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M&A Cage Match

This should be fun. If you are interested in attending this event, you can sign up here: http://www.wfs.com/user/register

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A Legal Primer on Websites

By Sanjay M. Nangia

A Legal Primer on Websites 

After spending months – maybe longer – crafting your company’s website, you may begin to wonder whether (1) your site is “legal”; and (2) you are sufficiently protecting your legal interests.  What now?  Below is a short primer on common legal issues you should be aware of.

Do I need a “terms of use agreement” or disclaimer?

If you have a relatively simple blog, you likely can get by with a disclaimer.  See the disclaimer on this webpage for a sample disclaimer.

But if you have a more interactive site or provide some service, you should consider a more formal terms of use agreement.  This agreement will help resolve questions such as: Who owns the content that users post?  What is the user permitted to do with information or content downloadable on the site?  Can users bring a suit in a far off country?  Is the site responsible for interactions between users? Who is responsible for harm caused to the user if the site suddenly becomes unavailable?

Accordingly, you should consider the following items for your terms of use agreement (note that there are numerous samples that are publicly available if you need guidance on specific language).

  • Establish ownership of the content created and posted by users (e.g. user retains ownership and site is provided with non-exclusive license to showcase content on site);
  • Establish ownership of content made available to users via the site (e.g. site provides non-exclusive license to user for some limited purpose);
  • Limit permitted conduct by users (e.g. no hacking; no commercial uses; guidelines for linking to your site);
  • Disclaim any warranties and representations that may be perceived by the user (e.g. no guarantee that site’s service will be uninterrupted; no guarantee that content is accurate or complete);
  • Limit the site’s liability (e.g. no liability for harm caused through use of site, transactions conducted on site, viruses/malware);
  • Provide a forum for disputes (e.g. private arbitration, which may be more cost effective than in-court litigation); and
  • Alert users as to how you handle their private information (more on this below).

Beware that users sometimes do not respond kindly to significant changes to a terms of use agreement.  For example, Instragram’s modifications to its terms of service appeared to rub some people the wrong way, and resulted in a lawsuit.  The reaction to Instagram’s changes suggests that you should get the policy right the first time.  And any modifications should be done sufficiently early in the development of your company.  If significant changes must be done later, you may consider making them in a limited, piecemeal fashion so as not to overwhelm and outrage your users.

Do I need a privacy policy?

If you are collecting personal data, either through cookies or user input, you need some form of a privacy policy.  The policy should be easy to find on the website.  References to the policy should be linked to the full text of the policy so that a user can easily find it.  Below are some considerations for a privacy policy:

  • Describe how personal information is collected and handled (e.g. type of data collected, how it is collected, why it is collected, who it is shared with, why it is shared, where data is stored, and how complaints about privacy can be addressed).
  • Provide users with information about the type of cookies being used on the site and why such information is being collected.
  • Include the option to easily opt out of any marketing emails from your site.
  • Assuming your site is not directed at children under the age of 13, affirmatively state that children under 13 are prohibited from using the site.
  • You should clarify that any links shared or provided by your site are for informational purposes only and are not managed or endorsed by you.  Accordingly, any personal data collected by those sites is not part of the privacy policy.
  • If your site is collecting financial information, sensitive personal information (e.g. social security numbers), or directed at children under age 13, those privacy issues are beyond the scope of this article.  The Small Business Administration has fairly comprehensive information about handling these situations. (http://www.sba.gov/content/privacy-law).

What’s that © at the bottom of the website? 

To help avoid any doubt that your content is copyright protected, put a copyright notice in readable font at the bottom of the page.  It should say “© Current Year. Name of Copyright Owner.”

Does the domain present any trademark infringement or cybersquatting issues?

Likely, you have done some research about your company name and attempted to steer clear of companies with similar names, or trademarks.  Yet entrepreneurs often forget that their domain name should also not create consumer confusion.  Obviously, you should avoid blatant conflicts with existing business names.  But to avoid the possibility of a nasty letter from a lawyer down the road, you should consider any perceived confusion.  For example, if you owned a food company named Mickie Daniels, you might initially consider using www.mickieds.com.  Unfortunately, consumers may confuse it with McDonald’s website.  Yes, McDonald’s uses a different domain (www.mcdonalds.com).  But because McDonald’s is sometimes referred to as “Mickie D’s” and the companies are operating in the same market, you could be asking for trouble.

Am I responsible for content posted by users or their behavior generally?

While you are generally protected from liability for content that you had no actual knowledge of, you cannot ignore the obvious.  Accordingly, you should have a procedure for other users to report complaints, especially for copyright infringement issues.  Then, you should monitor the reports and respond accordingly.  You should also create a policy for repeat offenders.

Specifically, under the Digital Millennium Copyright Act (DMCA), you must designate an agent that will receive infringement complaints from copyright owners. You must then notify the Copyright Office of the agent’s name and address and make that information publicly available on your web site.  The form is available on the government’s website (http://www.copyright.gov/onlinesp).

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Taxation of Social Purpose Corporations

Question:

I received the following question from a CPA friend the other day:

“I have a client that recently formed a Washington social purpose corporation. Do you have a sense of how SPCs are characterized for federal income tax purposes?”

Answer:

For tax purposes, Washington social purpose corporations are just a type of Washington for profit corporation, formed under the Washington Business Corporation Act, RCW 23B. There is no difference in federal or state tax treatment between an SPC and a regular for-profit corporation.

Accordingly, for federal tax purposes, SPCs are generally treated as ordinary C corporations, which are subject to corporate income tax. If they have only one class of stock and fewer than 100 shareholders, and otherwise qualify, they may elect to be classified as S corporations, which pass gross income, deductions, and losses through to shareholders.

SPCs, like other corporations, can’t be classified as partnerships. Similarly, because SPCs may distribute earnings to shareholders and use assets for shareholders’ benefit, they can’t generally qualify for tax-exempt status (such as Section 501(c)(3) or 501(c)(4) status).

For Washington State tax purposes, SPCs are taxed just like any other type of business entity. They are subject to the business and occupation tax, regardless of whether they are considered C corporations or S corporations for federal tax purposes; Washington does not recognize pass-through companies. They are also liable for sales tax on both sales and purchases, as well as property taxes, in the same manner as other Washington businesses.

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