This resource is meant as a companion to the Business Law Basics presentation occasionally given by Origami Legal. It is meant to be educational, it is not legal advice, and it does not create an attorney-client relationship between yourself and Origami Legal. Always consult your legal advisor on matters relating to yourself or your business.

The included form below is meant solely for Wayne State University students who were in the identified course.

Business Basics Presentation Companion

The Idea

There are two legal issues to concern yourself with while you are developing the idea that will become your business.

The first is whether your business and business model are legal. This is relevant for every budding entrepreneur, but not always for the same reasons.

The second is protecting the idea itself. This is particularly relevant for businesses that will utilize a new product, utilize a new technology, or offer a novel business model. For other businesses, such as those entering an already well developed industry, protecting the idea itself may be less of a concern.

Businesses can be illegal in several ways. First, a particular jurisdiction – a country, state, or local government – may make a type of business illegal, or may limit the operation of all or certain types of businesses to particular physical areas.

Placed-Based Legality

Business Bans in States and Cities

Since every state in the U.S. has its own laws, it is possible that a business may be legal in one state but not another. The same is true with regard to cities, which usually discretion to limit certain types of businesses from operating within their borders.

Most frequently the types of businesses banned from operating anywhere in a state or city are related to “vice” – bars, businesses in the marijuana industry, sex work, etc. Bans are not limited to vice industries, however, and states and cities ban many different types of businesses for many reasons. An example of a non-vice business that is banned in many places is “fracking,” a method of extracting oil that often has a negative impact on the local environment.

Zoning Rules

Beyond outright bans, most cities in the United States utilize zoning laws to define the exact places where certain types of businesses may operate. Many cities are zoned very strictly into different levels of residential, commercial, and industrial usage. Businesses operating out of an appropriately zoned area are generally fined and ordered to close.

If you plan to open your business in a particular location, you should check to make sure it is appropriately zoned. You should do this by consulting the city’s zoning map, which most cities make available online, even if a similar business previously operated in the location. Checking the map is particularly important in older cities that may have developed before modern zoning practices were common – it is not unusual to see old buildings that were built for mixed commercial and residential use that are no longer permitted to house businesses because of updates to the code.

Occasionally you can open a business in a zone that isn’t appropriately zoned by applying for and obtaining a “variance.” Many cities very rarely grant variances to allow a business to operate outside of its approved zone, though, so it is usually a bad idea to pin your hopes on a location that can only open with a variance.

Home Businesses

Many new entrepreneurs hope to operate a business out of their home. Most cities prohibit operating a home business as part of the zoning code. As most such bans were written before or without regard to purely online businesses, the bans usually make no exceptions for internet businesses.

Practically speaking, though, these bans are rarely enforced against the many home-based businesses in the U.S. that are purely online or limited to unobtrusive indoor work. Home businesses that are disruptive, including those that provide a service to customers in person at the owner’s home, that require conspicuous equipment, that cause odors, noise, or other nuisances, or that receive frequent commercial deliveries are more likely to be fined and ordered to cease operations.

Licensing Requirements

All states require a license to perform certain services. Obvious examples include medical and legal services. Beyond the obvious cases, different jurisdictions may require licenses for many unexpected services and businesses, such as hair styling and florists, often without any rational rhyme or reason as to which services require licenses and which do not. Most states and larger cities make licensing requirements and processes available online, but in smaller cities you may need to do some research – like calling city hall – or hire an attorney to determine whether a license is required.

Business Model Legality

If your business idea is novel, you should consider whether aspects of the business model will run afoul of the law. This can be a complex question as there are many, many ways your business could run afoul of the law as the United States has many, many laws, whether federal, state, or local.

Unfortunately, listing every way a business model might be illegal exceeds the scope of this presentation companion. But, the broad scope of the problem it can be useful to engage a lawyer early on in your entrepreneurial journey. They can help you identify whether there are major legal roadblocks in your plan and whether there are tweaks you can make to achieve the desired results without breaking the law and setting yourself up for fines or worse.

Protecting Your Idea

Many entrepreneurs are concerned with protecting their business idea. The law generally does not protect ideas, though – absent special circumstances like a patent right or a non-disclosure and non-use agreement, ideas are free to the world. Luckily, most ideas are not very valuable, though, so entrepreneurs need not despair because they usually aren’t risking much by discussing their business model with advisors and other interested parties. What is valuable is an idea coupled with the ability and resources to execute the idea profitably. That combination is what makes a successful business, and you shouldn’t rely on a secret, brilliant idea if you hope to build a successful business.

That said, sometimes ideas turn into information that can and should be protected. Ideas that can be turned into useful inventions may be able to receive valuable patent rights that allow a monopoly on the invention for a limited time. Other information crucial to a business – like a recipe for a restaurant’s secret sauce or a database of valuable sales research – can be protected under the law as a trade secret if a business takes active steps to limit the information’s disclosure.

Protecting Inventions

A useful, novel invention may be eligible for a patent, which is a legal property right granted by the federal government that prevents others from reproducing your invention without your permission for the 20 year duration of the patent. Patents cover useful things, including new mechanical or electronic inventions, chemical formulas, or materials. Patents do not protect mere ideas for useful things – if you have an idea for a new technology but it can’t be produced in the real world with existing tools and techniques, then you do not have something that can be protected by a patent.

To receive a patent right, you must successfully apply for one from the United States Patent and Trademark Office. If you have a new invention that could be protected by patent but you do not successfully apply for a patent right, then anyone is free to copy and produce the invention and you have no legal recourse to stop them from doing so.

If you have an invention that may be patentable, you should talk to a patent attorney as soon as possible, and before widely disclosing the invention.

Protecting Trade Secrets

A “trade secret” is information that is not widely known, that provides your business with an advantage, and that your business takes reasonable steps to keep secret. This can really be any information, such as customer prospect lists or recipes for food item – one of the most famous trade secrets is the recipe for Coca-Cola.

If you have information that may constitute a trade secret, it is important to take reasonable steps to keep it secret. What steps are reasonable will depend on the facts, particularly the relative value of the secret and the resources required to maintain secrecy.

NDAs – Protecting Valuable Information During Useful Disclosures

NDAs (non-disclosure and non-use agreements) are agreements that allow you to disclose information to a third party while preventing them from further disclosing the information or from using it themselves. These agreements are most useful when you have information that you should keep secret – like a trade secret or a patentable invention – but you need to disclose it to a third party for business purposes. The terms of a well-drafted NDA should be specific to your use, and you should be careful about asking a third-party to sign an NDA at an inappropriate moment. Most investors will refuse to sign NDAs for basic disclosures like business plans (and many will be insulted if you ask), but, as an example, an investor who requires an opportunity to review your patentable invention before it has been publicly disclosed should be required to sign an NDA before being indulged.

Branding Your Business

Branding encompasses many aspects of business design, but the law is primarily concerned with names, logos, and other source identifiers. This resource will focus on these aspects as a result.

Types of Names

Many business owners get caught up in naming their business, often delaying incorporation until they have settled on a name they love. To avoid this indecision and understand when names actually matter, you have to understand that businesses can have several different types of names.

The legal name of a business is the name that appears on the business’s incorporation documents.

Legal names need only meet the minimal requirements of the state’s incorporation statutes, which usually require only that the name is distinguishable from other previously incorporated businesses and do not include certain forbidden words which usually relate to highly regulated businesses (“Law Office,” for instance, generally cannot be used by non-lawyer owned businesses). Additionally, legal names must include a corporate identifier, such as “LLC” for limited liability companies or “Inc.” for a corporation.

It is important to note that a legal name provides no protection from other businesses using the same name to do business. The limited purpose of a business’s legal name is to identify the business as a legally incorporated entity.

Assumed Names

Assumed names are names other than a legal name that a business uses to conduct business. These names may or may not be related to a business’s legal name – for instance, a business’s legal name might be Alphabet Inc., but it might conduct business under the assumed name “Google.”

Under state law, LLCs and corporations must file any assumed names the use with the state agency that handles incorporation. In Michigan, unincorporated businesses must file any assumed names with the counties in which they do business.

While assumed names may be brand names, filing an assumed name with the relevant agency does not offer brand protection.

Brand Names

A brand name is the name under which a business markets itself to its customers. Typically this is an assumed name. Legal names are rarely used as a brand name directly. Even if the brand name is the same as the legal name except for the legal name’s corporate identifier, that is an assumed name – “General Motors” is an assumed name of the business legally named “General Motors Company.”

Trademarks and Branding

A trademark is a name, logo, or other identifier of the source of a good or service. Trademark rights are what protect brands from use by competitors. More specifically, they protect against the use of similar names, logos, or other identifiers that are likely to cause confusion with consumers.

Trademarks Give Right to Exclusivity

The primary benefit of a trademark right is the right to prevent others from using the same branding asset – whether its a name or a logo – or one that is very similar to yours in a way that might cause consumers to confuse their goods or services with those of your business.

This right to exclude others from use has limits, and other businesses may be able to use the same name or logo in ways that are unlikely to cause consumer confusion about who is producing the goods and services attached to the name or logo. The most notable use that is permitted because it is unlikely to cause confusion is when the use is in a very different industry than your business’s. As an example, if your business develops trademark rights in the name “Loco” for sneakers, you may not be able to prevent a business from using the name “Loco” for engine oil – we assume that most people will not believe that “Loco” sneakers and “Loco” engine oil are made by the same company because the industries are so different.

Establishing Trademark Rights in a Name

Picking a Name that Can Function as a Trademark

Not every business name can function as a trademark. A generic term for a product or service can never function as a trademark for a business providing that product or service. For instance, “apple” is a generic fruit for the fruit known as an “apple.” Thus, “apple” cannot function as a trademark for a fruit company, and certainly not one that sells apples. “Apple” could, however, function as a trademark for an electronics producer, because it is not a generic word for computers, phonets, etc.

Additionally, words and phrases that are merely descriptive of a good or service can only function as a trademark for that good or service if one can show that many consumers associate the word or phrase with the business claiming trademark rights. It’s hard to set objective criteria for when a word or phrase is “merely descriptive,” but the general idea is that a word or phrase that describes the product or a feature of the product is “merely descriptive.” Showing the requisite consumer association (called “secondary meaning”) can be quite difficult for all but very well established brands.

Beyond “merely descriptive” trademarks are “suggestive” trademarks, which are very “suggestive” but not “merely descriptive” of the good or service with which they are used (it is very difficult to to distinguish “suggestive” trademarks from “merely descriptive” trademarks); arbitrary trademarks, which are real words used in connection with something totally unrelated, like “Apple” for computers; and “fanciful” trademarks, which are made up words like “Exxon.”

The general upside to the above classification system is that the less a word has to do with the product or service you are selling, the more likely it is to qualify for trademark protection. The sweet spot from a marketing and legal perspective is often a “suggestive” trademark – the difficulty in choosing a “suggestive” name for your business, however, is ensuring it will not be considered “merely descriptive.”

Establishing Rights – Registration and Use

Trademark rights are established naturally without registration through “use in commerce,” which means selling a good or service in interstate commerce. Trademark rights created naturally in this way limited to the current geographic market and the “natural zone of expansion,” which means whatever a judge decides it means in a lawsuit.

Trademark registration grants national protection regardless of the current market in which a trademark is used. While registration requires use in commerce, you can also establish preemptive rights in a trademark by filing an “intent to use application.” This application type, if successful, is sort of a reservation of the trademark that can mature into a full registration when you use the trademark, granting trademark rights back to the date the intent to use application was successfully filed.

Choosing a Name

One thing you should take away from this section is that the legal name of your business is not very important, and you can begin the incorporation process before you’ve decided on a brand name.

Far more important is choosing a brand name that can function as a trademark and that does not infringe anyone else’s existing trademark rights. If you expect to grow your business outside of a very local market, having a brand name that is recognizable to consumers is extremely important to developing and growing a customer base. Choosing a name that cannot function as a trademark will undermine your business by allowing competitors to use a similar name and trade on your success.

Regardless of whether you care about building a national brand, it is still important to choose a name that does not violate anyone else’s rights. Failing to do so can lead to lawsuits, which in turn can lead to having to pay significant monetary damages and dealing with the often high cost of rebranding, which includes everything from changing your letterhead to informing and convincing customers that your name is changing but that they should still patronize your business.

To accomplish this, you should search trademark registrations for businesses in similar industries using the name you want to use or a very similar name. You should also look for businesses


What Is Incorporation?

Incorporation in this context means setting up a legal entity – usually either an LLC or a corporation – by filing the appropriate paperwork and fees with the state government to exist as your business. It is a way to separate yourself from your business, legally and on paper.

An “unincorporated business” is a business that is operated without having formed an LLC or corporation. An unincorporated business with one owner is called a “sole proprietorship,” while an unincorporated business with more than one owner is a “partnership.”

Why Incorporate?

Incorporation, while usually fairly straightforward for a small business, is an additional expense ranging from “very cheap” to many thousands of dollars. Why bother?

Limited Liability

Businesses are subject to liability for their bad or negligent actions. If a business or its employee injures someone in the course of business, that person can sue the business for damages.

The owners of an unincorporated business have “unlimited liability” for the debts of their business. This means that they are personally liable for any debt or obligation owed by their business, and their personal assets – their homes, cars, bank accounts, etc. – can be used to satisfy those business debts and obligations.

The owners incorporated businesses have “limited liability” for the debts of their business. Only the assets owned by the business itself can be used to satisfy the debts of the business – assets owned by the owner are out of reach.

The limited liability that incorporated businesses provide is the most important reason to incorporate, and it is something every business owner should do to protect their personal assets.

Other Reasons

While obtaining limited liability is the principal reason to incorporate, there are a few other upsides as well.

Incorporation Makes Selling a Business Easier

Incorporation makes it easier to sell your business when you want to move on because it creates a way to easily determine what assets are owned by the business. An unincorporated business may have to take additional accounting steps to sort out assets that should be sold as part of the business from assets owned purely by the business operators.

Facilitates Developing Intergenerational Wealth

If you want to bring family members into your business as partners or set the business up for inheritance, incorporation facilitates these goals by providing a single entity that can hold the business’s assets and making it easier to bring your family in as co-owners while limiting their control over the business until everyone is ready.

Projects Professionalism

Incorporating is a simple step with such obvious benefits that other business owners and professionals will likely assume you have incorporated. If you operate an unincorporated business, it will give many of your peers the impression that you are not a very legally or financially sophisticated entrepreneur.

Tax Basics for Incorporation – Double Tax vs. Pass Through Tax

To understand the difference between LLCs and corporations, you need to have a basic understanding of the two ways the U.S. allocates business income tax.

The first method of allocation is called “double taxation.” Businesses that are subject to double tax pay income tax on their profits as they are earned, and then the owners pay income tax when the business pays them their share of profits through dividends. If you own stock, you’re familiar with double tax – the company whose stock you own pays income tax when it has a profit, and then you personally pay income tax when you receive a dividend.

“Pass through taxation” means that the business itself does not pay income tax – instead, the owners all pay their share of income tax on profits in the period it is earned. This method usually but not always results in lower overall tax rate.

While this explanation is sufficient for the purposes of this resource, there are additional, nuanced differences between the two tax regimes, particularly with regard to when owners realize capital gains and losses. You should always talk with your tax professional when designing tax flows in your business.

Economic Flexibility

In discussing LLCs, corporations, and S Corp tax elections below, we will discuss economic flexibility. Businesses do not have to divide economic gains or tax gains and losses based directly on ownership percentages. Some owners may receive a higher percentage of percentage of profits initially, for instance, or some owners might claim a disproportionate amount of the business’s initial tax losses. This is what we mean by economic flexibility – separating profit and tax allocations from ownership percentages.

Entity Types

There are many different entity types, but most entrepreneurs will form either a limited liability company (“LLC”) or a corporation. These two entity types will be the main focus of this resource because of their popularity and broad utility.

Of these two entities, LLCs are by far the most popular for small business entrepreneurs. Corporations are mostly relevant to entrepreneurs launching “high growth” startups and in certain tax scenarios. We’ll explore both entity types in more detail below.

LLCs (Limited Liability Companies)

LLCs are so popular for three reasons. First, they are usually cheaper and simpler to set up than a corporation. While setup cost can vary wildly depending on the business’s needs, a corporation with similar terms will typically involve more paperwork and corporate formalities and is subject to higher initial and annual state filing fees.

Second, LLCs receive pass through taxation by default instead of a corporation’s default double taxation.

Third, while corporations can obtain pass through taxation, they have to give up a lot of economic flexibility to do so. As a result, businesses that require economic flexibility will usually need to form an LLC rather than a corporation.


There are a few reasons corporations are less popular than LLCs.

As discussed above, corporations are often simply more expensive and more complex to set up than LLCs. While the difference is not always great, if there is no compelling reason to use a corporation over an LLC then one might as well avoid the additional expense.

Second, corporations are subject to double taxation by default. While some businesses can avoid the default by making an S Corp election, not every business will satisfy all the necessary prerequisites of an S Corp election.

Finally, while corporations permit a great deal of economic flexibility, they have to give that flexibility up if they want to make an S Corp election. One of the requirements to qualify as an S Corp is that ownership shares must all have the same economic rights – in order to gain pass through taxation, corporate owners have to give up the flexibility to allocate economic and tax rights separately from ownership percentages.

Corporate Use Cases: High-Growth Startups and Certain Tax Situations

Corporations are very important economically because they are the only entity type available to publicly traded companies.

For small businesses, there are two particular uses cases for corporations, though.

First, corporations are often the right choice for high-growth startups that will rely on very large investments from venture capital firms for funding. Most businesses are not in this category, which is typically limited to high tech startups in the IT, biotech, or health care industries. These are the companies you hear about raising tens or hundreds of millions of dollars in equity funding.

Additionally, there are times when owners may want to take advantage of a corporation’s C Corp tax default. These cases are rare and usually involve owners with certain means-tested benefits, shifting tax rates, or foreign investors.

As discussed, all things being equal, usually more expensive and require more paperwork to set up
Double tax by default, but can usually obtain pass through taxation
Appropriate use cases:
-High-growth start up
-Tax reasons (need to shift income from year to year, want to avoid partnership tax returns)

S Corps, C Corps, and Changing Default Tax

While LLCs and corporations are subject to pass through taxation and double taxation respectively by default, most businesses can elect to be taxed differently from the default by making a “tax election.”

The two most common tax elections are S Corp elections and C Corp elections. “S Corp” refers to a special type of pass-through taxation that can be elected by qualifying corporations and LLCs. “C Corp” refers to double taxation – it is the default taxation status for corporations and can be elected by most LLCs, though it is very rare for a small business LLC to choose double taxation through a C Corp electon.

The benefit of an S Corp election is obvious for corporations – it avoids double taxation and grants the business pass-through taxation which, as we discuss above, usually results in lower overall tax liability. The main reason some corporations don’t make S Corp elections are because of the qualifying requirements. There are several requirements that must be met for an entity to make an S Corp election, and the most relevant are:

  1. The business may not have more than 100 owners
  2. All of the owners of the business must be U.S. tax residents (but not necessarily citizens)
  3. The business cannot have preferred shares, meaning that every share of the business must have equal economic rights to every other share. This greatly reduces the economic flexibility that is important to many businesses owners.

While it is obvious that a corporation might make an S Corp election to benefit from pass through taxation, you might wonder why an LLC would make an S Corp election when it already receives pass through taxation by default. The answer is that S Corps offer another benefit in addition to pass through taxation – special rules allow business owners of S Corp taxed entity to reduce their self-employment taxes in some circumstances. The details of that benefit are beyond this resource, but an entrepreneur should always consult with their legal and tax professionals about whether they can benefit from an S Corp election, even if they decide to incorporate as an LLC.

Where to Incorporate

Usually makes the most sense to incorporate where your business is located
Often businesses will incorporate in Delaware, but the only reasons to do that are if you are or are a very large company or you are going to be relying on venture capital
Adds expense, because you need to file in every state where you do business, so if you file in Delaware but only do business in Michigan you now have to pay Delaware fees and Michigan fees, pay for a Delaware registered agent, etc.

Funding Your Business

There are a number of different ways to fund your business, a few of which are described below. One thing to keep in mind as you read further is that no particular type of funding is better or worse than another – everything depends on your particular circumstances.


You’re probably very familiar with loans. In their most basic form, they are very straightforward – someone gives you money and you pay them back with interest.

Business loans usually have a few additional requirements, particularly for small businesses seeking loans from traditional lenders like banks. First, loans will usually require business owners to make a personal guarantee, a promise to be personally liable for repaying the loan if the business can’t. Second, most banks will require require collateral for the loan, either something owned by the business, like equipment or something owned by you as the business owner, like your house.

Loans are also available from a variety of nontraditional lenders, including wealthy friends and family and organizations like Kiva. Terms available from these lenders can vary tremendously.


An equity investment is different from a loan in that the person investing in your business receives an ownership stake in your business. The upside is that the business does not need to worry about making interest payments and equity investments do not need to be repaid if the business fails. The downside is that you may be giving up some control over your business as well as future profits if the business is very successful.


A lot of funding from sophisticated investors has elements of debt and elements of equity. As an example, convertible debt, which is often used in the early investment rounds of high-growth startups, is exactly what it sounds like – a loan that can be converted into equity when certain conditions are met. These can be as complicated and flexible as desired and can have complex tax implications, so you should always engage a legal and tax professional when entering into hybrid funding arrangements.

Structuring Self-Funding

If you are going to be self-funding your business with anything of significant value, whether cash or other assets, you should give some thought to how you will structure the funding as a loan, contribution in exchange for equity, or some other arrangement. This planning can have long term tax consequences and can have other benefits, like offering you some financial recovery in the event the business goes bankrupt.

Reward Crowdfunding

Reward crowdfunding is the most common and familiar model of crowdfunding. Entrepreneurs can use a website like Kickstarter.com or Indiegogo.com to raise funds for a new product or business, usually by offering rewards to be delivered as part of the business or product launch. For example, a new board game may allow you to pre-purchase a copy of the game for $50.00 and may allow you to receive a special edition of the game for $200.00. Rewards vary heavily by the business type and entrepreneur’s creativity.

Overpromising and “Fraud”

The biggest risk of liability in a crowdfunding campaign is underestimating the costs and logistical difficulties in delivering the promised product. This can lead to campaigns that meet the funding target but which fail to deliver the promised rewards, which in turn can lead to accusations of fraud and theft and lawsuits for the same.

To reduce the risk of underestimating costs, entrepreneurs who are inexperienced in the relevant industries (such as manufacturing) should consider working with a consultant or service that facilitates those aspects of the business.

Additionally, it is important that you ensure your marketing materials on the crowdfunding page and elsewhere make realistic promises and claims. Any copy for the product or campaign should include disclaimers that make clear the descriptions are aspirational and subject to change.

Trademarks and Crowdfunding

If you’re launching a brand via crowdfunding, you need to remember that you only start building trademark rights when you’re actually selling a product or service in commerce – presales and marketing usually don’t count. That means that any trademarks you’re using in the crowdfunding campaign are not building trademark protection, and someone could begin use the trademark themselves in a way that prevents your own use.

The solution to this problem is filing a federal intent to use application to create priority for your trademarks before you actually start selling the product. This can protect your brand even though it might not qualify for trademark protection otherwise.

Equity Crowdfunding

Equity crowdfunding is a relatively new funding model that allows small businesses to raise up to $5 million per year by selling equity directly to small investors. As we discuss elsewhere, selling equity means that any small investor will own a piece of your company and have certain rights in the company. Having many investors, most of whom are likely to be unsophisticated legally, can make it extremely complicated to run your business. Equity crowdfunding regulations are also extremely complicated. For these reasons, Origami Legal generally does not (and has never, so far) recommend equity crowdfunding as a method to fund your business. If you are interested in pursuing an equity crowdfunding campaign, we highly recommend you work with a qualified professional to do so.

Marketing Your Business

Your website and social media ads will likely use images and other media elements, such as music. These media elements are subject to copyright protection, and for that reason you should have a basic understanding of copyright law so that you can avoid lawsuits and other copyright related issues.

Copyright protects creative works from unauthorized use or distribution. While copyright registration creates useful, valuable benefits, copyrights exist without registration – anything that is subject to copyright is protected by copyright the moment it is fixed in a medium, such as paper or computer memory. That means photographs, recorded music, and videos are all subject to copyright the moment they are created.

Because copyright covers just about any media you might be using in your marketing materials, it is important to understand that you cannot simply adopt images, songs, or other creative works made by someone else into your marketing materials without securing the appropriate rights. As a consequence, you cannot simply use images and other media you find on Google, nor can you use images created by consumers that feature your product or service without their permission.

Licensing Copyrighted Works

Frequently small businesses obtain copyrights for marketing materials by purchasing a license, which is a contract that gives you a limited, usually non-exclusive right to use copyrighted materials in certain ways. Licenses can be obtained for pre-existing materials like stock photos or stock music files from services like Getty Images, or by contacting the creator directly to negotiate.

Acquiring Ownership of Copyrighted Works

You can secure ownership rights by buying them directly from the creator or by hiring someone to create a new work for you. Ownership provides a much broader set of rights, including exclusivity, than most licenses.

Keep in mind that when someone other than an employee creates a copyrightable work for your business, they own the copyright in that work unless you have a contract that gives you ownership. For instance, absent a contract, if you hire an independent website designer to build your website, that designer will own the copyrights in your website design unless your service contract says otherwise. For that reason, anytime you commission a creative work, including a website, music, video, photos, or ad copy, the contract should be clear that your business owns the copyright in the work, not the creator.

In most commercial settings, you are infringing copyright if you are using a copyrighted work without authorization. This can lead to lawsuits, the removal of your website or other marketing material from the internet, and reputational consequences.

Be aware that the consequences can be severe. Lawsuits for infringement of registered copyrights are permitted to recover “statutory damages,” which means you could be liable for tens of thousands of dollars for very small infringing uses.

Additionally, many social media platforms ban accounts that are found to frequently engage in copyright infringement. If you use social media as a major advertising channel, this could be devastating for sales.

Right to Publicity in Marketing

Right to publicity laws prohibit using a person’s likeness to falsely imply an endorsement of good or service without that person’s consent. “Likeness” is defined broadly and can include lookalikes and soundalikes. Right to publicity issues usually present themselves in two ways for small businesses.

Consumer Images

First and most commonly, you may take or solicit pictures of customers using your product or service. If you would like to use these photos, you should secure permission to use their likeness on your website or in other marketing materials (in addition to securing their permission to use the copyright, if they took the photos themselves). While there are circumstances in which permission to use their likeness is unnecessary, it can be difficult to determine when that is the case, and the best practice to avoid lawsuits is to secure permission whenever you will use an image.

Celebrity Endorsements

Celebrities tend to be very careful in how they endorse products. If a celebrity uses your product, you can usually note that use without worry. However, you should be very careful to avoid suggesting that the celebrity endorses your product unless you have evidence to support that claim. Celebrities are usually quick to turn to lawyers if they feel their publicity rights are being violated by a business.

Small businesses are increasingly using social media influencers and review solicitation as a type of viral marketing. It is important that any endorsements, whether from influencers or consumer reviewers, disclose whether anything of value was given in exchange for the endorsement or review. The Federal Trade Commission considers failure to disclose compensation for endorsements to be false advertising which can result in regulatory or consumer lawsuits. Additionally, many online sales platforms like Amazon make it a policy to remove businesses that are found to have solicited undisclosed reviews, whether the review was solicited with cash or free “review” merchandise.