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[GUIDE] Legal aspects of Internet Marketing and Online Businesses: The Ultimate 101

Discussion in 'Business & Tax Advice' started by LostConnection, Sep 18, 2014.

  1. LostConnection

    LostConnection Senior Member

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    A little bit about me first to give you guys the idea of where I stand with this information. I'm a law student, studying my undergraduate degree in Law in the UK, with a plan to advance to studying a JD and MBA dual-qualifying postgraduate in the US. This is the reason I like think that I can provide some helpful information, not because I think I know everything, but because I understand that reading a bunch of legal documents and researching about tax laws is not an interesting way to spend time for the most of you, whereas it's a choice of degree and a career for me and I'd be happy to help fellow black hatters out. I'm trying to aim this for as wide an audience as possible, but with so many different legal systems, the main focus will be in the UK and US legal systems. Alright, let's get on with it.

    Introduction

    I've found BHW to be a magnificent source of information when it comes to Internet Marketing and starting a business or a service, but what I've found it to be lacking is the information regarding the legal aspects and requirements for the internet marketers and online entrepreneurs to consider before doing something they can get in trouble for. Luckily most members here seem to ask before jumping head on into stupidities and thus somebody can always point them in the right direction, but this is not always the case.

    Now when I say ‘lacking', I do not mean it in a negative way at all. This place is a goldmine of information when it comes to internet marketing and making money online and I'm very happy to have found this place, as it is better late than never to appreciate the value of proper information and experience from those who have it and are willing to share it with others. But, when it comes to the legal side of things, most people quite understandably advise the use of a legal counsel, a bookkeeper or an accountant, depending on the matter in question. This is a smart move and will keep their hands clean in case something goes wrong and they don't need to feel bad for the person who asked help, because they helped them commit illegalities. This is where I decided that I could help people out by creating a guide that has the information that will help most people understand some of the basic requirements and concepts they need to understand or they might face some sort of legal action filed against them.

    I also aim this guide to be a go-to source of information regarding some of the basic stuff that I have seen being wrongly defined and understood over the couple of months I have spent on this great forum. Such material includes advice and information about the basic concepts like Terms of Service, Privacy Policy and Taxes.

    Some of the main reasons behind me writing this here and now, is that I've found many people consider a company's or website's Terms of Service as government laws of some sort, and that if you break them you will be committing a crime. This is not the case, but if you break the TOS, you might face legal action from the company and you might get in trouble for that, but it is not against any laws set by the United States or the European Union as such. Therefore I suggest you consider the consequences before violating a company's terms of service by stealing their customers personal information, but for example using a bot to ‘violate' Instagram's or Pinterest's ToS is nothing to be afraid of. Just make sure you hide what you're doing behind proxies to avoid getting banned from their sites.

    Another question is that I've seen many people asking whether they can register a domain that has the word ‘Ebay' or ‘Facebook' in it, which might lead to the company whose name is in your domain to file a complaint to the ICANN and force you to give up the domain name, and is thus not advisable.

    *DISCLAIMER*
    This guide is not to be taken as factual and 100% fault proof legal advice, since it is merely a collection of knowledge and thoughts from me and other sources that I've used for research, meant to guide people in the right direction and to realize the differences between such terms as TOS and constitution. It is ALWAYS better to play it safe and seek professional legal counseling if there is a question of possible fines or even potential prison time in play, and there are no definitive legal standpoints or previous rulings regarding the matter at hand.

    Starting an Online Business

    When starting an online business, the basic things like creating a business plan and the target audience are important, but they are also relatively easy to conduct research on and are pretty straight forward. Some of the legal matters or things you need to be aware of so that you will not put yourself in risk of legal action taken against you are not as straight forward and this is what I try to clarify here. I have listed a few steps that go through the basic yet most important things that you should consider when about to start an online business:

    1.
    When naming your business, you should always check the registered trademarks and existing businesses database so that you will not face difficulties later when it comes out that there are two very similar companies operating under very similar names and only one has a trademark for that certain name for example. And it is not you.

    Also check the domain availability for your name. This is not a legal matter in a sense, but it may turn into one if it happens that there is already a company trading under a different name than their businesses registered name, and it happens to be very similar to your vision of a brand or company name.

    One thing that will irritate you the most is that after you come up with that perfect name for your business, you'll be forced to change it due to a copyright or trademark infringement. So plan and research carefully.
    If you come up with a brand name that you think might be a future hit, or is otherwise a very clever and catchy one, look into the matter of trademarking it for your business, preventing others from copying it from you. Here is a website where US based people can look for information regarding the patent and trademark laws and procedures as to how to protect your ideas if you live in the United States: http://www.uspto.gov/

    2.
    When having the web design done for the company website, make sure the designer is giving you the copyright of the site, instead of trying to make you sign a contract that somewhere sneakily states that the copyright will remain with the designing agency or person, and then you would be forced to pay compensation for the profits made with or via their copyright. Now this is very rare, but there are always shady people and scammer out there who might want to try and profit from your business endeavors. I suggest you pay close attention to the things agreed upon, and be prepared to have documents or conversations and hand that can back up what you converse with the designer/developer, as it is advisable in every situation money changes hands in business.

    3.
    These days it is a standard that you define the terms of usage for your website, which the users agree to when browsing or using your websites functions/content. These terms, while you will not need a lawyer to write them for you, should be done with careful consideration to protect your rights and assets in a case of user misbehavior or copyright infringement or such. There are many sites offering templates for the ToS agreements, and one good place to look for these and other documents (Like contracts for a web design project) alike is http://www.docracy.com/

    4.
    Privacy policy is an important document that states the responsibilities you have to protect the user information your site collects for you. It must also explain what type of information it collects and preferably to what purpose. Basically it is the one document that defines your responsibilities when it comes to the matter of how you can use your hard-earned customer data.

    Remember, it is never going to hurt you to be prepared, so by using a proper ToS and Privacy policy, you can save yourself from a ton of headache later. Also, if you are hiring a freelancer to do for example a design project for you, you are allowed to ask them to abide by a contract that you give them and sign. Just make sure they sign it and scan it or otherwise agree to it in writing, so that you can prove they agreed to it at a later time of possible need. Having them sign a contract also makes them think twice before even trying to commit a fraud or scam you.

    If you are planning on hiring an employee to your online business, and you are not planning on having them work for you at your office, but in a virtual environment, it is crucial that you have them sign a contract that prevents them from doing harm to your business or competing against you in case they are let go from your employment at some point. A thorough investigation of their background might be in order as well before hiring someone, or at least have a face to face video interview so that you can get a sense of the kind of person you are about to hire and share your company's secrets and strategies with.

    Incorporation of your business

    I will keep this section short, as there are thousands of different legal aspects that I would need to cover to be able to provide profound information regarding incorporation laws in each and every country and state in the world. The process is in most cases rather simple, or you can hire a company to do this for you (Just make sure that they have the right to legally form a company on your behalf, a list of companies allowed to do this in the UK for example can be found at the Companies House's website: http://www.companieshouse.gov.uk/toolsToHelp/formationAgents.shtml )
    The basics of incorporation include a few legal matters that I find important to consider. One of these is the often asked question, ‘Which of the different states in the United States is the best place to incorporate my business in?' This is a tricky question if you want to have a physical presence in a different state than you are incorporated in, as you will have to register as a foreign company in the state where you have a physical presence in. If you, however, do not have a need for a physical location other than a small office and yourself being the only employee who will be working from that location, it is possible that you would benefit from incorporating to a state with less expensive corporate taxes and incorporation fees etc. This is a matter that you should consult a lawyer or an accountant about if you plan on doing this, but you can also research this yourself online (There are numerous sources that a simple Google search will show you) and making the decision based on that.
    Should people want, I think that at some point I could do a comprehensive research on this matter, at least if I can have it benefit my law degree studies, but for now this is enough about incorporation in different states.

    Taxes

    I cannot provide you with a detailed guide in paying your taxes, as this is among one of those matters that is different nearly everywhere. But the rule of thumb here is: Come clean about your IM and other online extra profits and pay your share of taxes for those. It is not advisable to go against a country in an effort to hide the money you earn and not paying taxes. Tax evasion and tax avoidance are two very different things, the latter one being perfectly legal, and the former one having the possibility of landing you in jail. I found this site that has a nice and short comparison and explanations of the two:

    http://www.translegal.com/legal-english-lessons/tax-avoidance

    And here are a couple of links that you can use to do further research yourself, I'm not here to spoon feed you through the whole ecommerce and corporate law, just to give you a direction where to aim.
    http://www.ftc.gov/
    http://www.sba.gov/content/online-business-law
    http://www.startupsmart.com.au/leadership/legal-matters/

    Now a neat little trick here to avoid paying more taxes than you wish (tax avoidance) is to start a limited company (UK) or an LLC (US) and set your own salary so, that you will not pay yourself more than it is allowed to remain in the lower tax bracket. A good real life example of this is to keep your taxes away by putting the income into your company, and only paying yourself the exact amount per year that is below the tax margin, meaning to taxes for the salary, which in UK means a yearly salary of max. 9999. The company profits come in dividends, thus the income from the company does benefit you, but the tax for those stays at 10% until 40k.

    Also a good tip is to get all the possible benefits out of your company, such as mileage compensations. You can also purchase a car through your company and use it as a work benefit, but this comes at the cost of having to pay some taxes for the gas and the car, depending on the % of work and private use (Can be 'made' more beneficial for you quite easily). This is one of those things you should consult an accountant or a lawyer to double check before jumping the gun.

    Liability insurance

    Liability insurance is a life saver for lawyers, doctors and consultants alike (SEO consultants as well, so that this ties nicely back to internet marketing). In case of a claim made by a customer that led to his/her business (or themselves even) suffering from your actions, the insurance is worth its weight in gold and diamonds (It's a pretty thick wad of papers so it is worth something, don't worry) as it will cover the amount made in the claim. The extent of the insurances coverage is always defined in the insurance contract, so be careful when reading through it and if necessary, requesting additional coverage. It is also wise to ask for the removal of some policies if you see them as a money waster, like a SEO consultant having an insurance policy that covers water damage made to the customer's offices or homes. Better leave those to the plumbers, boys.

    Liability insurance is also known as E&O in the US (Errors & Omissions), or a Professional Liability Insurance. This thing is a lifesaver, so go and get some of it, like now.

    Offshore companies

    Now most of you might now that (at least when larger companies and amounts of money are concerned) offshore companies are often used as the owner of a limited company or corporation, which allows the profits to be directed into a tax haven that usually allows the owners to profit without paying taxes for those corporate profits directly. Places such as the British Virgin Islands and the Seychelles have a 0% corporate income tax. This is another one of those matters that I might conduct further research on should there be demand for it later.

    Conclusion

    Hiring a remote accountant, who you call every now and then and for whom you provide all your data for and reports them to the authorities that need the information, is not an expensive investment as you can hire one even as cheap as 50$ per month. And an accountant is one of the best possible investments, as they can help you to exactly what you need to get your tax percentages down and start enjoying worry-free life regarding your company's paper filing and other boring necessities. Just make sure they are licensed to do what you pay them to do, otherwise it might get messy in there.

    I think that's good enough for now when it comes to doing online business. Hopefully something useful to you fellas, and if you have any further question don't hesitate to ask! As mentioned, I have chosen law to be my career path so I have nothing against doing a little legal research or consultation. As mentioned earlier, I am no expert in US laws, but I'm happy to do some digging. Just don't ask me to come up with a prenup.

    Also hats off to Daniel, Ardley216 who was extremely helpful in the process of me creating this, providing valuable real life examples and information (Some of which I even didn't put here).

    And once more before I finish, don't get yourself a subpoena or a court order to appear for trial and then testify that you were just following my guidance. That won't stick as a defense in court. You've been warned.
     
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    Last edited: Sep 18, 2014
  2. ardley216

    ardley216 Elite Member

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    Awesome guide! I am really glad I could help you out on some of this stuff :)

    Also, something people should think about is liability insurance... :)
     
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  3. LostConnection

    LostConnection Senior Member

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    How on Earth did I miss that, going up there straight away mate. Cheers!
     
  4. davain

    davain Regular Member

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    I clicked business and tax advice to make sure I know what I'm getting into before I register my LLC.

    To find an ultimate guide that was just posted was a life saver!

    Thank you for this informative post. It really helped me learn a lot as well as point me to where I could read up some more.

    P.S. Offshore companies is an extremely interesting topic and I'll love to see a thread about them.
     
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  5. ColonelSoldier

    ColonelSoldier Junior Member

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    $50/month? My accountant charges me $4000/year lol... GG
     
  6. LostConnection

    LostConnection Senior Member

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    Happy to help. I might look into the offshore business part a little bit later.

    The 50$ per month one is unfortunately not one you can just throw paper at though, you must use an online accounting software (Comes in the 50$) that you update, and then the accountant just files everything that needs to be filed. Today's world of doing business is certainly more flexible when it comes to hiring someone to do your accounts.

    Lawyers still charge anything between 200$-2000$ per hour, and that suits me just fine ;)
     
  7. LostConnection

    LostConnection Senior Member

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    A small addition to my original tutorial, now that I have covered some of the ground in a company formation personally. I consulted with an accountant (see, I even follow my own advice), as to when the moment is the most opportune for me to start a business to use as my 'piggy bank' for the earnings I make. The answer was quite surprising, as he said: 'Why do you not have one yet?'

    Now I never imagined that I would need a limited company (here in the UK, an LLC in the US) when my earnings are around £500 per month and I report the extra income, which with me not having a part-time job results in no taxes from the HMRC (£10k personal allowance). The accountant quite cleverly suggested for me to do this so, that I could also get tax exemptions, aka benefits, from using public transportation from my home to my 'office' (which quite conveniently happens to reside at a virtual office at my University's incubator, thanks to my accountants guidance). See where I'm getting at?

    And the best part: It was a free consultation. You will not lose anything by going to see an accountant, as long as you make sure you can answer his/her questions about your current situation regarding financial and taxation matters, and choose the accountant carefully (only make an appointment to an accountant firm that guarantees free no obligations of any sort consultations).

    I have hired the accounting company now, and they are in the process of setting up my company! And this is also an idea/twist for some of you out there, don't charge for the initial consultation, but make the customer understand that they NEED you, as opposed to you needing their money.
     
  8. burnett4congress

    burnett4congress Jr. VIP Jr. VIP Premium Member

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    I realize you are trying to be helpful, but this is terrible and largely incorrect advice.

    I actually am a US tax expert and what you are proposing for wage splitting 1) wouldn't even apply to most LLC situations and 2) if it did apply violates IRS rules that require wages from profitable companies to be at market rates.

    Also it would be very unusual to take company profits as a dividend due to their double taxation. Also that would require a c-corporation entity classification.


    For US citizens this is largely a pipe dream in today's FATCA and tax harmonization world. It can be done in situations where the money is made offshore and it stays offshore, but the cost of maintaining these kinds of structures usually outweighs the benefits.
     
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  9. Asif WILSON Khan

    Asif WILSON Khan Executive VIP Premium Member

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    No offence to OP, as he is trying to be helpful, but he is still a student and just starting his first company.
    He did warn people to seek professional advice, so don't blame him if you don't get professional help and end up owing thousands to the tax man.
     
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  10. LostConnection

    LostConnection Senior Member

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    Thanks for the notice.

    However, do not judge it to be straight out terrible, as I do point out that these situations have been done with the Limited Companies, which means the UK. Now I do admit, that I did mention that you can start an LLC in the US as part of the example of the wage splitting. And this is where you are right. After your post I did more research into it, and admit my being wrong. I thank you for this, and point out that this is the reason I mentioned in the beginning that consult someone who is an actual professional in your country and has expertise in that specific area. The method, however, is perfectly valid in the UK. Admitting to my mistake, but to avoid further confusion, I will edit the US part out of the example of wage splitting and dividends. Never did I mean to say this is the case in the US, but I admit I did which is wrong, and I apologize for this.

    The offshore company side is merely a suggestion of what people are doing, and in no way am I saying that this is what everybody should be doing, and said that I could look into it later on, not saying I have the knowledge here do as I say.

    Nice to have these things told to me by a professional, and I highly appreciate the feedback. But, as mentioned, 'terrible and largely incorrect' part of your statement is valid on the US side of things when it comes to the example. For the UK side of things the tax advice is correct. For the US side, I meant the pointer to be the difference between Tax Evasion and Tax Avoidance.

    So thank you for your comments and I have edited it to better suit its purposes of being true.

    EDIT:

    Cannot edit the OP anymore, but my point still stays the same. I did not intend to pass the US part of the example as certain knowledge, as the information regarding that method is valid in the UK tax/corporation system.

    And overall, the knowledge delivered here is purposefully rather vague overall, so that who ever reads this understands the need to consult an actual professional, which I do not at any point claim to be. This is mostly to clarify the most basic things, and advice on paying taxes, not trying to evade them.
     
    Last edited: Oct 11, 2014
  11. LostConnection

    LostConnection Senior Member

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    And thank you W130SN, you seem to be right nearly every time, even behind that sarcastic mask of yours mate. Cheers.
     
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  12. Asif WILSON Khan

    Asif WILSON Khan Executive VIP Premium Member

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    Thanks for the comment but if I was half as smart as I think I am, I'd be twice as smart as I really am.

    [h=1][/h]
     
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  13. canweoffshoreit

    canweoffshoreit Newbie

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    Perfect Offshore companies

    I was thinking:

    • Company incorporated, business registered in an offshore location (Belize IBC perhaps).
    • Belize corporate trustee for the benefit of Unit/Discretionary Trust with beneficiaries in 3+ different countries .
    • Management Decentralized and shared with Directors domiciled in 3+ different countries.
     
  14. Capo Dei Capi

    Capo Dei Capi Power Member

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    Offshore isn't actually that expensive depending on the country, one can setup a company in Bulgaria with annual costs under $800 a year including a mail box rental and the tax rate is only 10%.
     
    Last edited: Oct 27, 2014
  15. hopsie2

    hopsie2 Registered Member Premium Member

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    very useful post.
     
  16. sbndnb

    sbndnb Regular Member

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    Great share, I've noticed not enough people think of their IM ventures as a proper business; hopefully your guide will steer them into the right direction. :)
     
  17. burnett4congress

    burnett4congress Jr. VIP Jr. VIP Premium Member

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    Which is still more expensive than doing everything onshore including tax returns.
     
  18. LostConnection

    LostConnection Senior Member

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    Don't know much about the US tax factors, but since you're the expert, doesn't the offshore company at some point catch up to a local company? I would assume so.

    And Bulgaria is not even the best example, Seychelles, BVI... All have 0% tax rate if I remember correctly.
     
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  19. Capo Dei Capi

    Capo Dei Capi Power Member

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    If one is using a location like you suggested it should add up pretty fast, but it mostly depends on how much money a person is storing in the company and how much they are withdrawing as a salary.For BVI is going to be at least $85,000 a year, if one is withdrawing the average U.S. salary of $55,000 year just for the break even point. I think The only way to truly benefit is to have a trust setup that owns the company that is generating the income, since eventually one will have to give up U.S. citizenship to take advantage of the stockpiled money. If the company is owned by the person directly they may incur an exit tax money on the value of the company.

    The best thing is to do is to talk to an international tax firm that specializes in it when one nears such an income.
     
  20. 2DHades

    2DHades Power Member

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    Thanks a lot for this!