Does Your Website Need a Privacy Policy or Terms of Use?

Conversations about data privacy policies and website terms of use have become more common in recent months. Large companies like Facebook, Expedia, and Dick’s Sporting Goods have been involved in litigation involving agreements that address these very issues. The questions on most business owners’ minds are “What are these agreements?” and “Do I need them on my website?” Privacy policies and terms of use serve different purposes, but both are essential for any business that engages with customers via a website.

What Is a Privacy Policy?
A privacy policy is an agreement that outlines how a company collects, stores, handles, and protects the personal information it collects from customers and visitors to its websites or mobile applications. It may also cover interactions that involve personal information collected off-line. Regardless of how you collect customer data, the privacy policy is where consumers curious about your company’s data practices and procedures should find answers to their questions.

What Are Terms of Use?
Terms of use, also known as terms and conditions or terms of service, are agreements between a website’s owner and its visitors about the rules and expectations for using the website. These agreements protect business owners by allowing them to clearly dictate how online activities on their site should be conducted. Terms may include age restrictions, intellectual property rights, permitted use provisions, and limitations of liability. For example, terms of use are often used to advise visitors that using material discovered on the site may constitute copyright infringement and is therefore prohibited.

Do I Need These Agreements?
In most instances, privacy policies focus on proper disclosures or practices, whereas terms of use address the permissions granted between the user and the website. Although there is no overarching legislation that requires these agreements, businesses operating websites or mobile applications should still have both a privacy policy and terms of use. If legal issues arise regarding your data collection, these are two key documents courts will look to as they seek to understand the nature of your relationship with your users.

Privacy policies are needed to comply with federal regulations and local laws regarding data protection. These laws apply to the vast majority of websites because most websites collect personal information. “Personal information” includes everything from users’ names and email addresses to their IP addresses and device types. In other words, data collection practices that do not overtly collect private data may still be collecting personal information from website visitors using technology. Additionally, laws like the recently enacted California Consumer Privacy Act broadly apply to business owners who collect data and profit by selling the data or using the data in their marketing. These types of laws signal a push for legislation requiring transparency from businesses, and noncompliance could result in costly fines from local governments or the Federal Trade Commission, the agency in charge of enforcing most consumer data protection compliance and empowered with the authority to seek civil monetary penalties for violations.

Terms of use are needed to define permissible and impermissible website activities by users. For instance, a user may claim to be unaware of having engaged in wrongful conduct that triggered a termination of the user’s website account or access. However, if the terms of use agreement states the website owner’s right to take such action, the owner has put users on notice of permissible behavior and supported its ability to terminate access when violations occur.

We Can Help
Ensuring that your website has all of the legal agreements in place to protect your business should be one of your greatest priorities. Our dedicated staff is here to help you understand exactly what agreements you need and how they can best be used in order to protect your interest. Schedule an appointment with us today.

What Is a Promissory Note and When Should I Use One?

You have probably heard the term promissory note, but do you understand what a promissory note is and when one can and should be used? A promissory note is simply a written promise to repay someone who has loaned you money. More specifically, it sets forth the terms for repayment of a loan on or by a specified date. A promissory note can also require repayment on demand (when the note is presented for payment) or in installments over time until a specified future date.

Promissory notes are legally enforceable and are often used by companies and individuals to obtain financing from sources other than financial institutions. The alternative funding source may be a person, another company, or an investor—any person or entity that is willing to provide the financing to the issuer under certain mutually agreed-upon terms. This type of arrangement allows almost anyone to become a lender for any (legal) reason.

Promissory notes can be described as a hybrid of a loan contract and an IOU. However, there are a few important differences that must be understood. An IOU is a flexible informal statement that money is owed, but unlike a promissory note, it may not include detailed terms for repayment and thus may not be legally enforceable. Conversely, a loan contract is a complex, legally enforceable agreement that specifies what the lender can do to recover money owed (such as foreclosure) in the event the borrower fails to make payments owed. A promissory note does not usually contain the specific measures of a loan contract that can be taken if the issuer fails to make payment. Further, in the financial world, promissory notes can be sold.

A promissory note typically contains the following information:
● Name of lender
● Name of borrower
● Amount of debt owed (original principal amount)
● Nature of or reason for the debt
● Description of any collateral (item pledged for repayment of note)
● Frequency and size of repayments
● Interest rate
● Date and place the note was first made
● Maturity date for the note
● Signature of person who owes money to someone else (issuer)

There are many different types of promissory notes. Here are some of the most common types:

● Basic note. This type of note simply serves as a promise that a debt will be repaid to the lender by the borrower and does not normally state a purpose.

● Installment payment note. This type of note is often used when buying a car or major appliance. Often the dealership or store will offer an option to purchase the item and use a note setting forth the down payment and regular (installment) repayment terms. These notes generally have higher interest rates, and lenders often do not allow prepayment of the loan balance.

● Real estate note. This promise to repay a loan used to purchase real estate is one of the most common types of notes. Like an installment note, a real estate note typically requires regular installment payments of the principal and interest and may require a final balloon payment. At the end of the term, the note may permit the borrower to elect to either pay the remaining balance (balloon payment) or reset the loan term at a higher interest rate. Normally, the real property being purchased is used as collateral to secure this type of note.

● College loan note. A college loan note is commonly used to document a student’s obligation to repay funds used for education expenses. A private lender may require a separate note for each loan the student takes out. Some schools permit students to sign one master promissory note allowing the student to receive several federal loans conditioned on the school’s certification of the student’s eligibility. These types of notes include the student’s contact information as well as contact information for the student’s personal references.

● Commercial note. If you borrow from a commercial lender, the note may state that full repayment is due immediately if you miss a payment or series of payments. The lender may include a provision allowing the lender to file an action to seize the collateral if the payments are missed.

● Investment note. Instead of obtaining a loan from a bank, business owners often execute an investment note to borrow money from investors to use as capital for their business in exchange for specified repayment terms or ownership in the business.

● Personal note. This type of note usually documents a loan agreement between friends or relatives and may include flexible repayment terms allowing the borrower to make payments without imposing a specific due date.
If a borrower stops making payments or does not repay the loan in full, the lender must enforce the note in accordance with its terms. If the note is secured by collateral, then the lender has the option to seize the collateral according to the terms of the note. If the note is not secured by collateral, the enforcement process is more complicated. In either event, the lender should make an effort to communicate with the borrower to try to reach an agreement. The lender may need to send a demand letter, hire legal counsel, or file an action in court to collect payment.

Because of their frequent use in business (and personal) contexts, promissory notes are vital to our financial world. Understanding them and the different ways they can be used is essential for you and your business. It is also important for a promissory note to be well-drafted. Call us today to schedule a consultation. We can help ensure that the promissory notes you execute on behalf of your business properly reflect your agreements with your lenders.

Strategies for Protecting Your Business’s Intellectual Property

Before launching a business, entrepreneurs spend a substantial amount of time and money researching and developing their products or services. You may have worked with graphic designers and a marketing team to create a brand name and logo for your products or services. As the business grows and your products or services take off in the marketplace, competitors or counterfeiters may try to undercut you by producing knockoff products or infringing your marks.
Consider implementing a brand protection strategy as part of your advertising and marketing game plan to combat this interference. While it is understandable to want to invest in expanding the business and reaching more consumers and clients, you must also protect the assets you have spent valuable time and money creating. As a business owner, there are several things you should do to protect your brand in the marketplace:

1. Create strong and distinctive trademarks. When selecting a trademark, it is important that the mark be distinctive. The more distinctive a mark, the stronger it is, and the greater protection it may be afforded under trademark law. Generic terms, which name the products or services offered, are the least distinctive and therefore the weakest marks. Trademarks that are merely descriptive of the product or service are also relatively weak and may only obtain limited protection. By contrast, suggestive marks (a step above merely descriptive marks that suggest something about the protect or service, e.g., Netflix), arbitrary marks (such as Shell for gas stations), and fanciful or coined marks (such as Xerox) are the strongest marks. If your mark includes any design elements, they should also be distinctive; more intricate designs may deter copying or counterfeiting.

2. Protect your intellectual property. Make a list of the intellectual property your business owns to identify elements that should be registered for copyright, trademark, or patent protection. If it is a brand name, slogan, or, logo, seeking trademark protection may be appropriate. If you have written content on your website such as a song, book, or another type of creative work, you should consider obtaining copyright protection. If one or more of your products is a unique invention or design process, then you should consider applying for a patent.

Patent, trademark, and copyright protection are available at the federal level, and most states also allow you to register your trademark at the state level, which may be an appropriate strategy if your mark is more regional and you are unsure if you are going to enter the national market. If you obtain a federal trademark registration, you can use the “®” symbol in connection with your mark. Use of this symbol deters counterfeiters and confers additional advantages if it becomes necessary to defend your mark. Finally, business owners should consider recording their intellectual property with U.S. Customs and Border Protection so that infringing or counterfeit items can be seized before entering the country.

3. Inform, inform, inform. Provide notice on your website, printed advertising, marketing materials, and packaging that you own certain trademarks, copyright, and patents. In some cases, failure to display notice of ownership of your intellectual property rights can waive certain rights. You should also inform consumers about how to spot a fake product and to notify you if they find one. Include a statement in your terms and conditions that the content on your website is the business’s intellectual property and that you will enforce your rights in it. Allow customer reviews on your website. This serves a two-fold purpose: It may alert you that a customer found a cheaper knockoff elsewhere so you can investigate a possible copycat, and it will help you identify issues with a product so you can improve it.

4. Monitor your intellectual property. You must monitor and defend your intellectual property to avoid losing your rights. Monitoring involves checking the internet for unauthorized uses of your intellectual property as well as monitoring for infringement in brick-and-mortar stores and at trade shows. If you discover that someone is infringing one of your products or a mark, you must take action. Failure to take action could be considered a waiver of your rights. There are services available that can help you monitor and defend these valuable assets.

5. Send cease-and-desist letters or file a lawsuit. What should you do if you discover infringement of your product or mark? You must send a letter to the infringer to demand that the infringer stop using your mark or other intellectual property immediately. In the letter, you should specify the nature of the infringement or unauthorized use, including when and where the infringement occurred and any other pertinent details. You should also inform the infringer that you are claiming ownership of the product or mark at issue and that if the infringing activity does not cease, you will file a lawsuit. If your letters and actions are ignored, you should consult an intellectual property attorney regarding the advisability of filing a lawsuit.

6. Keep improving. What is one of the best ways to stay ahead of an infringer? Be proactive! Devote time and resources to continued product development and improvement. Making changes to your products and services to reflect advances in technology and shifts in consumers’ and clients’ needs will help you stay ahead of your competitors.

Creating a brand protection strategy may seem daunting, but so did starting your business. It is crucial to protect the valuable time and money you spent on research and development to create and launch a product or service. An experienced intellectual property attorney can assist you in developing and maintaining your brand protection strategy by helping you identify which assets should be protected and guiding you through the registration process. An attorney can also help you create terms and conditions for your website, send cease-and-desist letters to an infringer, and file an infringement suit if necessary. Call us today to set up a consultation. We can help you get started with protecting one of your most important assets—your brand.

How Does LLC Ownership Work?

The limited liability company (LLC) is a popular business structure for new businesses, but what does it really mean to own an LLC? LLCs provide unique opportunities to customize business ownership to fit the particular needs and circumstances of the owners. Here is what you should know about LLC ownership.

The Basics
The owners of LLCs are often called members. If a single person or a single business entity owns an LLC, it is called a single-member LLC. If multiple people or entities own an LLC, it is called a multimember LLC. LLCs can have an unlimited number of members. When ownership is established, the membership interests are usually expressed in one of two ways:

● by membership units similar to corporate shares
● by percentage

The terminology you choose to use for a membership interest should correspond to your vision for the company. For example, if the business is owned primarily by your family, identifying the membership interests by percentages may keep things clear and straightforward. However, if you intend to seek funding from individuals outside of the family, you may find that labeling the ownership interests as membership units facilitates the easy transfer of ownership rights.

Establishing Ownership Rights
To be an LLC member, some form of contribution is required; however, the contribution need not be cash, which is called a capital contribution. LLC members can also contribute property or services. Additionally, unlike contributions to a corporation, when an LLC member makes a capital contribution, the concomitant ownership rights and distributions can be customized. For example, if one member were to contribute 40 percent of the capital in an LLC, that member and the other LLC members may still choose to split profits fifty-fifty.

Generally, LLC members are entitled to share in the company’s profits and losses, vote regarding key LLC matters, inspect and review the books, and enjoy a host of other rights. These rights stem from default state laws; however, they may be customized through contractual agreements. The contractual agreement that typically governs LLC ownership rights is an operating agreement. Operating agreements may include the following common customizations:

● distributing profits and losses in a way that does not match the members’ capital contributions
● creating different classes of ownership to reflect passive investor rights
● mandating member meetings

Transferring Membership Interests
Death, incapacity, and sale are the primary events that trigger transfers of membership units. However, if you intend to transfer membership units to investors, be sure to evaluate whether your interest is a security under the federal securities law. If you offer your interest to less than thirty-five investors, your interest likely qualifies for an exemption that allows you to bypass the federal disclosure requirements and even some state securities law.

Management
LLC members can choose to be managed either by the LLC members (a member-managed LLC), or by nonowners or certain members designated as managers (a manager-managed LLC). When an LLC is managed, it is vital to identify and articulate the decisions for which the members bear responsibility and the decisions the managers must make. If the decision-making authority is not clear, the resulting uncertainty can hinder effective management of the LLC.

Payment
LLC members can pay themselves in several ways, such as

● receiving income in the form of distributions of profits at the end of the year,
● receiving draws, which are periodic payments based on the estimated profits for the year, or
● receiving periodic payments as employees of the business.

These three methods are not mutually exclusive—a member can take advantage of more than one option. However, members must remember that each option has unique tax consequences. LLC members should account for Social Security and Medicare taxes. When LLC members pay themselves as employees, the LLC is expected to withhold taxes as it would for any other employee. Conversely, when members pay themselves based on their profits, they must pay self-employment taxes. Either way, LLC members must be mindful of the tax consequences of the payment methods they choose.

Next Steps
If you are considering creating an LLC, our team of experienced attorneys can help you develop the right ownership structure for your business. Call our office to schedule a meeting soon.

Preparing Your Business for an Emergency

2020 was a lesson in the need to prepare for the unpredictable. From the pandemic to natural disasters, businesses have faced numerous challenges that could force them to close. The most common emergencies that businesses typically face fall into three categories:

1. Natural disasters such as floods, fires, and earthquakes
2. Medical emergencies such as the current COVID-19 pandemic
3. Human-caused accidents resulting in physical or technological damage

The Small Business Administration estimates that 25 percent of businesses fail to reopen after an emergency or disaster. In light of this uncertain period, it is essential to take proactive steps to prepare your business for an emergency. Here are the things you should keep in mind as you develop your business’s emergency plan.

1. Assess the types of risks your business is most likely to face. Your risk mitigation plans should emphasize the emergencies your business is most prone to encounter. To properly assess those emergencies, consider your business’s location, the industry you operate within, and the typical circumstances in your community or environment. For instance, businesses that operate in California are likely to prepare for earthquakes because of the geographical elements in their location. On the other hand, businesses that deal with dangerous chemicals ought to focus their preparations on the risks those chemicals pose. By analyzing your business’s unique risks, you position your business to make intentional decisions with a greater positive impact.

2. Reevaluate your business insurance. After assessing your business’s various risks, review your business insurance to make sure your coverage appropriately addresses those risks. Also, take this time to evaluate whether you have the right amount of coverage. Obtaining the correct type of coverage in the proper amount allows your business to access much-needed funds if disaster strikes.

3. Craft a communication plan. To effectively implement an emergency plan, you must keep your team abreast of emergency situations that impact your business. One way to keep your employees in the loop is to create a communication plan that outlines how information regarding your business is circulated within your company. This plan should include important contact information and the essential roles to be filled by your employees. Remember to keep your communication and emergency plans in an accessible location that can withstand natural disasters. Due to technological advancements, you can also store your business’s important documents digitally in the cloud.

4. Create a business emergency fund. The inability to quickly access funds is one of the primary reasons that businesses remain closed after a disaster. Even if you have obtained insurance and have a valid claim that your insurers will accept, it will likely take some time before those funds are distributed. As a result, it is critical to have access to cash so that you can meet the business commitments necessary to continue operating. These commitments may include maintaining payroll, ordering supplies, and maintaining your manufacturing systems.

5. Document and practice your emergency plan. If the unthinkable occurs and impacts your clients or staff, it may open the door to litigation. However, a clearly documented emergency system that identifies best practices as part of your plan will serve as evidence of the careful steps you have taken to mitigate the risk of damage or harm. Furthermore, by practicing your plan, particularly in areas prone to natural disasters, you can help your team avoid unnecessary risks.

6. Ensure that your legal documents provide sufficient liability protection. One of the primary reasons people form legal entities such as limited liability companies and corporations is to avoid personal liability for claims against the business. With business entities that provide limited liability, if the business is held responsible for claims stemming from an emergency, the owners and management may be entitled to such protections. Nevertheless, you should review your formation and management documents carefully to confirm that they include the proper designations and provisions regarding liability limitations.

Prepare Today
The saying “luck favors the prepared” is especially true for business owners hoping to survive life’s emergencies. Our team of knowledgeable attorneys is experienced in helping businesses like yours create and execute plans that mitigate risk during uncertain times. To develop a plan that meets your business’s unique needs, call our office to schedule an appointment today.