by Dustin Ray, CEO and cofounder of Incfile
As a business owner, one of your primary concerns is whether or not your business is making money. But beneath that concern is a lurking, dangerous risk: liability.
To make money as a business, you must also set up boundaries and entities to ensure that it’s legal and protected against lawsuits. When it comes to a social media influencer business, you have unique liabilities to be concerned about.
Legal Headaches to Watch Out for as an Influencer Business.
So what do you need to keep an eye out for? Here are the most common legal headaches faced by influencer businesses.
Brand Contracts and Agreements
In simple terms, influencers are contractors. They sign agreements with companies and brands to promote their products to their followers. As such, they sign contracts and agreements with large brands that lay out exactly what they’ll be promoting, how, to whom, and how much they’ll be compensated for that promotion.
Before signing a contract, it’s imperative that influencers critically review the contract and potentially even run it by a lawyer. If the brand has written the contract, it’s likely that it will be one-sided and focus on protecting the brand, not the influencer. Good contracts protect both parties. A contract should have clear, concise, and unambiguous language.
Critical aspects of contracts for influencers to look for are:
- Content ownership: who owns the content created by the influencer while promoting the brand
- License type: the brand should receive a non-exclusive license to the influencer’s content
- Reserve rights
- Campaign length
- Obligations of brand and influencers
- Payment: when, how much, and based on what numbers is the influencer paid
- Exclusivity: this sets limits on what product and for how long an influencer is promoting it — it should be very limited
- Approval: who approves the created content and what the approval process looks like.
- Terms and conditions
- Breach: what happens if one party breaches the contract
- Insurance requirements
- Early termination process
To be binding, both parties must sign and retain copies of the agreement. If a contract is written in legalese and isn’t easily understandable, it should be reviewed by a lawyer experienced in contract law.
Advertising Disclosures
The bread and butter of income for influencers is through brand promotions and advertising. It’s also the most highly regulated aspect of an influencer’s business.
The Federal Trade Commission or FTC requires that influencers disclose when they are promoting or advertising a product for which they will receive compensation, even if that’s simply free product.
To disclose the brand-influencer relationship, the influencer must include:
- #ad
- Advertisement
- Sponsored
- Promotion
- Paid ad
- Thanks [COMPANY NAME] for the free product
The disclosure must be reasonably prominent to ensure it is seen and understood by viewers and consumers.
The FTC provides plenty of FAQs and resources to help influencers understand when and how to disclose product placement and advertising. Truth in Advertising is another useful resource for influencers trying to understand advertisement disclosures. The FTC has taken action to prosecute influencers who have not disclosed their brand relationships and how they benefit.
Paying Taxes
For many influencers, when they start out, they’re just making content as a passion. But, when influencers start making money, it’s important that they begin to treat it like a business. Income that influencers bring in is taxes just like any other income and must be reported to the IRS.
To ensure that you’re paying the right amount of tax as an influencer business, it’s important to hire an accountant, maintain records of income and expenses, and consider creating a separate bank account for your business finances to make tracking simpler.
Selling Branded Merch or Products
In addition to brand partnerships, many influencers make money by selling branded merch or products. This is a great way for influencers to make money. Where the legal concerns come in is making sure the influencer has the right to use the image, logo, and likenesses on their products.
For influencers considering selling branded merch, it’s important to consider what image and logo they’re putting on the merch, whether or not they have the right to use it, how to advertise merch, and how to fulfill orders. If influencers use a logo or image on their merch that they don’t have the right to use, they could be sued.
Reposting or Using Others Content
Similar to selling branded merch, a common issue faced by online influencers is the legal use of other people’s content, image, or music. Many platforms have strict regulations and protections for creative control over content. An influencer’s content might be removed from the platform if they disregard the platform’s rules and use someone else’s content.
To avoid legal issues, influencers should always create their own content, ask permission to use someone else’s work, and always cite who they were inspired by or who’s work they’re using and referencing. Without citation or permission, content can be removed and the influencer might be sued for copyright infringement or other non-authorized use of intellectual property. Just because something is on the internet, doesn’t mean that it’s free to use.
How to Protect Your Influencer Business.
When it comes to legally protecting your influencer business, there are two small, affordable steps you can take: form an LLC and register your protected marks and intellectual property.
Form an LLC
An LLC or limited liability company is simply a business designation that is recognized by state and federal governments in the U.S. and provides a division between the person who owns the business and the business itself.
An LLC provides a business with these benefits:
- Offers credibility that the entity is a true business
- Protects the personal assets of the business owner
- Provides tax choices that can benefit the business’ bottom line
- Reduces liabilities faced by the business and business owner
The best part? Creating an LLC and filing the paperwork is simple and free. There are many resources online that can guide you through the process and cost nothing.
Register Protected Marks and Intellectual Property
In addition to forming an LLC, influencers businesses should consider registering any unique marks or logos that belong to the business. By protecting the business’s intellectual property, the influencer has more control over how and if other people use their marks. It also gives the business the ability to prove that intellectual property belongs to them and sue anyone who misuses it. Common types of intellectual property include copyrights and trademarks.
Because many influencers start creating content as a passion project, the legalities and liabilities can come as a surprise. As soon as influencers start making an income, they are technically a business. As a business, they must protect their own legal interests and avoid any liabilities.
Dustin Ray is the CEO and cofounder of Incfile, a business incorporation service that has assisted over 500,000 entrepreneurs and small business owners in forming and growing their businesses. Dustin’s primary focus is to grow revenue and secure strategic partnerships that compliment a set of robust services to help entrepreneurs launch new businesses.
