Protecting Your Online Assets – Affiliate Programs

If you have an online business, or even a “bricks and mortar” business with an online presence, then there’s a good chance that you either currently have, or have thought about starting, an affiliate marketing program. There are many different types of affiliate marketing programs, ranging from simple link or banner exchanges to programs that pay the referring website a portion of sales made to customers that come from that referring website. In addition, a well-conceived affiliate program can be a great source of networking, income, publicity, etc.

But as with most other areas of running an online business, there are risks.

Affiliate partners can and sometimes do sue. It’s often hard to imagine this type of scenario, as the relationship between you and your affiliate partners will usually start off with the best of intentions, and nothing but good will.

But if expectations are not met, or opinions or business plans change, and your partners may feel slighted. And regardless of whether or not they have a well-founded claim, they can still file a lawsuit and present a significant distraction to you, and force you to incur a great deal of expense in defending against the lawsuit.

So what can you do to protect your hard earned business?

First of all, if you haven’t done so already, you should organize your business in a way that provides a certain degree of protection for your personal or non-business assets. It’s generally thought that the best time to organize your business – either as a corporation or a limited liability company (“LLC”) is when it begins (or even just before it begins) operations. Many business owners believe that the liability protections of a corporation or LLC are valuable only after the business begins to make a certain amount of money. But consider this – without the protection of a corporation or LLC your personal assets (which can include your house, your savings, and your cars) are at risk when someone sues you. A corporation or LLC is considered to be a separate legal entity under the law, an entity that it separate and distinct from you personally.

Whether you choose a corporation or LLC will depend on your tax situation, the size and type of your business, whether you have any co-owners, and what are your future plans for growth. In some situations, a might be better to have a corporation, in which case you’ll have to determine whether a “C” corporation or an “S” corporation is a better fit. Again, this will largely be driven by tax considerations.

Almost without exception, you should not be operating your business as a sole proprietorship or limited partnership. Those entities provide very little (if any) legal protection for your personal assets, and in fact, might actually expose your business to a higher degree of risk.

The cost of forming and maintaining these legal entities is not as high as you might think. The costs are especially reasonable when you consider how much they could ultimately save you if legal problems ever do arise. All it takes is a single lawsuit, with a proper corporate entity protecting your home and life savings, and you’ll be glad that you took the time to form your corporation or LLC.

It’s possible to go it alone and research and make your determination on which form of business to use, and then prepare and file the necessary papers. But most of the time it’s probably best to leave it to those who do this type of thing on a regular basis, so that you can concentrate on running your own business.

The second key piece of advice is to make sure that, if it’s appropriate for the types of products you’re selling, you’ve taken steps to give your products the strongest copyright protections available. For example, if you sell books (or ebooks) or other informational products, you should be aware that a work that you create is automatically protected by U.S. copyright. It is not actually required to include a copyright notice or symbol. However, if you do include those things, it is harder for someone who illegally copies your work to claim that they didn’t know it was protected by copyright.

Depending on how much time you spent creating your informational products, you might also take the further step of registering them for a federal copyright. The filing fee for this step is currently less than $50, and getting a federal registration will enable you to seek much stronger monetary damages from anyone who steals your work. Even if your business is online only, strong trademark protections for your products are just as important as if you sold your products through a physical store.

Finally, make sure you take the time to sign written affiliate agreements with each affiliate in your program. The purpose of this document is to make sure you and your affiliates have the proper expectations going into the relationship, and to avoid any misunderstandings or assumptions that might cause problems down the line.

There’s no magic length to the affiliate agreement. The document should be long enough to contain all of the important terms, and to set forth the key aspects of the working relationship that you hope to have with your affiliates. There are certainly some standard terms that you’ll want to include. For example, if your affiliate program is going to involve you making payments to your affiliates, your agreement should clearly spell out what the affiliate must do to earn the payment, how frequently the payments will be made, what the payment mechanism is going to be (PayPal? Checks?), and what you will do if there are disputes over whether certain activities give rise to the payment obligations.

If you follow these steps when you set up and operate your affiliate marketing programs, you’ll go a long way to reducing your financial risk and exposure to lawsuits, and give your business a strong degree of legal protection.