SPI 231 Attorney Roundtable: Money and Legal Starting Out€¦ · dragged into the bankruptcy...

Show NoteS: http://www.smartpassiveincome.com/session231

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SPI 231

Attorney Roundtable: Money and Legal Considerations for Starting OutSeptember 14, 2016

http://www.smartpassiveincome.com/

http://smartpassiveincome.com/session231


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Pat: ThisistheSmartPassiveIncomepodcastwithPatFlynn,session

number231.Let’sgo.

Announcer WelcometotheSmartPassiveIncomepodcast,whereit’sallabout

workinghardnowsoyoucansitbackandreapthebenefitslater.

Nowyourhost.Heteachesbusinesstohiskidsduringbathtime.

PatFlynn.

Pat: What’sup,everybody?Thankyousomuchforjoiningmetoday.

Thisisavery,veryimportantepisodebecauseithastodowithlegal

thingsrelatedtoyourbusiness.Iknowalotofthisisveryscary,and

alotofitisveryoverwhelming,andIknowbecauseI’vespokento

alotofpeoplewhobecauseofthelegalthingsthatarerequired

orthatareoutthererelatedtobusiness,theydon’tgetstartedat

all.That’snotgoodbecauseweallhavealottocontributetothis

world.Wecanrewardourselvesandothersthroughthebusinesses

thatwecreate.Weshouldn’tletthingslikelegalthingsstopus

sometimes.Now,ofcourse,wehavetoplaybytherules,whichis

whyI’mveryexcitedbecauseIinvitedtwopeopleonwhohave

helpedmewithlegalthings.Ofcourse,I’mnotalawyer,soIjust

wanttogetthatoutoftheway,butthesetwopeopleare,Richard

Chapofromsocalinternetlawyer.com,andthenalsoAlenaHerranen

fromherranenlaw.com.Allthelinksandresourcesmentionedin

thisepisode,includinglinkstotheirwebsites,willbeavailableat

smartpassiveincome.com/session231,whichyoucancheckoutat

theendoftheshow.

Iactuallypolledtheaudience.Isentanemailoutandaskedalot

ofyou,“Well,whatlegalthingsdoyouhavequestionsabout?”so

thatwecananswerasmanyofthemaspossible.Wedidn’tgettoa

lotofthem,andtherewerealotofpeoplethatactuallyaskedalot

ofthesamequestions,somyplanwastoinitiallyfeaturesomeof

yourvoicemailsbecausesomeofyoudidleavevoicemailquestions

aboutthesethingsandmentionyournamesandstuff,butsomany

peopleaskedaboutthesamethings,we’regoingtotouchonalot

ofthosethings,soIjustwantedtocrediteverybodyouttherewho

hadaskedquestions.IwastoldaftertheshowthatRichardand

Alenaweremorethanhappytocomeononguestpostslateron




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answeringspecificquestionsthatyoumighthave.Ifwedon’tget

toquestionsthatyouhaveaboutlegalthingstoday,youcanleave

questionsatsmartpassiveincome.com/session231oralsoataskpat.

com,andwe’llcompilethoseandI’llhavethemanswerthoseand

putthemintoaround-upblogpostofsomekindthatcomesout

everyfewmonthsbecausethisisreallyimportantstuff.

I’vegottenintolegaltroubleinthepastmyselfwithtrademark

issues,specifically,butthere’salotofotherthingsouttherethat

canhappen,butagain,Idon’twantthelegalstufftostopyouand

makeyoufeeloverwhelmed.That’swhyIinvitedRichardandAlena

hereontheshowtoday.We’regoingtogetrightintoit,andyou’ll

hearmediscusswhatthesequestionsare,andIhavethemanswer

onebyone.Someofthestuffmayormaynotberelevanttoyou.I

encourageyouto,asforsomeofyouthismightbeboringbecause

it’slegalandit’sstuffthatreallyisn’tasexcitingasbuildingproducts

andadvertisingandbuildingrelationshipswithyouraudience,but

ofcourse,likeIsaid,it’sreallyimportant.Listenallthewaythrough

becauseattheend,theyhavesomereallygreatadviceforthose

ofyouwhomaybefeelingoverwhelmedwithallthisstuff.Ifeltit

wasreallyimportanttocompilethisinformation.HerearemyUS-

based,actuallyCalifornia-based,lawyersthathavehelpedmeoutin

certainsituations.They’regoingtotalkabouttheirrolesrighthere

attheverybeginning.Let’sgetrightintoit.

Alena: I’vebeenpracticingsince1992aswell,soIpracticeintheareasof

for-profitandnon-profitbusinesses.Idocontracts,trademarks,and

copyrights.Well,Iguessthat’saboutit.Idon’tknowwhatelseyou

wanttoknowaboutthat.

Pat: Well,we’llgetintoalotofthestuffthattheaudiencehasactually

askedabout.Youknow,I’vehadalotofquestionsinthepastabout

legalstuffthatIwasalwaysalittlebitafraidtotalkaboutbecause

IjustknowthatI’mnotreallyqualifiedtotalkaboutallofthisstuff,

andthere’ssortoflegalramificationsthatcanhappenwhenI

sharethingslikethat.That’swhyIwantedtobringtheexpertson,

soRichardandAlena,thankyouagainforcomingon.First,let’s

startwithyou,Richard.Forthosejuststartingout,legalcanbe




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somethingthatcanbeveryscary.Oftenitstopspeoplefromgetting

startedbecausetherejustisalottothinkabout.Whataresome

goodbasicsortofgettingstartedthingsthatentrepreneursshould

justatleastfocuson,worryabout,inordertogetstartedinthe

properway?

Richard: Sure.Ithinkifyou’restartingout,youknow,obviouslythelegal

issuescanbecomplex.Theotherfactor,quitefranklyisthecost.

Inaperfectworld,youknow,you’dreallywanttoformabusiness

entity,typicallyanLLC,that’sgoingtocreateahurdleshould

somebodycomeafteryoufromaliabilityperspective,andin

addition,buyliabilityinsurance,whichissomethingwecandiscuss

ingreaterdetaillater.Thosearereallythetwofoundationalsteps

thatyouwanttotake.Whenyouhaveawebsiteandanapp,you

know,thebiggestthingsthatyouwantaretermsandconditions

andtheprivacypolicy.

Unfortunately,therearefreesetsouttherefloatingaroundon

theweb.There’sallsortofgenerators,andthey’rereallyhorrible.

Youknow,Iwouldtrytobudgetinthecostofdoingtermsand

conditionsandprivacypoliciesaspartofyourstart-up.Theproblem

isthatifyougetthemwrong,youcanreallyrunintoserious

problems.Forexample,withprivacypolicies,mostprivacypolicies

thatyou’llfindforfreeonlinewillcontainastatementthatsays,

“Wedonotshare,rent,orsellyourpersonalinformationtothird

parties.”Itsoundslikeanobleidea.Unfortunately,itabsolutelykills

yourbusiness.Onecasecanreallytelluswhy.Thiscaseinvolved

adatingsitecalledtrue.com.Itwasalargedatingsiteanditwas

doingverywell.Unfortunately,itsparentcompanyhadallkindsof

problems,andtheparentcompanywentbankrupt.True.comwas

draggedintothebankruptcyestate.

AnotherdatingsitecalledPlentyofFishtriedtobuytrue.com.They

offered$700,000forthemembershiplistandforthesite.The

attorneygeneralofavarietystatesobjectedtothesale,andthe

reasonwastheprivacypolicyhadthatstatementthat,“Wewillnot

sell,share,orrentyourpersonalinformation.”Well,thesaleofa

websiteisthesaleofpersonalinformation.Whenyouhavethose




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typesofclausesinyourprivacypolicies,youknow,you’rereally

killingyourexitstrategyfromyourbusiness.

Withtermsandconditions,youknow,Ithinkatthispointeverybody

knowwhoZapposis.Averylargeretailer,soldforahugeamount

ofmoneytoamazon.com.Afewyearsback,theyhadadataissue

wheretheywerehacked,basically,andthecustomerinformation

wascollected.Thetermsandconditionscontainedaclause

saying,“Wereservetherighttoupdatethesetermsandconditions

wheneverwewant,andifyoucontinuetousethesite,youagree

tothisupdate.”AsAlenaandanyotherlawyerwouldtellyou,

theproblemwiththatisit’sanunconscionableclause.It’sjust

completelyone-sided.Itdoesn’trequireanynoticeoracceptance

bytheuserofthesite.It’saninvalidcontract,andthat’swhatthe

courtruled.ThetermsandconditionsforZapposwerethrownout.

Thosetermsandconditionswouldhavesavedthemasignificant

amountofmoney.Theyprobablywouldhavesettledthedispute

for$100,000,whichsecondslikealot,butforacompanyofthat

size,isnothing.Instead,they’refacingupwardsof,oh,Idon’tknow,

$30or$40millioninsettlements.Spendingmoneyonthosetwo

documentsissomethingyoureallywanttodoifpossible.

Pat: Termsandconditionsandprivacypolicywerethosetwothings.

Richard: Yeah.

Pat: Okay.

Richard: Right.They’relegalese.Ifyouthinkofyourhealthinsuranceor

yourcarinsurance,youknow,I’manattorney.Ibuycarinsurance.

Ineverreadthecontract.Thatcontractiswrittenasinfavorofthe

insurancecompanyaspossible.That’sreallythewayyourterms

andyourprivacypolicyshouldbewrittenaswell.They’rethereto

protectyou.Everybody,youknow,mostbusinessownerslookat

themasanannoyance,butthey’reammunitioninyourboat;they

helpyou.Planonspendingmoneythere.




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Anotherareawhereweseebigproblemsthatshouldbepartof

anywebsiteisifyouallowvisitorstoyoursitetouploadanything,

images,music,text,complywiththedigitalmillenniumcopyright

act,betterknownasthevisitors.It’sacontroversiallaw,butfor

websiteownersandappowners,itisabeautifullawbecause

itdoesthis.Ifyoucomplywithit,youcannotbefoundliablefor

copyrightinfringementbasedoncontentuploadedbyyourusers.If

youthinkaboutFacebook,somebodyuploadsacartoonoravideo

orasongoranythingofthatsortthatiscopyrighted,Facebook

cannotbefoundliableforthatcopyrightinfringement;onlytheuser

can.Itreallyprotectsyou.Complyingwiththevisitorscostsacouple

hundredbucks.It’sdefinitelysomethingthatanybodystartingout

wantstodo.

Inthisdayandage,youknow,mostsitesaregoingtohavesome

kindofinteractivity,sodoit,pleasedoit.

Pat: Howwouldone-

Richard: Thinkhowmanypeople-

Pat: Howwouldonecomplywiththevisitors?Whatdoesthatmean

exactly?

Richard: Well,youcancontactanattorneytogothroughit,orfrankly,there’s

abookonAmazonforsalecalled“ThevisitorsHandbook,”and

mostpeoplecanreadthat.It’swrittenbyanattorneyinArizona.

Shewentthroughanddetailedthewholeprocess.Itmakessense

tomeasanattorney.Ifit’sabitconfusingtome,youcanconsult

withanyattorney.Itwouldtakelessthananhour.Frankly,the

biggestexpenseisreallydesignatinganagent.Youhavetoregister

anddesignateanagentwiththecopyrightoffice.TheUnitedStates

CopyrightOffice.Itcosts$140.Theyhaveoneclerkthathandles

allthedesignationsforfilingsfromaroundtheworld,soit’salittle

annoying.It’safairlysimpleprocess.Basically,ifacomplaintcomes

in,youhavetotakedownthecontentinquestion.Thentheperson

whopostedthecontenthastherighttocounter-notice,basically

saying,“No,it’snotinfringement.”Thenatthatpoint,youalertthe




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personwhomadetheoriginalcomplaint.

Thenthosetwopartiesgohaveatitincourt,butyouarenot

draggedintocourt.ThisishowTwitter,Facebook,Instagram,allof

thesesitesandservicesavoidbeingpushedintobankruptcyby

millionsofcopyrightinfringementlawsuits.

Pat: Okay.Thevisitors,thatsoundsfamiliartomebecauseIknowthat

that’ssomethingthatyouhavetodealwithifyouseesomeofyour

owncontentthatyou’vewrittenormaybeoneofyourownbooksor

animagethatyoucreatedyourselfonsomebodyelse’ssite.Alena,

beforewegettoyou,Richard,canyouspeakonthatalittlebit?If

youseesomeofyourowncontentonsomebodyelse’ssite,Iknow

DMCAhassomethingtodowiththat.Whatstepsshouldyoutake

tohopefullygetthattakendown?

Richard: Right,sotypically,ifyouputitupontheweb,it’sgoingtobestolen

atsomepoint,whetherit’sscrapedbyabotorsomeothersource.

Youwillfindtheminotherplaces.Typically,atthatpoint,theDMCA

...WhattheDMCA’spurposewasessentiallytoavoidfloodingthe

courtsacrosstheUSwithendlesscopyrightinfringementlawsuits,

soitcreatesaninformalprocessforgettingcontenttakendown.

Thewaytodoitisyouusesomethingcalledavisitorstakedown

notice.Whatyouwoulddois,let’ssaythatIrunacopyscrape

searchandIfindsomebody’scopiedoneofmyblogpoststo

anotherblog.Iwouldcontactthatblogprobablyinformallyfirst

andjustsay,“What’sgoingon?Takethisdown.”IfIdon’tgetany

response,whichtypicallyIwouldn’t,Iwouldthenidentifywhothe

hostis.YouwoulddothatbygoingtotheWHOISrecordandlook

attheirhost.Thenyouwouldgotothehost’swebsite,andtheywill

haveacopyrightorabuseorDMCAlinksomewhereinthebottom

ofthesite.

Thenyouclickthat,andthenyouwouldsubmittheform.There

arevariouselementsthatyouhavetodeclare,soyouwould

havetoprovidethedomainfortheoriginalcontentonyourblog,

thedomainfortheblogthat’sstealingyourcontent,andthena




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statementunderpenaltyofperjurybasicallythatyoucreatedthe

workandthatyouownit.Atthatpoint,thehostwilltakedownthe

contentinquestion.It’snotasituationwheretheyreviewitand

thinkaboutitortrytoevaluatewhetherit’sinfringement.They

automaticallytakeitdown.In99%ofcases,that’stheendofit.The

othersidecanfileacounter-notice,butiftheycopiedyourcontent,

they’renevergoingto.

Pat: Right.I’verunacrossthatonYouTubebefore.Somebodyswiped

myYouTubevideoanduploadeditontotheirownchannel.YouTube

hasareallygoodmethodofreportingthat.They’retypicallypretty

fastattakingthosethingsdown.That’sgood.That’sactuallygoing

tobereallyhelpfulforalotofpeoplebecauseIknowthat’soneof

thebiggestcomplaintsthatpeoplehave,isallthishardwork.

Richard: OneotherthingsIwouldjustmention,sobusinessmodel,ablack

hatbusinessmodel...Blackhatisdoingthingsthatareunethical

orviolatesregulationsforvarioussites.Oneblackhatstrategyis

yousendbotsouttocopycontentoffofvarioussites,andthenyou

publishthemonanewsite,andthatsiteishostedoffshore.Well,

theDMCAisonlyalawintheUnitedStates.Ifyoustarttryingto

servenoticestosomebodyinAmsterdamorsomeplaceofthatsort,

they’reoftengoingtoignoreit.

Inthatsituation,whatyouwanttodoisgotoGoogle,Bing,and

Yahooandanywherewhereyoucanseetrafficbeingsourced.

It’stypicallygoingtobethesearchengines.YoucanfileaDMCA

takedownnoticeswiththemaswell.Theywillde-listthesite.In

thatsituation,obviously,yougetridofmostofthetraffic.Youalso

getridofduplicatecontentpenalties,thingsofthatsort.Ifaffiliate

programsarebeingpromotedwithyourcontent,youcancontact

thoseprogramsaswell.They’lloftenterminatetheperson.

Pat: Great.Thankyou,Richard.Alena,let’smoveontoyou.Let’stalk

alittlebitaboutbusinessstructure.Richardmentionedalittlebit

aboutLLCversusS-corpandallthatstuff.Canyouhelpusdefine

whichoneisbestforwho?Evengoingfurther,Iknowthereare

somecompaniesincludingmyownthathavesortofanumbrella




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companyandthenuseeitherDBAsordoingbusinessasorother

elementstokindofhavedifferentbusinessesunderoneumbrella

business.Canyouspeakalittlebitaboutwheredoesonestart

evenwithhowtodeterminewhatbusinessstructureisright?We

knowthatweshouldcreateabusinessforprotectionandsoit’s

separatefromourselves,ofcourse,butwheredoyouevenstart

withthat,Alena?

Alena: Well,thesimplestandcheapestpossiblebusinessstructurewould

bethesoleproprietorship,ofcourse,whereyoubasicallyjustgeta

businesslicense,andyoucanstartoperating.That’snicebecause

itischeapandit’seasy.Itdoesn’tgiveyoutheliabilityprotection

atall.Likewisewithapartnership.Apartnershipisworsethanafull

proprietorshipbecausethenyou’reliablenotonlyfortheerrors

thatyoumakebutalsoforthoseofyourpartner.Togettheliability

protection,youwanttosetupaformalcorporationorLLCwhich

givesyoulimitedliability.Basically,they’reprettysimilarexcept

thatcorporations...Well,corporationsareownedbyshareholders

justforterminologypurposes.Corporationsareownedby

shareholders,andthey’remanagedbyofficers.Thentheyhavea

boardofdirectorswhocontroltheofficers.ThenLLCsareowned

bymembers,whichisbasicallytheequivalentofshareholders,and

they’remanagedbyeitherthemembersorbymanagers.Justthe

organizationalstructureisalittlebitdifferent.

Liabilitywise,theybothgiveyoulimitedliability.Taxwise,the

corporation,ifyoudon’tmaketheSelection,youwillbesubjectto

doubletax.Thatmeansthatthecorporationpaystaxonitsprofit,

andthenwhenitdistributesdividendstoitsshareholders,the

shareholderspaytaxonthedividends,sothat’scalledadoubletax.

IfyoumaketheSelection,thenyoucanbetreatedfortaxpurposes

asapass-throughentity,whichmeansyoudon’tpaythetaxatthe

corporatelevel;you’rejustpayingtaxattheshareholderlevel.You

do,withall3,thecorporation,Scorporation,andLLC,youdohave

topayan$800minimumfranchisetax,butyoucanavoidsomeof

theothertaxes.

Oneofthethingsthatyoucando,sowithacorporation,some




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peoplefindithelpfultaxwisetopaythemselvessortofaslightly

lowerthannormalsalaryandnothavetopayemploymenttaxeson

therestoftheprofitofthecorporation.YoucandothatwithanS

corporationbecauselikeIsaid,theScorporationhaspass-through

taxtreatment.Anythingthatyoupayyourselfasasalary,youare

subjecttoself-employmenttaxes,butwhateveryoupayyourselfas

adividendisnot.Now,thisisn’tsomethingthatshouldbeabused,

ofcourse,becausetheIRSdoeslooktoseeifyou’repaying

yourselfareasonablewage,andtheycangobackanddeem

someofyourdividendsaswagesandchargeyoubacktaxesand

penalties,soyoudohavetobecareful.Somepeoplehavefound

thattobeawaytosaveonemploymenttaxesaswell.

Pat: Wouldyourecommendevenbeforeselectingsortofabusiness

structuretoconnectwithafinancialpersontohelpwalkyou

throughwhichonemightbethebestforyoudependingonwhat

kindofbusinessyouhave?

Alena: Youshouldalwayshaveaconversationwithyouraccountant,that’s

forsure.It’snotreallyaterriblycomplicateddecision.Ifyoucallan

attorney,they’regoingtobeabletosuggesttoyouwhichformof

theentitymightworkbestforyou,whetherit’sacorporationorS

corporationoranLLC.

Pat: Okay.Nowlet’ssayyouhaveabusiness,anLLC,thatyou’ve

created,andthenunderthatLLC,youhavesortofanotheridea

forsomethingthatcouldbe...Youknow,anothersortofkindof

business,Iguessyoucouldsay,orasub-business,ifyouwill.What

wouldyourecommendintermsofdealingwiththat?Wouldyou

recommendcreatingawholecompletelydifferententityforthat

secondthing?Becauseusentrepreneurs,wehaveatonofdifferent

ideas.IthinkalotofpeopleknowthisfromwatchingwhatIdo

andallofthedifferentprojectsthatIhaveahandin.Wouldyou

recommendhavinganumbrellacompanytomanageallthat,or

separatecompanies,ordoesitkindofdepend?

Alena: Itdependsforsure.Again,ifyouwantedtogothemosteconomical

route,whatyoucoulddoisjusthaveoneLLCandthenownseveral




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DBAsorfictitiousbusinessnamesasthey’recalled.Thenyoucan

setupseparateaccountingforeachofthosedifferentDBAson

yourownrecordsothatyoucantrackwhichoneismakingprofit

andwhichone’snot.TheyreallyarejustpartofthesameLLC.Now,

thedisadvantagewiththatisthateachbusinessunitisariskand

alsosuffersexposurefromtheotherbusinessunits.Ifoneofyour

businessunitshasapotentialforhigherliability,thenyoumight

wanttoprotecttheotheronesfromthatone.Thewayyoucando

thatissetupseparateLLCsforeachonebecausethenthey’re

protectedfromeachother.

WhenI’msaying“limitedliability,”thatmeansthatiftheentity

weresued,theassetsthatwouldbesubjecttothatlawsuitwould

beonlytheassetsoftheLLCandnotthoseoftheowner’sorthe

othersistercompanies.Youcandefinitelyreduceyourliabilityto

eachofthebusinessunitsbysettingupseparateentities.Now,

youdohavetotakeintoconsiderationthecostbecausethereisa

costwithsettinguptheentityandmaintainingit.Youhavetohave

separatetaxreturns.Youpayyour$800minimumfranchisetax,

evenifyou’renotmakingaprofit,foreachofthose.Youknow,of

courseyouhavealittlebitoflegalexpensesaswellwitheachof

theentitiesonanannualbasis.

Pat: The$800franchisetaxyouweretalkingabout,that’s-

Richard: Sorrytostepin.

Pat: Oh,goahead.

Richard: That$800expenseisreallyonlyCalifornia.

Alena: That’sCalifornia,yeah,sorry.

Pat: Whichactuallybringsupagreatquestion.RichardorAlena,Idon’t

knowwhowantstospeaktothis.Itjustcameup.Alotofpeople

whenthey’restartingbusinesses,theyhearthat,“Oh,Delaware

iswhereyoushouldstartabusinessbecausetheyaremore

favorabletowardsbusinesses,andthere’snotaxes,”orOregonor




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Washington,notCaliforniaeventhoughyoumightliveinCalifornia.

Howdoyoudeterminewhereyoushouldbestartingabusiness,

oristhatstrategyofsettingupanLLCinadifferentstateeven

worthwhileconsidering?MaybeRichard,youcanspeaktothat?

Richard: Oh,Idon’tknowifAlenaandIwouldhavethesameopinionabout

this.I’mnotinfavorofittypically.

Alena: Icanhelpyouwiththis.I’dbehappytocommentonthat...

Pat: Oh,thanks.

Alena: ...ifyouwouldlike.Yeah,becauseIgetthatquestionalot.People

wanttosetupaNevadacorporationbecausethere’snocorporate

orincometaxesinNevada,buttheproblemiswhenyouare

locatedinCalifornia,you’resubjecttoalloftheCalifornialaws

anyway.Ifyouarelivinghere,you’reworkinghere,maybeyouhave

employeeshereandyoudon’tliveorworkorhaveemployees

orofficeinNevada,thenitdoesn’twork.Itdoesn’treallyworkfor

you.Whathappensisifyou’reaforeigncorporation,sayyou’re

incorporatedinNevada,youhavetoqualify...It’scalled“qualifying”

inCalifornia.It’sbasicallythesamestepsasyouwouldhavetotake

ifyouweretoincorporateinCalifornia.You’resubjecttoallthe

samefilings,allthesamedisclosures,andbasicallywhathappens

isyou’rejustduplicatingyourexpensesbecausenotonlyhaveyou

paidtosetupyourentityinNevada,butnowyou’realsohavingto

payforallthestandardCaliforniafees.Noneofthefeesareless,

either,justbecauseyou’reaforeigncorporation.

Pat: Isee.

Alena: Thatpartdoesn’treallyhelpyou.Now,thewayitcanhelpyouisif

youactuallymovedtoNevadaandsetupyourbusinessthereand

workthereandhaveyouremployeesthere.

Pat: Ah,whichIdon’tthinkI’lleverdo.

Alena: Ihaveseveralclientsthathavedonethat.TheywereCalifornia




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entities,theymovedtoNevada,they’rehappilyworkingthere,and

they’renotpayingtheircorporateorincometaxesbecausethere

aren’tany,butthey’renolongerCaliforniaresidents.

Richard: Yeah,butallthesavingsareburntupbyrunningtheair

conditioner24/7.

Alena: Yeah.

Richard: Iwouldjustthrowinacouplethingsonthat.Youknow,oneof

thethingsaboutDelawareispopular,thereisoneinstancewhere

IwouldthinkforminginDelawaremakessense.Thatisifyour

intentistobecomeapublicly-tradedcompanyortoattractventure

capital.Inthatsituation,you’rereallyrestrictedtoacorporation,and

theywanttoseeaDelawareformationbecausetheclassificationof

sharescanbedoneandsituated;it’sveryfavorabletotheinvestor.

Ifthat’syourgoal,andrealistic,notsomethingyoujustcameup

with,butsomethingyouhaveabusinessplan,youhaveanidea,

you’vereallylaiditout,thenDelawareissomewherethatyouwant

toincorporateforthatpurposebecauseIthinkthatit’s...

IfyouforminCalifornia,youcanprobablystillgetfunding,but

there’sgoingtobelessinterest.Ifyou’reanLLC,there’sgoingto

benointerest.Well,notno,butverylittleinterest.Theywanttosee

thatDelawarecorp.They’recomfortablewithit.WhenIsay“them,”

I’mtalkingaboutventurecapitalists.They’recomfortablewithit,and

sothat’sreallyyouronlychoice.Ofcourse,youreallydon’tcare

becauseifyougetventurecapital,youknow,youhavemoney;you

candevelopabusinessinSanJuan.

Pat: Right,right.

Richard: ThesecondthingaboutstatesisalthoughAlenaandIarebothin

California,thestateshavereallytakentherevolutionaryviewas

towhereyouincorporate.Whatcauseditwasthesalestaxonthe

internet.There’sbeenanefforttocomeupwithanationalsalestax

sinceabout,Idon’tknow,2000,andit’sfailedmiserablybecause

you’djusthavetolooktoWashington,DCtoseehowmany




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conflictswehaveinourpolitics.Statescan’tgettheiracttogether.

Theycan’tagreeononeformofsalestax.Theycan’tevenagree

ontheform.It’sneverreallyhappened.

Whathasoccurredisit’striggeredtheattentionifyouwillofthe

taxagenciesinthestates.Before,in1980,peoplehadformed

NevadaLLCsorNevadacorporationsallthetime.Let’ssaypeople

inCaliforniawoulddothat.Thentheywouldruntheirbusiness

throughNevadacorporations.ThetaxagencyinCalifornia,the

FranchiseTaxBoard,wasn’tallthataggressiveaboutgoingafter

them.Withtheinternetandthechangesintaxrevenuesthatare

earnedfrompurchases,Imean,justconsiderImyselfamaslaveto

Amazon.IbuypracticallyeverythingonAmazon.Californiadoesn’t

...Well,nowitdoesgetsomesalestaxfromthat,butuntilrecently,

Californialostallofthatsalestaxrevenuebecausetheydon’tgo

downtothelocalstore,theydon’tgodowntoHomeDepotor

whatevertobuythosepurchases.Thetaxagenciesnowaremuch

moreawaketotheideaofthisnationalbusinessandpeopleputting

businessesinstatesthathavefavorabletaxes,andtheywillnow

aggressivelyhuntthoseareas.

Californiahas,youknow,theFranchiseTaxBoardisknowntohave

investigators.Alltheydoisgodownthecorporaterollsandtryto

figureoutifthesearereallyCaliforniabusinessesandchallenge

them.Otherstatesdoitaswell,NewYork,Illinois,andyou’reseeing

thiskindofdevelopment.Ifyouaregoingtoformanentityina

tax-favorableareasuchasNevada,IagreecompletelywithAlena,

youdefinitelywanttotalktoyourCPA,andyouwanttotalktoan

attorneytomakesureitmakessensebecauseinmostsituations,

you’regoingtohavetoqualifyinyourownstate,whichmeans

you’rejustpayingmorefeesfornoparticularreason.

SomeofthetaxesthatNevadaandDelawarethesepeoplewill

tellyouisthey’lltellyouyourinformationisconfidentialandthat

you’llneverknow...Nobodywilleverbeabletodiscoverwho’sa

shareholder.Icangopayaprivateinvestigator500bucks,andI

canfindtheshareholderofeveryNevadacorporationinaday.You

know,mostofthatstuffismarketing.Unlessthere’sareallyviable




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reasontolookattheseotherareas,youknow,I’dbeverycareful

aboutincurringanexpense.

Pat: Okay,cool.Thanks,guys,Iappreciatethat.Alena,let’smoveonto

you.Ihaveaquestionnowthatwe’retalkingaboutsettingupa

business.Let’stalkabouttrademarks,andsowesetupabusiness.

Wehaveaname.Whenshouldweevenstartthinkingaboutthat,

orshouldwealreadystartthinkingaboutthatrightaway,youknow,

intermsoftrademarkingourbusinessnameandthenevendown

theroadwhenwecreateproductsofourown?Shouldwebe

trademarkingthoseaswell?Canyouspeaktothat,please?

Alena: Intheidealworld,itwouldbenicetohaveyourtrademark

applicationfiledbeforeyoumakethepublicawareofit,butthat’s

notalwaysrealistic.Iknowthatwithinternetbusinesses,it’san

important,it’sreallyimportant,yourdomainnameifyou’reusing

itasatrademark,registeredasatrademarkearlyonbecause

that’sprobablythemainsourceofyourvalue.Imean,obviously,

ifsomeone’sgoingtouseasimilarname,theycoulddiverttraffic

awayfromyours,andsoforth,andsothat’sreallyimportant.

Therearewaystosave,though.Trademarkscanbeexpensive.

Imean,justthefilingfeeswiththeUnitedStatesPatentand

Trademarkofficeare$225,butyoucanimaginethatwhenyou

haveseveral,andalotofbusinessesdo,thatthatcanaddup.

Whenyou’restartingabusiness,thatcanbeabitofacashcrunch

forpeople.

Pat: Totally.

Alena: Therearewaystominimizehowmuchyou’respendingup-frontbut

stillgettingsomeprotection.Forexample,sayyouhaveatrademark,

awordmark,andalogoandaslogan...Oractually,justgowith

thewordmarkandthelogo.Whatyoucoulddoissavethelogofor

laterifthat’snotthemostimportantpartofyourtrademark,whichit

probablywouldn’tbeifit’saninternet-basedbusiness.Thenusejust

thewords.Registerjustthewordsfornow.Thenlaterascashflows

better,youcanaddonotherfeaturesthatyouwanttoprotect.




15

Pat: Now,Iknowmostpeopledon’tactuallyevendothetrademark,and

Ihaveheardalotofpeoplerelyonthisthingcalledthefairuseor

firstuse,andit’s,Ibelieve,ifyou’rethefirstonetoactuallycome

upwiththatnameanduseit,thenyouhavesomelegalstanceonit

andownership.Isthateventrue?Obviously,trademarkingwouldbe

thebestthing,butisthereafirstusekindofthingthatexists?

Alena: Thereissometruthtothat.Okay,fromthepersonwho’sregistered

thetrademark,fromthisperson’sperspective,wedon’tlikethat

becauseyoucangoandregisteryourtrademark,butthenyoufind

outsomebodyelsehasstartedusingitbeforeyou.Youdon’tgetto

stopthemfromusingit,evenifit’sforasimilarclassofgoodsand

services,butyoucanstopthemfromexpandingtheirusage.

Fromthepersonwho’stryingtoeconomizeanddoesn’twantto

registeratrademark,that’swhatyouhavetokeepinmindisthat

yougetyourfirstuse,andthensomeonewhocomeslaterwitha

registeredtrademarkcan’tnecessarilystopyou,butyoucan’treally

growyourbusinessorexpandittootherproductsorotherservices

orotherstateswhensomeoneelsehasaregisteredtrademark.

Really,whatyouwanttodoisgoaheadandgetthatregistered

trademark,andthenyouknowgoingforwardyou’reprotected.

Pat: Isee.Howlongdoesittakeforatrademarktousuallygetfinished

afteryoustarttheprocess?

Alena: Onceyoufile,itcantake9-12months,butIactuallyhave

beenseeingthemcomethroughalotquickerlately.Ihadone

thatjustcamethroughafteronly5months,sothatwasreally

impressive.Thetrademarkofficeisactuallyprobablyoneofthe

best-functioninggovernmentofficesthatwehaveinthiscountry

becausethey’rejustalwaysimprovingtheirprocedures,andthey’re

gettingfaster,andthepriceshaveevencomedown.

Pat: Well,that’sgood.Imean,that’sgreat,but5months,6months,a

yearisalotoftime.Wouldyourecommendforpeoplewhohave

likeabusinessidearightnow,it’sbettertogetstartedrightaway,

right?Togooutthereandputcontentintotheworld,tobuild




16

authority,tobuildyourbrand,getthatdomainnameandallthatsort

ofstuff.You’renotsayingtodelay6monthstogetthetrademark

first,right?

Alena: No,no.No,notatall.WhenIsaytotakeactionrightaway,what

I’mreallysayingisyoufileyourapplication.Thefirstonetofile

haspriority.

Pat: Okay.

Alena: Evenifithasn’tyetregistered.

Pat: Gotit,okay.Awesome.

Alena: Youknow,you’reontheroadtogettingprotectionbythetime

you’vefiledtheapplication,whichcanbedonethatday.Itdoes

takeabout5...LikeIsaid,aminimumof5monthsatthistime,

forthemarktoactuallyregisterandforyoutogetacertificateof

registration,butyou’regoodtogoforinitiallyatleastonceyoufile.

Pat: Great,okay,that’sgoodtoknow.Thenforproductsthatwecreate,

shouldwebetrademarkingthem,orlikehowdoweprotectthe

nameofouronlinecourse,forexample,andbookeven?Canyou

evendothatwithabook?

Alena: Books,youwouldgenerallywanttogetacopyrightonthem,but

ifyouhave,say,likeIthinkRichardmentionedtheDummyseries

earlier...Orthatmaybebeforewehad...beforethiscall.

Pat: Yeah,thatwaspre-recording.

Alena: Anyway,sotheDummyseries,theyhaveatrademarkbecauseit’sa

wholeseriesofbooksallunderthenamethedummy,theDummies,

whatever,bookforalgebraorsomething.That’satrademarkandit’s

alsocopyrighted,butcopyrightprotectsthecontent,andthenthe

trademarkprotectsthebrandname.

Pat: Gotit.Okay.Thenyourproductsandallthosekindsofthings,I

mean,isit...Generally,Iguess,it’saruleifyoureallywanteditto




17

beprotected,you’dgoaheadandtrademarkorcopyrightit,right?

Alena: Yes.Thenyoudon’twanttogooverboardbecausethereare

expensesassociatedwithtrademarkmaintenance.Betweenthe

fifthandsixthyearafteryouregisteratrademark,youhavetodo

anotherstatementshowingthatyou’recontinuingtousethemark.

Thenatthe10-yearpoint,youhavetofileanotherstatement.Then

afterthat,it’severy10years.Thatcanbeburdensome.I’veseen

thathappenwithclientswheretheywouldget5or10trademarks,

andthentheygettothe5-to6-yearpoint.Maybethingsaren’t

lookingsogoodbusiness-wiseandtheysay,“Well,maybewedon’t

needallthesetrademarks.”Theystartwhittlingthemdown.You

dohavetobecareful,butyes,youcanregisteratrademarkon,

say,likeamenuitemoranyspecificservicethatyoumighthave

orproductthatyoumighthave.Generally,thebusinessnameisn’t

necessarilyatrademark,butusuallyitturnsouttobe.

Youknow,domainnames,again,they’renotnecessarilya

trademark,buttheycanbeifyou’reusingitasatrademark.Ican

explainthatfurthertoanyonewho’sinterestedintalkingabout

that.It’salittlebitofanartondefiningwhenit’sbeingusedasa

trademark.Noteverybodyunderstandsthatrightoff.

Pat: Yeah,wecouldsavethatforfurtherconversation,Alena.

Alena: Yeah.

Pat: Thankyouforthat.Now,Richard,let’stalkalittlebitaboutusing

contentthatotherpeoplehaveused.Iknowit’sokayto,for

example,usecertainimagesorquotesorcertainblocksoftextthat

otherpeoplehavesharedorevenmusiconyourownsite.What

protectionsshouldwehave,orhowdoweknowthatwe’redoing

thisintherightwaythat’snotgoingto,youknow,havesomebody

comingafterus?

Richard: Well,ifyou’retalkingaboutcopyright,copyrightisprobably

themostcommonlegaldisputethatyouseeonline.Copyright,

generally,issimplytherighttocopy,perform,somethingthat




18

youcreate.Whenyoutalkaboutitinavacuum,itcanbedifficult

tounderstand,butIthinkifyou’retalkingaboutwhenusingan

example,youknow,itcanbehelpful.Let’sconsideraStephenKing

book.Youknow,it’s300pagesoftext.

There,thattext,iscopyrightedautomaticallywhenyoucreatesit,

forpurposesofthisdiscussion.Whenyou’relookingatcontent

online,beitpictures,songs,text,orwhatever,youshouldassume

thatitiscopyrightedandthatyoucanonlyuseit,then,ifyouhave

thepermissionofthepersonwhoownsthatcopyright,typically

thepersonwhocreatedit.IntheinstanceofaStephenKingbook,

he’screatedit,heownsthecopyright,hesignsanagreementwith

thepublisher.Thepublisheristhengiventherighttocopyand

distributeandsell,obviously,thatbookinexchangeforroyalties

paidtoKing.That’sthebasicconceptofcopyright.

Now,therearesituationswhereyoucanuseitwithoutconsent

orwhereconsentisgiventoyoueitherautomaticallyorsemi-

automatically.Whenyou’relookingforimagesandsongsand

thingsofthatsortonline,oneofthebestplacestolookisCreative

Commons.CreativeCommonshasalicensingsystemsetup.

Thewebisauniquebusinessenvironmentbecauseinbrickand

mortarbusiness,mostbusinesseswouldnotsharetheirintellectual

propertyfreely.Theywouldchargeforit.

Ontheweb,peoplesharethingsrightandleft,opensource

softwarebeingaperfectexample.WiththeCreativeCommons

situation,youcangointhereandyoucanfindcontent.Maybeit’s

images,maybeit’ssongs,whateveritis,thatalreadyhavelicenses

attached.Aslongasyoureadandcomplywiththelicense,you’re

fine.Now,thatcompliancemayinvolvelistingwho,youknow,the

personwho’screateditandwhathaveyou.That’sprobablythe

bestfreewaytodoit.

Justgoingoutandfindingsomethingthatyoulikeandcopying

itandrepublishingitisalmostalwaysgoingtobeinfringement

becauseyoudon’thavepermissionbecausethere’snoconsent

there.IfyougotoGoogle.Youknow,Google’sthefamouscase.




19

Google’sasearchengine.Theyhaveanimagesearchengine.

Ifyoujustgointhereandstartcopyingthingsandrepublishing

them,you’reinfringing.Ifyou’rereallylucky,you’llgetsomething

thatGettyImagesisincontrolof,andthey’llsendyouanastyletter

demanding$5,000tosettletheinfringementcase.

Youdon’twanttodothat.Youdon’twanttocopyoffofFacebook

orcopyoffofnewssitesoranythingofthatsort.Youreallywant

tojustthinkitthrough.Youknow,thebestoptionandthesafest

optioniseitherCreativeCommonsortoactuallypurchasethe

content.Youknow,Ihaveablog.Ihaveacouplesites.Ipost

imagesonthem.IgetthemallfromFotolia,whichisF-O-T-O-L-I-A.

com.They’rereallycheap.Theyhaveimages.Thereareanumber

ofstockimagesitesouttherethatyoucanuse.Ifyouusethose,

youneverhaveaconcern.

Thentherearepracticallegaldefensestoit.Onewouldbepublic

domain.Ifsomething’sinthepublicdomain...Justbecauseit’s

publishedontheinternetdoesnotmeanit’sinthepublicdomain.

Publicdomainreferstosomethingwherethecopyrighthasexpired.

That’stypicallyafter70yearsafterit’screated,or70yearsafterthe

personthatcreateditdied.Itdependsontheexactmeasurement.

Basically,ifyouweretryingtouseanythingthatwascreatedafter

the1930s,publicdomaindoesn’treallycount.

Theotherissuethatyougetintoisfairuse.Fairuseisadifficult

legalconcepttoexplainbecauseit’sdecidedonacase-by-case

basis.Thereisn’treally...Therearesomegeneralstandardsyou

canleanon,butthereare4factorsthatacourtwilllookat.They’ll

weighthosefactorsdifferently.In1985,therewasaSupremeCourt

casethatsaidbasically,“Wehavethese4factors,butreallythe

biggest,mostimportantthingisisyouruseofthatcopyrighted

contentgoingtocosttheoriginalcopyrightownermoney.”For

instance,ifItooktheStephenKingbookandImadeexactcopies,

Imademyownfakecover,andIstartedsellingitonAmazon,

thatwouldbecostinghimmoneybecausepeoplewouldbuythe

alternativebook.Inthatcase,fairusewouldnotapply.




20

Thentheargumentwasthatifyouhadasituationwhereyou

weren’tgoingtocostthatpersonmoney,thenyouweremuch

morelikelytobefoundtohaveafairusedefense.Unfortunately,

theSupremeCourthaskindofchangedthatinthelast10years.

Nowtheylookatthe4differentelements,whicharebasicallythe

purposeandcharacteroftheuse,areyouusingitcommercially,are

youusingitforeducationalpurposesornon-profit,youknow,the

natureofthecopyrightedwork,awholebunchoflegalstandards

thatpeoplereallyaren’tallthatinterestedin.Asadefault,Iwould

buystuff.Iwouldn’treallyrelyonfairuseunlessit’sanobvious

situationsuchascriticism,likeamoviereview.Ifyou’reusingitfor

news.Somethingofthatsort.Inmostsituations,you’reprobably

okay.Asadefault,Ijust,Imyself,IeithergrabitfromCreative

Commons,orIjustpurchaseit.It’sprettycheaptodothesedays.

Thatway,you’reneverreallyworriedaboutanythingcomingback

tohauntyou.

Ifyoudouseacopyrightedimageorcontentofsomesort,the

goodnewsis,again,wereturntotheDMCA.Well,youmightget

aceaseanddesistletterfromanattorney.Thetypicalfirstthing

thatyou’regoingtogetisactuallyaDMCAtakedownnotice.Your

hostorsomebodyisgoingtocontactyousaying,“Wereceived

thisnoticethatyou’reinfringingonsomebody,”andifyoutakethat

contentdown,oftenyou’refine.Iwouldn’trelyonthatcompletely,

butinthepracticalrealworldsituation,that’stypicallywhat’sgoing

tohappen.

Pat: Whataboutimagesthatyoutakeyourselfofthingsthatyoumight

bereviewing?Maybeyou’reshootingavideoofsomethingthat

you’redoingareviewonthatyou’regoingtoputonYouTube,

oryouhaveablogpostthathasimagesofaparticularproduct

thatyou’reshowcasing?Isthatokaytodo,ordoyoustillneed

permissionfromthatproductownertousethoseimages?

Richard: Myviewisifit’sareview,thenit’sokayaslongasyou’reusing...

you’rebeingbriefaboutit.Imean,ifyou’retakingapictureofthe

product’scover,thenyou’reprobablyokay.Iwouldn’tworryabout

thattoomuch.Ifyou’recopyinghugeswathsofwhateveritis,it




21

becomesmuchmorequestionable.Ifit’sareview,ifit’scriticism

orcommentaryonitwhereyou’renotdoingitforthepurpose

ofresellingit,essentially,orusingittomakeaprofit,thenyou’re

probablygoingtobefine.Ifyouthinkofanynewsstory,ifanews

storyreportsonsomeelementofacorporatereportorsomething

ofthatsort,they’refine.We’veallseenthemillionsofmovie

reviewsonYouTube;thoseareallfinebecausethey’recommentary.

Thequestionisreallywhat’syourmotivation.

Itcomesdowntothefairusedefense,andtherearetwoproblems

withthefairusedefense.Thefirstisit’sadefense,whichmeansit’s

reallyonlyresolved,typically,atatrial.Evenifyouwinonthefair

usedefense,you’vespent50grandinlegalfeesormoredefending

thecase.Haveyoureallywon?Perhaps.Thenthesecondproblem

isthemoreyoureadaboutfairuseandthemoreyouseethe

decisionscomedown,themorecourtsarekindofalloverthe

place.Theyliterallylookatitonacasebycasebasis.Onelegal

commentatorIreadrecentlyinafairusecaseIwaslookingateven

suggestedthejudgeshouldjustdecideifit’sfairuseornotand

thencomeupwithatheoryastowhyhethinksthat.It’sdifficult.

Forinstance,thereare4factors.Well,whatifthejudgefinds2

ofthefactorsareviolatedand2ofthefactorsareinyourfavor?

Thenyouessentiallyhaveatie,sohowdoyoudecidethecase?

Unlessit’sanobvioussituationwhereit’scommentary...Theother

obvioussituationisparody.Forinstance,ifyoureallywanttoread

anabominationoryou’rehavingproblemssleeping,goreadthe

AppleiTunestermsandconditions.It’s56pages.I’mcurrently

creatinganarticleforoneofmysiteswhereIgothroughitandIdo

theplainEnglishinterpretationofthevariousclauseswithhopefully

ahumoroustwisttothem.That’llbeaparody.

Now,IcanguaranteeyouApple’sattorneyswillprobablysendme

aceaseanddesistletter,andI’llsendthembackathingsayingit’s

parody;gopoundsand.Offwe’llgo.Inthatsituation,it’smakingfun

ofit.IfyouseeCollegeHumor’svideosonYouTubeandtheycite

somethingthatwouldotherwisebecopyrighted,it’saparody.Any

ofthelatenightshows,StephenColbertdoingthetakeoffofthe




22

HungerGames,it’saparody.Inthosesituations,you’refineaswell.

Thereareotherclassifications,theeducationexemptionsand

thingsofthatsort,butthey’rereallyrarelyinvoked.Ican’timagine

mostofyourlistenerswouldactuallyusethose.

Pat: Now,whatifyouaredoingsomethinglikeareviewbutit’swithan

affiliatelink?Canyoutalkalittlebitabouttheaffiliaterelationships

andkindofthethingsthatwehavetoworryabout?

Richard: Theaffiliaterelationship,inthatsense,youneedtodisclose

basicallyisthebiggestissuerightnow.Thisiskindofahottopic

withtheFTC.TheFTCislookingat...Theywanttomakesurethat

people,whentheygotoasiteortheygotoavideoorwhatever,

andtheyseearevieworthereseesomethingthat’s...theyknowif

there’sanybias.Youknow,PewDiePie,thegameronYouTube,he

recentlyranintothis...Notsomuchhim,butheandothergamers

thatarepopularonYouTubewerebeingpaidmoneybyoneofthe

gamingcompanies.Itwasdisclosed,butitwasdisclosedfardown

inthedescriptionunderthevideoswherepeoplemightormight

nothaveseenit.TheFTCwentafterthegamingcompanyand

forcedthemtochangethosekindsofsituations.You’regoingto

seealotofthatkindofapproach.

Infact,ifyougotoSmartPassiveIncomeandyoulookatthe

resourcepage,ifIremembercorrectly,there’sabigparagraph

explainingthattheseareaffiliatelinksandwhathaveyou.

Pat: Yeah.

Richard: Inrelationtothecopyrightissue,theaffiliatelinks,youknow,

depend.Ifthereviewisoftheproductandit’sgenerallypositive,

youraffiliateagreementwiththatcompanytypicallyisgoingtohave

aclausethatallowsyoutousethatcontent.There’salicensethere

thatwillallowyoutodoit.Ifyou’renegative,itkindofdependson

whatthetermssay.Non-disparagementclausescanbeincludedin

theterms,andwhatanon-disparagementclauseisisbasicallyyou

can’tcriticizeusorourproducts,andthosearegenerallynotfound




23

tobeparticularlybindingbecauseotherwisepeoplewillusethem

...There’sacasecalledClearGear.ClearGear,itwasawebsitethat

soldvariousproducts,andtheirtermsandconditionscontaineda

non-disparagementclausethatsaidyoucannotleaveanegative

Yelpreviewregardingthecompany,andifyoudid,youagreedto

payapenaltyof$3,500.

Pat: What?

Richard: Acouplehadabadexperiencewiththecompany,andactually,if

youlookattheirYelpreviews,alotofpeopledid.Theycomplained,

andtheypublishedsomethingactuallyonripoffreport.comsaying

thisisaripoff.Thecompanysentthemanoticeforthe$3,500

penalty.Theydidn’tpayit.Thecompanyreportedittothecredit

agencydamagingtheircreditrating.Theysuedincourt.Thejudge

founditwasanunconscionableclauseandadhesioncontract

andawarded$300,000tothecoupleagainstthecompany.

Disparagementclausesaren’tgreat,butyou’rerarelygoingtosee

thoseanymore.

Typically,ifyouhaveanaffiliatelink,aslongasyou’rebeing

clearthatitisanaffiliatelinkandthatyou’rebeingcompensated,

typicallyyou’regoingtobefine.

Pat: Okay.Cool.Alena,Ihaveaquestionthatcomesfromalistener

here.Onasimilarlyrelatednote,youknow,whenitcomesto

employeesandalotofpeoplewhoareexpandingtheirbusinesses,

they’rehiringpeopleandsometimesthosepeoplearecomingon

asemployees,andsometimesthey’recomingonascontractors.

Whichoneisbetter?Howdoweknowwhatactuallymakessense

forourbusiness?

Alena: Well,companiesgenerallyliketohaveindependentcontractors

becausetheydon’thavetopayemploymenttaxesandprovide

benefits,butthere’sabalancingtesttodetermineifitreallyisan

independentcontractororanemployee.Basically,it’sanemployee

ifyoucontrolwhatwillbedoneandhowitwillbedone,andit’san

independentcontractorifyoucontrolonlytheresultofthework,




24

notwhatwillbedoneandhowitwillbedone.It’salittlebitofa

controltest.

Pat: Interesting.

Alena: Youknow,somecluesare,doestheperson,theindependent

contractororemployee,haveothercustomersorclientstoo,ordo

theyonlyworkforyourcompany?Dotheyusetheirownsupplies

andmaterialsandtoolstoperformthework?Dotheyworkwhen

theywantto,ordotheyhavetoworkduringcertainhours?Dothey

havetoworkatyourbusinesslocation,orcantheyworkwherever

theywant?Doesthepersonhavetheirownbusinesslicense?

DoesthepersonhavetheirowncorporationorLLCthroughwhich

they’reworking?

Basically,it’sreallykindofacontroltest,andyoushouldtalkto

anaccountanttogooverthedetailswiththemandjustbecareful

becauseifyouclassifythemasanindependentcontractorandyou

don’twithholdpayrolltaxesandthenthey’relaterdeemedtobean

employee,you’llhaveabigproblem.

Pat: Awesome.Thanks,Alena.

Alena: Mm-hmm(affirmative).

Pat: Richard,whenweare...ThisisabigquestionIget.Whenwe

interviewsomebodyforapodcast,doweneedareleaseformfrom

theminordertousetheiraudiofilesforourpodcast?

Richard: Yes.

Pat: Now,doesthatformneedtobeahand-writtenPDForwhatever

that’ssentback,orcanthatjustsimplybeanagreementoveran

email?

Richard: Hmm,well,asanattorney,Iwoulddefinitelypreferitbeanactual

writtenagreement.




25

Pat: Sobettersafethansorryyou’resayingforthat?

Richard: Yeah,theconcernisreallythis.Youneedtolaydownthespecifics

regardingtheusageofthefiles.Forinstance,let’ssaythatyou

dopodcastsoveranumberofyearsandyouidentify10really

greatpodcaststhatwentwellandyouwanttocreateacollective,

itsoundsstrange,butaCDorsomethingofthatsorttoselliton

Amazon.Well,whenthatpersonagreedtobeonthepodcast,did

theyagreetoalsoletyouusetheirinformationonthatCD?What

aboutpayment?Whataboutcopyrightissuesorrightofpublicity?

Publicityisanantiquatedidea,butit’sgainingnewlifeinlaw.

Rightpublicitybasicallysaysisthatyouhavetherighttocontrol

yourimage,yourname,thingsofthatsort.It’skindofbeinghacked

outonsocialmediarightnowwhereyouhavepeople’simages

beingusedwhentheydon’tconsent,couplesbreakingup,thingsof

thatsort.Itgetsnasty.Thelaw’snotreallysettledinthatarea,butit

isbecomingabiggerissue.Generally,yeah,youdowantthat,and

that’sthebestwaytogo.

Asfarasemail,it’sbetterthannothing.Insomecases,it’sfine,

buttheproblemistheemailmessagetypically...Well,theemail

messagewouldtypicallybeusedincourttoshowapartyadmission

bytheothersidethattheyallowedthistohappen.Thequestion

iswhetherthatgoesfarenough,soagain,ifyouweretocompile

a,let’stakeblogposts.Sayyoudoabunchofinterviews.Iknow

youdointerviewswithdifferentpeopleandyouwereposting

themonSmartPassiveIncomeforawhile.Idon’tknowifyoustill

doit,butwhenyouweredoingthoseandyouwantedtocreate

acompilation,anebook,withallthesedifferentinterviews,it’s

unlikelyinanemailexchangethatyouwouldhaveaddressedthat

issue.Now,youcouldcomebacklaterandaddressthatwiththe

guests.Mostoftheguestswouldprobablyagree.

Afarbetterwaytodoitsoyoucankeepeverythingorganizedis

justtohaveatemplateformthatcoverstheseissues.Youknow,

whenthepodcastsorblogpostsorinterviewsorwhateveritisis

firstaddressed,andthenyouhavearecordofallthatstuffand




26

youareingoodshape.EventhensometimesItellclients,“Well,go

backandmakesurethatthepersonunderstands,”becauseifyou

interviewedthem5yearsandthensuddenlythere’sabookoutand

they’reinterviewnumberoneinthebook,youknow,theymaynot

recall,andsotheygetunhappyandwhathaveyou.Yeah,generally,

releasesareadefinite.

Pat: Okay.Doyouknowofagoodplacewhereonecouldgetarelease

likethat,orarethereanytemplatesavailable?

Richard: Letmetellyouaboutthelaw,soRichardChapo.Attorneylawyer

shouldbeabletoputonetogetherforyouinahalfhour.Someof

themwillalreadyhavethem.Ido.Ihaven’treallythoughtabout

whatIwouldchargeforthem.Ijustusethemwithmycurrent

clients.Iwoulddefinitelyhavesomebodyactuallydraftitforyou.

Thiswouldn’tbeaLegalZoomorthatkindofathing.They’renot

goingtocoverthevariousissues,butitshouldbeaminimumcost,

maybe100bucks.

Pat: Okay.Thenhereisaquestionthatisactuallyareallygoodquestion.

Let’ssayyouareapersonwho’stalkingabouthealthandfitness,

ormaybesomeonewhoiscreatingrecipesforpeoplewhoare

inpaleoorcrossfitorwhatever.Canadisclaimer,justawritten

disclaimer,thatsays,“Hey,I’mnotahealthprofessional.These

suggestionsarebasedonmyownopinions,research,andpersonal

experiences.Theyarenotdesignedtodiagnose,treat,orcureany

healthconditions.Pleaseconsultyourdoctorbeforedrastically

changingyourdiet,”likethatsortofstuff.Doesthathaveany

legal...Like,canthatholdupincourt?Doesthatformanysortof

protectionforyou,orno?

Richard: Ithelps.Theinternetisalittlebitdifferentthanthewarningyousee

onyourmattresswhenyoubuyanewmattress.Theproblemwith

thewebisthattheywanttoseeacceptance.Wheninternetlawfirst

developed,mostofthejudgeswere60or70yearsoldandcouldn’t

setuptheirownemail.Theyweren’tfamiliarwiththeworkingsof

theweb.Nowtheyare.Theproblemisthatunlessyoucanshow




27

somekindofanaffirmativeacceptancebythepeoplewhoare

viewingthatdisclaimer,it’snotgoingtobeanabsolutedefense.If

yougotocertainwebsitesandyouwanttopurchasesomething

oryouwanttorentsomething,youwanttobecomeamember,

theyforceyoutocheckaboxthatsays,“Iagreetothetermsand

conditionsandtheprivacypolicy.”Whatyoualsoseenowispeople

addingdisclaimertothat,“...andthedisclaimerofthesite.”

Atthatpoint,that’sanaffirmativeevidencethatsomebodyhas

acceptedthedisclaimer;they’verecognizedthat,andthey’re

essentiallyagreeingtoit.Inthatsituation,it’sreallygoingtohelp

you,anditcanbeanabsolutedefensedependingonthejudge’s

attitude.Italsodependsonthenatureofthedisclaimer.Ifyou’re

doingaweightlossproductoraweightlosssiteandyouputup

animageofawomanwhoweighs300poundsandthenthenext

imageisshe’ssuperthin,lookslikeasupermodelandyousay

shelost72poundsin1week,nodisclaimerisgoingtosaveyou.

That’sjustalie.TheFTCisgoingtocomeafteryouforwhatthey

calldeceptivemarketingpractices,andincourt,you’regoingtoget

fraudclaimsandthingsofthatsort.Disclaimerisn’tworthanything.

Inmostcases,Iwouldsayabsolutelyincludeadisclaimer.Itdoesn’t

hurt.It’ssomethingthatyoucanleverageincourt,andifnothing

else,youcanputituponanexhibitboardinfrontofthejuryand

say,“Wehadthisdisclaimer,”anditshouldbeenforcedandwhat

haveyou.TheproblemistheFTCisreallyhotandbotheredinthis

area,andthey’vestartedissuingwhatarecalleddot-comdisclosure

documents.IbelieveIsentyouone.Youprobablyfellasleepafter

thesecondpage.Theywantdisclaimerstoactuallybeplaced

directlynexttowhateverproductorservicethedisclaimerappliesto.

Sayyou’reanaffiliateandyou’resellingabottleofweightlosspills,

theywouldwantthedisclaimerplacedrightnexttoitbeforethey’ll

consideritbinding.Courtsaregoingtolookatthat,andthat’sgoing

tobeverypersuasivetoalotofjudgesbecausemostpeopleare

goingtohavethedisclaimerdownonalinkinthefooterofthesite,

orinthetermsandconditions.Inthosesituations,thechanceofthe




28

disclaimergettingyououtoftroubleisnotgoingtobegreat.It’s

kindofanevolvingareaofthelaw.

TheproblemwiththeFTCistheFTChasneverrunabusiness.

Thosepeoplehaveneverrunabusiness,andsotheyrequirethings

thatarejustabsurd.YouandIhavehadthisdiscussion.Social

media,ifyouhaveKimKardashian...Orwhatwasit?SelenaGomez,

Ithink.Shegets$500,000perInstagrampost,sponsoredpost?

Pat: Yeah.

Richard: Ifshedoesatweetorsomethingofthatsortandshe’sbeingpaid

forit,theFTCwantshertoputadisclaimerinthetweet.Well,the

tweet’sonly140characterslong,sohowareyougoingtodothat?

Theycomeupwiththesebureaucraticrulesabout,“Well,youcan

linktoapagethatwouldhavethedisclaimer,”whichnobodyis

goingtodo.Nobodydoes.Thedisclaimerareaisabitconfused

rightnow.

Shouldyouhaveadisclaimer,shouldyouusethem?Yes.The

disclaimerhastobereasonable.Ifyouhaveacheckthebox,which

iscalledaclickwrapagreement...Ifyouhaveacheckthebox

functiononyoursite,addthedisclaimertothatsoitwouldread,

“Iagreetothetermsandconditions,theprivacypolicy,andthe

disclaimer,”andkeepalogofthat.That’sgoingtobemuchmore

effectiveintryingtoenforcethedisclaimer.

Pat: RichardandAlena,thankyouagainforyourtime.There’sobviously

alotmorewecouldtalkabout,butIthinkforalotofpeoplewho

lastedtotheendhere,atleast,they’regoingtobehappythatthey

gotalotofthisinformation.Ithinkalotofpeoplewillalsobequite

overwhelmed,andespeciallyforthosewhoarejuststartingout,it’s

alottothinkabout.ThelastthingIwanttodoisscarepeopleaway

fromstartingabusinessthatcouldchangetheirlivesandchange

thelivesofmanyothers.Caneachofyousayonethingtohelp

thesepeoplethroughalotoftheselegalthingsandwhenthey’re

juststartingout?Evenforpeoplewhohavealreadystarted,howdo




29

wejustmakesenseofallthisinthebestwaypossible?Obviously,

oneofthebestthingsyoucoulddoisfindanattorneythatyoutrust

andworkwiththemthroughallthesedifferentthingsbecauseeach

businessisdifferent,obviously,butanywordsofwisdombeforewe

finishofftoday?Richard,we’llstartwithyou.

Richard: Yeah,thelegalissuescanbealittleoverwhelming.Ithinkthatalot

ofthesethingsareissuesifyou’repushingtheenvelope.Ithinkthat

ifyoudothings...evenifyoujustsitdownwithanattorney,consult

withthemforanhourkindofonanoutline,haveawebsitereview.

Aspartofthis,ItoldyouIwoulddofreewebsitereviewsforanyone

that’slisteningiftheyhavequestions.Youknow,justcontactme

atsocalinternetlawyer.com,andI’lltakealookatyoursiteandlet

youknowifthereareanyissuesforfree,nocost.Aslongasyou

canisolatethepotentialproblemareasofyoursiteandtakecareof

those,you’refine.

Imean,we’retalkingaboutcopyrightandalotoftheseissuesare

somewhatesoteric.Onceyougetupandrolling,they’rereallynot

issuesthatyoudealwithtoomuch.Thekeyisjusttohaveagood

foundationinplaceandmakesurethat,youknow,forinstance,if

youallowpeopletoposttoyoursiteorsomething,you’regoingto

beDMCAcompliantandthosekindsofthings.Itsoundslikeit’sa

bighurdle,butit’sactuallyverysimple.Onceyoulearnthe3-step

process,youneverreallyhavetoworryaboutitagain.Noneofthis

shouldbeconsideredsomethingthat’sgoingtobeahurdlefor

yougettingintobusiness.Mostofthesethingswillactuallyhelp

you,yourtermsandconditions,yourprivacypolicy,disclaimers.

Althoughthey’reannoyingandtherecanbelegalminutiaeinvolved

inthem,they’retheretohelpyouandtheywillprotectyou.

Withmostofmyclients,knockonwood,byputtingeverything

togetherproperlyandorganizingthingsproperly,theyhavealmost

nolegalissuesthatcomeup.Youknow,ifyoudothatandthe

listenerstakethesteptosetitupright,they’reaheadof95%ofthe

internet.

Pat: Yeah,yeah.




30

Richard: Thepotentialriskisalmostnothing.It’sjustyouhavetodothe

annoyinglittlethings,andthenyoucangetonandstartworkingon

growingyourbusiness.

Pat: Yeah,well,thankyou,Richard.Iappreciatethat.Youhad,again,

onemoreIwanttoreiterateyourofferthere,whichwasjustafree

quickconsult.IfyouemailRichard,youcanfindhisemailoverat

socalinternetlawyer.com.Isthatcorrect,Richard?

Richard: Yeah,justdropmeanoteandI’llbehappytoeitherlookatyoursite

oransweranyquestionsyouhave.

Pat: Cool.Thankyou.Alena,anyfinalwordsofwisdomfromyou?

Alena: Yeah,Imean,havingyourownbusinessisrewarding,andIthinkas

longasyougoinpreparedandyoumanageyourownexpectations

andyou’rereadytoworkhardandthenyou’rewillingtotakethe

stepstopreventalotoftheproblemsthatcanarise,thenyou’llbe

fine.Alotoftheproblemspeoplehaveiswhentheycomeinmaybe

under-funded.Yougottoplanfornotonlythepurchasepriceofa

businessorstartingofthebusiness,theoperatingexpenses,but

alsounanticipatedexpenses,whichalwaysseemtoarise.Youcan

minimizethatbydoingduediligenceaheadoftimeandjustbeing

careful,takingappropriatesteps.

Beingpreparedwithadequatefundingisimportant,managingyour

expectations.Don’tthinkthatyou’regoingtomakeaprofitthat

firstyear.Somebusinessesdon’tmakeprofitforseveralyears.If

you’repreparedtolivewiththat,thenyouwon’tbedisappointed

whenyou’renotmakingaprofitrightaway.Thenalsobereadyto

workhard.Youhavetomakesureyourheart’sinitforthelonghaul.

Sometimesyou’llcomeuponchallengesandthenyoumightfeel

likegivingupbecauseit’sjusttoohard,butifyoupushthrough,

you’llgettherewards.

Pat: Loveit.Thankyou.Yeah,Richard?

Richard: Pat,therewasoneotherthingIwasgoingtomention.Iknowalot




31

ofpeoplehavecommonquestionsaboutfindinginsurance.

Pat: Yeah,let’stalkaboutthatreallyquick.Thanksforthat.

Richard: Okay.Theinsuranceindustryisabout20yearsbehindnormal

business,soitcanbedifficulttofindsomeinsurancecompanies

thatwillinsureyourbusiness.Youshouldhaveinsuranceifyou

canaffordit.Thereasonwhyistheinsurancewillactuallypayany

settlementsoranyjudgmentagainstyourbusiness,butequally

importantly,yourinsurancewillpayyourattorneyfeestodefendthe

lawsuit.IfyoujustformacorporationoranLLCandyougetsued,

theproblemisyou’regoingtoneed20grand,30grand,whateverit

istopayyourdefensecounseltodefendthecase.Mostcompanies

aren’tgoingtohavethat,soinsuranceisreallyimportant.Findingit

canbedifficult.

TherearetwocompaniesthatIknowthatatleastactasbrokers

forit.Idon’tknowanythingaboutthesecompanies,ifthey’regood

ornotoranythingofthatsort,soyouneedtotakealookatthem

yourself.Oneistheunfortunatelynamedhiscox.com.It’sH-I-S-C-

O-X.com.Thesecondoneistechinsurance.com.Then,Pat,Idon’t

knowifyouwanttomentionthecompanythatyou’rewith,but

gettinginsuranceisdefinitelysomethingthatabusiness,youknow,

youwanttodoasasmallbusinessassoonasyoucanaffordit.

Again,therearealotofdifferentcoststhatyouhavewhenyoustart

abusiness,butinsuranceisdefinitelyoneworthpaying.

Pat: Yeah,andyouknow,knockonwood,Ihaven’thadtheneedfor

insuranceforthatparticularreason,butIstillhaveinsurance.Ithink

it’simportant.I’llputintheshownoteswhoIuseandlinksand

allthatstuffofeverythingwementionedtoday,buttheinsurance

wasactuallyreallyimportantforaDDOSattackthatIhadin2013.

Iwasabletorecoupsomecostsfromaweekandafewdaysof

downtimeasaresultofahackerattackonSPI.Itwashelpfulfor

thatreason,too.Yeah,thankyou,guys.Alena,didyouwanttogive

ashout-outtowherepeoplecanfindoutmoreaboutyou,likewhat

websiteandifyouhadanythingtooffer?




32

Alena: Sure,mywebsiteisherranenlaw.com.That’sH-E-R-R-A-N-E-N-L-

A-W.com.Ifyouhaveanybusinesslawquestionsortrademark/

copyrightquestions,feelfreetosendmeanemailorgivemeacall.

I’dbehappytotalktoyouandseeifIcanhelp.

Pat: Awesome.Youguysaregreat.Thankyousomuchforwhatyoudo

formeandwhatyou’vejustdonefortheSPIcommunity.Thanks.

We’lltalksoon,I’msure.Cheers,guys,thankyou.

Alena: Thankyou.

Richard: Great.Thanks,Pat.

Pat: Allright,thankyouforlisteningin.Iappreciateyoulisteningall

thewaythrough,andIhopethatwasn’ttoomuchforyou.Youcan

alwaysobviouslydownloadthetranscriptorrelistentothisifyou’d

like.YoucanalsovisitRichardatsocalinternetlawyer.com.Alenais

availableatherranenlaw.com.Asshementioned,that’sH-E-R-R-A-

N-E-Nlaw.com.Theverygenerousofferstheyhavetohelpyouout

withanyquestionsthatyoumighthave.Feelfreetoreachoutto

them,andthey’regoingtodotheirbesttohelpyou.

Now,ofcourse,youmightbeinadifferentstate,sotheremight

bedifferentlaws.Youmightbeinadifferentcountry,soofcourse

theseUSlawsdonotapply,butIwishyouallthebest,andIdon’t

wanttheselegalthingstostopyoufromdoingwhatitisthatyou

wanttodosothatyoucanprovidevaluetoanotherpersonandbe

rewardedatthesametimeorprovidevaluetoalargenumberof

otherpersons.

Ialsowanttothank99designs.comtoday,whoisthesponsorof

thisparticularepisode.Iwasactuallyveryhappywiththeirservice

recentlywhenIranacontesttotakeanoldblogpostofmineand

repurposeitintoaninfographic.Justrecently,Iactuallylaunched

thatinfographicinitsownblogpost,andseveralpeoplehave

sharedit.DefinitelyworththetimeandeffortthatIputintothat.I

justwanttothank99designs.combecausetheymadeitreallyeasy.

ItwasactuallyreallyfunbecauseIpostedthatjobdescriptionup




33

there,andseveralreallygreatdesignersfromaroundtheworld

cameinanddesignedtheirownversionofwhattheythoughtIwas

lookingfor,andIgottopickthefavoriteonethatIloved.That’sthe

oneIshared.Itwasreallycooltohaveallthesedifferentoptions

becausetheyallhaddifferentstyles.Ithinkthat’sareallycoolthing.

Ifyoucan’tyetafraidthatonedesignerwho’sgoingtoworkwith

youfull-timeonyourprojects,Iwouldhighlyrecommendchecking

out99designs.comfortheselittleone-offprojectsthatyoumight

have,anythingfromlogostowebsitedesigntoteeshirts,to

infographics,anythingyoucanthinkofthatisrelatedtodesign.

Ifyouwanttoget$99thatyoucanapplyforfreetowardsyour

nextdesignprojectthere,youcangoto99designs.com/spi.That’s

whereyougo,99designs.com/spi.Thankyouallsomuchfor

listeningin.Iappreciateit,andIlookforwardtoservingyouinnext

week’sepisode.Wegotanumberofsuccessstoriescomingupand

alotofgreatcontentcomingyourway.Keeplisteningin.Subscribe

ifyouhaven’talready.Again,onemoretime,theshownotesfor

thisepisodeareavailableatsmartpassiveincome.com/session231.I

appreciateyou.Thankssomuch.Allthebest,bye.

Announcer: ThanksforlisteningtotheSmartPassiveIncomepodcastatwww.

smartpassiveincome.com.




34

ReSouRceS: SoCalInternetLawyer.com

HerranenLaw.com

DigitalMillenniumCopyrightAct

Hiscox.com

TechInsurance.com

SPoNSoRS: 99Designs.com




http://SoCalInternetLawyer.com

https://finconexpo.com

http://HerranenLaw.com

http://www.copyright.gov/legislation/dmca.pdf

http://hiscox.com

http://www.techinsurance.com/

http://99designs.com/spi


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