent you and your company. It means usually you will have to pay a retainer fee and also pay your attorney and the firm on an hourly basis.
What does that look like? That means for anyone who does any work on your business at the firm, you will be charged for it. If the secretary does any filing of internal folders, they will charge you or her time. If the junior attorney does work on your file, they will charge you. If a partner does any work on your business (partners normally charge at a higher rate), then you will see a higher rate charged to you. This charging also includes any printing, any mailing, any filings they would have to do for you, etc.
Here is a plus to having outside counsel: you now have a team attorneys and junior attorneys working for you. If you are at a point where you need a team to work on certain matters such as litigation, then it makes sense to have outside counsel. Especially if this is going to be a large matter where a number of people need to be working (think mergers or acquisitions).
However, the downside of outside counsel is normally the cost. It can get expensive quickly. If you are a startup or a small business, you might be unable to drop $5,000 - 10,000 on a retainer fee. Even if you tell the firm to keep costs low as possible, it doesn't always end up that way. Here is a bit of an Insider tip: traditional law firms are beholden to the billable hour. In order for you to show that you are being productive, you have to bill for everything that you do. That includes emails, phone calls, reviewing, drafting, meetings, meetings outside of the office, etc. But you do again take advantage of a wide berth of different areas of expertise if the law firm is an expensive one.
Now let's talk about in-house counsel. When you have an in-house counsel member(s), you have someone who is focused solely on you and your company. They are involved in the maintaining of your corporate documents. They are also involved in maintaining your contracts. They are your first go-to person if you have a legal question and is a resource to your team to ask questions first before they act.
The biggest plus for an in house counsel: they are normally an employee. For every phone call or for every email that is sent, there is no nickel-and-diming you. You can take advantage of the full expertise that they have and feel confident that they can handle the legal things that you have in front of you.
The downside for in-house counsel is they may not have the ability to handle everything that is before. This is normally an issue when you have a litigation case. You will have to refer to outside counsel because a litigation case is much more involved than the day to day matters in-house counsel would deal with.
But the good news is, because an in-house counsel is an attorney, they can review and cut back on the number of things outside counsel would take advantage to charge you. For example, let’s say you are being sued and you have been asked to provide documents to the other side that is suing you. Rather than having an outside counsel come in and review the documents, charging you for the time and the travel, your in-house counsel can do that for you at their normal time. There is no additional cost to you and they can recognize what is protected under client-attorney privilege and can supervise the outside counsel from running up the bill.
There are a number of pros and cons when reviewing what fits best for you. It might make better sense to use outside counsel if you need more attorneys with different areas of expertise. It might make sense for you to hire an in-house counsel employee if you are dealing with a number of legal issues on a daily basis like contracts, negotiations, legal questions, etc.
Attorneys like myself and my firm CounselUp Legal have done away with the billable hour. We understand startups and small businesses do not have a lot of resources to devote to maintaining their legal paperwork. That is why we bill on a project, flat-fee basis. There is no nickel-and-diming you. There is no keeping track of emails and or phone calls. There is no charging you for travel time. The price quoted to you to complete whatever you need is the price you pay. You as a startup or a small business can plan and pay accordingly.
This is the great thing about the flat fee firm: we want to be your outside counsel but give you the time and effort of an in-house counsel. If you are curious to know how we can save you money, be a member of your team or are interested in a free consultation, please reach out and drop a line.
You’ve been working at your startup for the last 3 years. You are fighting with your co-founders about what and who is supposed to do what. You have employees who are running at the mouth on social media about the dysfunction happening at the office. Your investors are demanding the loan money to be paid back immediately and you thought you sold equity. You are going back and forth with an early contractor about what work was supposed to be done by a certain time. And you received a cease and desist letter from another company saying that the name you’ve been using for the last 3 years is their trademark. You have to stop using the name immediately.
You might be thinking, all of that sucks but that would never happen to me. And maybe not. You are reading this blog post so you might be a bit smarter than the average technologically brilliant startup founder.
But it is surprising how much this might actually apply to you if you have just started your startup. Many times, startup founders will jump headfirst in creating their ingenious invention or app. It’s only when something goes wrong do they start looking at the legal frameworks they neglected to build up in the first place. When you build a house, you don’t start throwing wood into the ground. You build up a solid foundation that will make it very hard for the house to crumble.
If you are the creative type, you are less likely to think, “Hey, what I’m doing is a business.” But if you are using your skills to create or provide a service for money in return, then you are building a business. Period. Especially if you have dreams to grow your idea into a multi-million dollar business. So the first thing you should do is form an entity (corporation, limited liability company, etc). And that entity will hold the bank account for your business, signing future contracts and be responsible for any taxes you might owe.
Why?
Because you don’t want to be held personally responsible. Remember legal frameworks are meant to protect you. So let’s put in the perspective of the “what ifs.” What if you sign an agreement to meet some work for a potential client and something goes wrong. What you want is for the potential client to go after the separate entity you created for any issues they might have. You don’t want them to come after your personal bank account, your home, and your other assets.
It’s easy to jump in and create to follow your passion or talents. But it’s always best to think in long term scenarios. Assume you will be making millions. Let’s protect those millions and you from any third party.
Forming an entity and checking your business name are two sides of the same coin. You shouldn’t do one without the other. This usually becomes a problem when you haven’t set up the legal framework first and just starting doing. And the dreaded C&D - cease and desist letter - comes in the mail letting you know that you are infringing on someone else’s intellectual property.
A simple Google search (beyond the first page) might have saved the hassle of trying to rebrand your business. It’s also part of the process of creating your entity that you have to check to see no one else is using the name in the state you are operating. And if you have aspirations to grow into a larger brand beyond your home state, then a trademark search is necessary as well.
Don’t be the one receiving a C&D - be the position of power to send one as you build out your brand.
A consistent reason why a startup fails is because there is founder in-fighting. Founders are in the mind frame of “just try things out” and then “we’ll figure it out later.” Unfortunately, later only comes when there is a massive disagreement. The moment you decide to bring on a co-founder, writing duties down and having everyone sign off on it will save you a world of trouble in the future.
Try to cover all the bases - who is handling operations, marketing, finances, and who has the final decision. Also agree on how to handle disputes or any other duty that you didn’t think of before. It’s harder to fight against a clear written agreement than the one you imagined in your head.
Let’s say you did everything so far we’ve covered - you have an entity, your name is clear and you signed an agreement with your co-founders. You might think, “There is nothing else left right?”
Wrong.
As you are building out your idea, who owns it? You might say in your head that the company does. But are you signing agreements to prove that?
Copyright law says whatever you create, you own. Without legal paperwork, each of your co-founders and you own a little bit of everything. And hiring an independent contractor to build anything out for you could make it even more complicated.
Your best defense is a great offense. Before anyone does any work, make sure everyone signs off to assign the work they create for the company is owned by the company. Everyone, including yourself. It can be a separate document or it can be incorporated into an existing agreement. If you are working with a contractor's agreement, it should say that all the work they produced for the startup is owned by the startup. But don’t assume! Double-check and if it’s not there, insist to have it included.
While we are at it, include a confidentiality and non-compete clause as well. A well-drafted clause can make sure that no one discusses your company’s inner business or try to take ideas.
Just because you raise money from friends and family in exchange for equity doesn't mean securities laws don't apply to you. Money Auntie Diane gives you for equity falls under securities law. There are many regulations you have to keep track of - which is why it’s best to consult with a securities attorney. They will help you navigate how to file for federal securities registration, protect the business from having investors ask back for their money and any potential sale of the company.
This also applies to provide employees or other non-founders equity in the company in exchange for work. Make sure to do it the right way the first time than having to fix a few different ways in the future.
If you are paying individuals to do work for you, employment law applies to your company. How it applies could differ whether you have only independent contractors or employees (exempt vs non-exempt).
For independent contractors, have they been classified properly? Are they really independent or are they really an employee? Failing to classify them cause cost you overtime pay, taxes and penalties and employee benefits.
Interns! This applies to you if you have interns. The days of simply getting the intern to do the work of an employee for college credit are over. You have to view it as “I’m paying an intern unless I can show that the strict ‘unpaid intern’ rules apply here.”
With some states as well, the employer-employee relationship is governed very closely. If you are operating in New York, then Paid Family Leave and Paid Sick Leave applies to you (if you have employees over a certain number).
Any make sure your HR practices are in order from Day One. What are the typical HR practices?
Offer letters
Employment agreements
Payroll administration,
Keep this in mind: even if the company fails, you and your co-founders could be liable for unpaid wages.
Let’s make a rule that policies are a good thing. It seems like a tedious thing, but remember we live in the realms of What If. Assuming that you have done everything else on this list, the area that startups get into trouble is social media. Somehow because everyone views social media as an easy platform, there is no harm that can come from it.
That is very incorrect. Social media is usually the place where the following happens
Your IP gets comprised,
Confidentiality is broken,
Your trade secrets are shared
Dirty laundry is shown to the world
It's where the disgruntled employee has the opportunity to hack because you didn't change the password. It’s where employees share on their own social media account about pending mergers or other business the startup has.
Or if you use social media to advertise, then its the place where the FTC could be breathing down your neck because of a promotion you put in place. Or the influencer you are working with doesn’t disclose their relationship with you.
In a nutshell, a lot of crazy things can happen on social media. It’s best to have a social media policy that governs everyone including any third party you hire to help you advertise. You should also have in place privacy and data security policies in place (and visible on your website) along with a terms of service.
Contracts, anyone? Again, as you’re going about building and creating, the mundane tasks of paperwork can be ...bland. How easy it is to get someone to do you “a favor.” You have a friend who does amazing work and you offer to throw in a few dollars for it. Nothing is written, only verbal. In the realm of What If, it’s very easy to see this relationship go sour because there will be some miscommunication and now the friend demands more money.
Disputes are hard to have if you have something in writing to prove your point. And even with a contract, disputes still happen. But a contract could cover how the dispute is handled. Again, it’s understood that it doesn’t always happen or there isn’t always time to get a full contract drafted. If you can at least write an email with all the key terms (payment, schedule, terminate, items to be delivered) and the other party responds with an “OK” then you have something you can rely on. But, please! Get those terms out of your head and into writing.
All mistakes mentioned are completely avoidable. By reading this post, you already have a leg up than some of your counterparts. Because you now have enough knowledge to move forward in an effective and protective way:
Get that entity formed. Speak to an accountant about which is best for you and your potential tax liabilities.
Your startup’s name is free and clear of anyone else using it.
Everyone’s role in the startup is agreed and in writing.
All that precious work done for the startup is owned by the startup.
Capital raised is done in a legal way with a securities attorney’s blessing.
Your employees and independent contractors need to be monitored.
Policies, policies and policies for social media, privacy and data. And terms of service too!
No verbal agreements! There’s proof in the writing.
You don’t have to be a statistic. Your startup’s legal framework can set you on the steady ground so you can be about the business of creating with confidence.
If there is anything on this list that you are concerned about or know you are on shaky ground, drop me a line. I can help! I offer a free consultation and free website assessment to get you the list of things to complete and the best order to do it.
