By ELLEN NICOLE USHER
Charles Darwin’s survival of the fittest theory has never been more relevant than it is in today’s fast-growing global and digital economy. With forty percent of the world’s population connected to the Internet, the Web has revolutionized the way companies conduct business. The news industry is no exception. A steady decline in revenue and increased layoffs, coupled with the success of digital companies like BuzzFeed, Gawker and The Huffington Post, has prompted many journalists to become digital media entrepreneurs.
But for every successful digital media upstart, there are dozens more failures. To survive in this ever-changing arena, journalists-turned-entrepreneurs must carefully research and plan before launching their businesses. Here are six ways digital media entrepreneurs can protect themselves before launching their startups.
1. Consult a Startup Attorney as Early as Possible
According to Ann Scarlett, professor of Business and Entrepreneurship Law at St. Louis University School of Law, one of the first things entrepreneurs should consider is hiring a lawyer to help navigate the waters of starting a business. Costs, Scarlett notes, should not deter start-ups from seeking the assistance of an attorney. “Many attorneys are willing to sit down with clients. Some even offer flexible payment plans that meet your budget.” Because developing a startup can involve employment, contract, tax, and other legal issues, consulting an attorney is an investment in protecting your business from any possible structural, employment or intellectual property issues in the future.
2. Decide if Your Startup Will Be an S-Corporation or a Limited Liability Company
Choosing either option will lower your startup’s taxes and possibly shield it from future liabilities. Understanding the benefits of an S-Corporation and a Limited Liability Company, and comparing them with your startup’s ultimate goal, will make this decision easier. “If your goal is to grow the business as quickly as possible, merge and go public, then forming a corporation is best,” Scarlett says. “If your goal is to have a comfortable income, liability protection, and less paperwork when registering your business, then the Limited Liability Company would be the best option.”
3. Create a Detailed Founders’ Agreement
Creating a detailed founders’ agreement is important because it can save your startup from having to litigate unclear policy and procedural issues later down the line. Startups should explicitly state the overall goals and expectations of the business, the duties and responsibilities of each founder, their salaries, and explain the procedure for dissolving a corporation if things go badly or someone dies unexpectedly.
4. Protect Your Intellectual Property
Wallace Lightsey, counsel at Wyche law firm in South Carolina (which represents All Digitocracy), says key concerns for digital media companies are those involving protecting ownership and infringement of intellectual property rights. Most of this can be done through filing your patents early, drafting the proper contracts and stipulating ownership of your ideas.
“Entrepreneurs need to file their patents before presenting to potential investors,” St. Louis University’s Scarlett added. In addition, startups should make sure that their idea was not created while working with another company, which can lead to litigation with former employers, she said.
5. Know Employment and Tax Laws Specific to Digital Media Start Ups
- Employment Law Issues. Startups must be careful when classifying the people who work for them. They should clearly specify whether a worker is an intern, independent contractor, or employee. The Small Business Association has provided information to help businesses understand the classifications. Such classifications can determine a business’s tax obligation.
- Tax Law Issues. “If they choose a corporate form, there are many tax laws that new businesses may not be aware of, such as the self-employment tax law,” says Scarlett. The IRS also has guidelines for businesses owners.
6. Know Your State’s Defamation Laws
It is important to understand not only defamation law, but digital media startups should know their state’s specific laws, Lightsey urged. Knowing these laws can help save your company from potential litigation, he said.
The list compiled above is not intended to be legal advice nor is it comprehensive, meaning entrepreneurs should refer back to item #1 and engage an attorney as soon as possible in order to reduce the chance of having to go to court later.