By: Vicki Dallas, Esq. 

Small Business Opportunities, March 16, 2015

Mobile internet usage is affording online or web based startups great opportunities to grow their businesses. Over 80% of mobile owners use devices while watching TV. They web surf, shop and talk to their friends online. That means access to customers and advertising to sell products without the hard cash investment of brick and mortar facilities. It also means that social media can quickly accelerate an online business without thousands of dollars invested in print or other advertising.

1. Considerations for Startups. Starting an online business has the same challenges as starting any other new business. Consideration needs to be given to selecting the appropriate legal entity to use for the formation of the business. A corporate vehicle is best suited if venture or other capital will be raised in the near future. If flexibility in profit distributions or tax allocations is desired, then a limited liability company may be the best option. Founders agreements are typically used to provide for restricted stock grants, and they set forth vesting, forfeiture and repurchase provisions for each founder’s shares, in addition to voting rights and share transfer provisions (among other things).

2. Intellectual Property Considerations. If there is technology which needs to be transferred to the business, technology assignments must be obtained from all founders and any consultants who participated in developing the intellectual property. Employees and consultants should also be required to execute confidentiality and invention assignment agreements to protect the intellectual property going forward. The business name and intended URL’s need to be searched and secured to be sure there are no potential infringement issues. Consideration should be given to registering the domain in the top-level domains, and registering common misspellings of the domain name. Trademarks need to be registered and patents, if any, need to be filed. Original website content should be protected, including obtaining US and foreign copyright registrations of appropriate material.

3. Internet Considerations. Website development and hosting agreements need to be prepared, as well as website terms of sale. The Federal Trade Commission (FTC) rules must be addressed in connection with the use of commercial emails, online advertising and marketing, and consumer privacy. Many states have privacy related laws which must also be followed. For example, California recently adopted provisions prohibiting targeted advertising to California minors, and requiring that minors be allowed to delete materials they have posted online.

4. Social Media Considerations. Use of social media in engaging with customers, supporters and donors requires setting up a social media strategy that addresses potentially offensive conduct from posts, tweets, or other communications. The use of unsolicited commercial electronic mail or ‘spam” is regulated and it is important to be compliant with the rules, even if the advertising is done through internet marketing firms or affiliates.

Starting any new business has its challenges and certainly starting a web based business presents these same challenges and many more – but it is crucial to be familiar with the legal issues specific to operating a business online.