A Newbie's Guide to the Legal Side of the Biz
- by Kath Blackwell
Just getting started and you don't know what to do? Looking to join the adult industry as a webmaster, a content provider - or maybe a paysite or affiliate owner?
The first thing you should consider before diving in with both feet is NOT what color scheme in which to build your site - but what legal obligations, requirements and pitfalls you need to know and avoid before you ever even put one picture up on that dot-com.
All lawyers are different - some are humorous, others serious. But what's most important when you come right down to the nitty-gritty - is finding the lawyer that is right for you. Are you approaching this as a webmaster, a partner in an established business or start-up company - or as a hosting service, ISP or content provider? There are so many different types of adult industry entrepreneurs - and there are equally as many types of attorneys available to get you moving in the right legal direction.
Here are a few tips as gathered from some of the adult Internet industry's leading legal eagles, at the "Basic Newbie Legal Workshop" at the 2003 Winter Internext Expo in Las Vegas, Nevada. As I mentioned - some are humorous, some are dead serious - some are very organized, and some are short and sweet in their advice. No matter who is doing the talking - they are all serious about one thing. Making sure you and your sites are legal.
Step one - before you even read these anecdotes and tips - is to hire a competent lawyer who has established experience within the direct field you are about to enter. Not sure who is right for you? Ask around! There are free speech lawyers, lawyers who work primarily with content providers, contract/corporate attorneys - even attorneys who work for the "little guy" - the webmaster. Have your site, your content, your contracts and anything pertaining to your business reviewed by your legal counsel before you put it online in the public eye. Better to be safe, than in jail and sorry!
According to JD Obenberger of XXXLaw.net - there are eight things you should do if you "want to wear an orange jumpsuit," that is - go to prison. His humorous look at the "silly" and sometimes downright stupid things that webmasters and companies have done over the years is a great way to remember what NOT to do. Learning by the mistakes of others - a great, memorable teacher.
1. Completely ignore US 2257 - Don't keep records, don't keep copies of those records secured at your place of business and a copy with your attorney - don't even bother checking for identification or proof of age.
2. Create an obscene website - Make something SO nasty that even hardened desensitized adult webmasters will get physically sick from viewing.
3. Develop a site that appeals to a pedophile - that's right, buck convention and forget your own morals. This is big news in the media, right? Let's go for that popular niche!
4. Try really to hide who you are - offer disclaimers warning law enforcement officials to stay off your website, work "offshore," etc.
5. Send skanky spam to everyone - especially blue-haired grandmothers.
6. Be deceptive - tell surfers that their credit card is used just to verify their age and won't be charged - and then charge it!
7. Ignore customer service requests - just allow them to pile up and don't bother trying to make the surfers happy.
8. Steal content - everything is copyright-free and OK to use once it's on the Internet, right?
Lawrence Walters of FreeSpeechLaw.com and the law offices of Weston, Garrou & DeWitt, has a more "positive" approach to the matter and gave his presentation on the 21 things that you SHOULD do when launching your career in the adult industry. Direct and to the point - this is also a great reminder for those who've been in the business a while, but have forgotten some of the basic golden rules.
1. Educate yourself via resources, tradeshows and magazines - learn all that you can know and then apply it to your websites and business.
2. Develop a business plan and have it reviewed by a lawyer and accountant - do this before you launch your site or add new materials.
3. Raise sufficient capital for costs like legal, accounting, marketing and consulting - some webmasters suggest having at least six months worth of capital in the bank to get started, others swear they started with nothing and have found success. Writer's opinion? Better to be safe than sorry.
4. Identify a niche - find something original to launch your business upon.
5. Form a corporation - see the outline regarding corporations, partnerships and agreements below.
6. Network wherever and whenever possible - parties, chats, message boards - online and off.
7. Create a valid set of Terms & Conditions to protect YOU and your business - and have these reviewed by your attorney as well!
8. Keep minors away from all adult materials - do everything you can to keep them off of your website.
9. Strictly comply with 2257 - no ifs, ands, or buts.
10. Copyright your materials - register within 3 months of first publication on the Internet or anywhere else.
11. Only use licensed content - this should be a no-brainer.
12. Pay your taxes, keep your employees happy and comply with government regulations and laws - many lawsuits have been created by unhappy employees "blowing the whistle" on previous employers as revenge for being fired or being unhappy in the workplace.
13. Create a name that is trademark-able - use words that aren't in the English dictionary like Lysol, Yahoo, Google, etc.
14. Watch your links - know to whom you are linking and what they have on their own websites.
15. Take a stand against child pornography on your website - display that ASACP logo proudly, and even add a statement about your support for that organization.
16. Become politically active within the industry - Free Speech Coalition (FSC) and Adult Sites Against Child Pornography (ASACP).
17. Become an expert on obscenity laws - know your limitations, restrictions and requirements inside and out, backward and forward.
18. Secure evidence of your own community standards - go to a local video store and purchase a copy of the nastiest, raunchiest adult materials you can find. Place these items in a bag with the receipt (showing date and location) and keep to show what the acceptable standards were in your town at that particular moment in time. Do this often to ensure you have accurate examples of what has been made available in your community apart from your websites and business materials.
19. Mind your promotional materials - make sure they are compliant wherever they are being distributed.
20. Translate your site into the languages for the audience you are targeting - especially the Terms and Conditions.
21. Ask for and listen to the advice of experienced professionals - this is the best way to stay on the right side of the law.
So now that we have the basics out of the way, there are a few more things that you should consider when getting started - or furthering your presence in the adult industry. Remember - this is a risky business. But it doesn't have to end up with you in court - or worse - jail. True, there aren't a lot of direct regulations and guidelines that pertain specifically to the adult Internet industry - but that's good. Just follow the laws and regulations that DO apply, get a good lawyer and you'll keep yourself out of hot water. If this was simple and without risk - the whole Comdex crew would be clamoring to get inside our shows not just to see a boob or two, but to make their mark in our world.
Larry Walters said - in point number five - that you should form a corporation. Not all lawyers agree on this point. Some feel that a LLC - or Limited Liability Company - is better. Check with your attorney, accountant and other legal counsel to see what form is best for you and your business. In the presentation given by Gordon H. Einstein, Esq. of the Einstein Law Group (www.einsteinlawgroup.com), he discussed the differences between the different forms that webmasters and industry businesses should use to help limit their personal liability. Here is a short comparison of the different forms as he presented.
SOLE PROPRIETORSHIP - A business, which operates under a person's own name or a fictitious business name that has no separate legal entity involved. Conducting business under this organization offers no protection for personal liability, which means that your house, your car, your bank accounts - all can be seized, frozen or attached in liable legal matters associated with your business.
PARTNERSHIP - Two or more people who are operating a common, ongoing business for profit. As with the sole proprietorship noted above, there is no limit on personal liability in this form - even if one or more of the partners are not directly responsible for a debt or a lawsuit related to the company.
CORPORATIONS - There are two different forms of corporations. "C" and "S" depending upon whether certain tax elections have been made.
"C" - C Corporations are potentially subject to two different layers of taxation at both the corporate level and once again at the shareholder level.
"S" - S Corporations are subject to just one layer of taxation, which is at the shareholder level.
LIMITED LIABILITY COMPANIES (LLC) - Although the LLC can differ state-to-state, liability is generally limited to investment, and structure can be set up as either a corporation or a partnership within the LLC. It is best to involve your attorney and accountant in the establishment of the structure to determine what works best in your individual situation.
According to a hand-out shared with workshop attendees by Einstein, there really is no "right" or "wrong" answer when it comes to choosing the structure under which you and your business will best work. Many factors go into the selection process to determine which form is best for you. Each type has unique advantages and disadvantages. This is where having an experienced and knowledgeable attorney and accountant come into play. They can help you select the correct form to best suit your requirements.
There are other things that you must do to protect yourself and your business even when you are working with shareholders and employed staff. Gordon Einstein went into great detail on how to set up Shareholders and Employment Agreements - something that might not have been a consideration in our industry just a few years ago, but is essential today. Here is a brief run-down of the points made in this discussion. Remember - talking with a competent attorney ahead of time will help you decide how to handle issues pertaining to shareholders and employees as well.
SHAREHOLDER AGREEMENTS - These agreements will help govern the relationship between the shareholders and the company or business. They keep transfers of ownership and other changes to ownership and shareholding under control.
Examples of Shareholders' Agreements Gone Bad:
- Shareholder sells his shares to an untrustworthy third party.
- Shareholder gets divorced.
- Shareholder retires, becomes disabled or dies.
Examples of How a Shareholders' Agreement Provides Solutions:
- Compel/require selling shareholders to first offer the stock to the company and other shareholders before offering or completing a sale to an outside third party.
- Spouses can agree to the terms of the Shareholders' Agreement and as a result will not receive any stock (community property, etc.) as a result of a divorce.
- The agreement can force the company and its other shareholders to purchase a retiring, disabled or deceased shareholder's stocks on reasonable terms, providing a market for the stock.
Shareholders' agreements should be made as soon as possible before parties involved develop a vested interest and are affected by any of the circumstances listed above. People go into business together because they have some sort of common ground, know and hopefully trust each other. During the course of that business arrangement, sometimes things go wrong and parties find that they no longer agree. A Shareholders' Agreement will help to prevent even other possible problems that could be caused simply by a change of "mind" or "taste."
EMPLOYMENT AGREEMENTS - Not to be taken lightly, employment agreements cover the relationship between the company AKA the employer - and the employee. These agreements are beneficial in a number of ways to both parties and, like with the Shareholders' Agreements, should be executed at the onset of employment to avoid any misunderstandings or problems.
Examples of How Employment Agreements are Beneficial:
- Employment Agreements may state that the employee is guaranteed employment for a specific and set term and can only be fired for what should be clearly outlined as a "good cause."
- Employment Agreements can provide for someone who is receiving stock at set intervals, in exchange for their services rather than all at once. They can also provide for a fixed-rate re-purchase of that stock if the situation changes and the employee is terminated or leaves the company prematurely.
- Employment Agreements can define specific information as confidential, and prohibit the employee from misusing said information or sharing it with others.
- Employment Agreements can also provide that the employee will not solicit customers or other employees to leave the company.
Employment Agreements Should Be Used When:
- An employee is to begin receiving stock in exchange for services. This includes employees who are "founders" and are providing money and services - or just services - in exchange for stock.
- When an employee will have direct access to proprietary or confidential information - especially trade secrets.
- If you have "key employees" you wish to retain for an extended period of time.
So no matter what your legal situation - or place in the adult Internet industry - everyone needs a competent experienced industry attorney. If you need help finding one that can help you or will be suitable to your specific needs, you can try contacting any of the attorneys mentioned in this article - all have made themselves available to the community and contribute their knowledge and support through educational sessions at webmaster events.
Save yourself the trouble of fighting in court to keep what you have created. Instead - take some time before you even get started to make sure your business takes off on the right foot. The three best things you can do to start on the right track are to hire a lawyer, an accountant and get any business dealings or partnerships in writing. Once you establish this foundation, you'll be well down the road to success.
The Adult Industry: there are risks involved, but the extent to which these risks affect you is dependent upon how well prepared and informed you are. Knowledge is power - and so is a good attorney. Even the smallest adult webmaster needs legal guidance.
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