Many creative entrepreneurs are building businesses to gain financial and lifestyle freedom. Even more since the pandemic. The internet makes the possibility of creating a global business achievable. You can reach prospective clients and customers almost anywhere. A year into the pandemic, we’re seeing more interest in Digital Nomad entrepreneurship than ever. Wikipedia defines Digital Nomads as “individuals who leverage telecommunications technologies to perform their work duties, and more generally conduct their lifestyle in a nomadic manner. Such workers typically work remotely—from home, coffee shops, public libraries and even from recreational vehicles to accomplish tasks and goals that used to traditionally take place in a single stationary workplace.”
We’re not talking about doing business while on vacation. Nah. We mean doing business while globe trotting. You are in a different state or country every few months. You lack real permanency in your residence because your goal is to see as much of the world as possible. And because of this, you have clients from everywhere.
From a legal perspective, though, Digital Nomad entrepreneurship presents a few challenges.
Likewise, we’re dedicating our next #legalcoffeechat to answering your questions surrounding Digital Nomad entrepreneurship. You deserve to live the life you want without constantly worrying about whether you are working by the rules. You deserve clear answers. And we intend to give them to you. Leading up to the legal coffee chat, we’ll be introducing you to some legal concepts you really need to know before putting your apartment on Craigslist, selling your belongings, and packing your bag to become a full-time jetsetter. Because CGL is a U.S. based firm, this post is written from the perspective of a U.S. business owner, traveling or living abroad while working with a global customer base.
We kicked off the conversation last week, discussing domicile + some frequently asked questions regarding it. Today, we’re focusing on another important issue for Digital Nomad entrepreneurs–selecting the proper business entity.
Do I need to establish a formal business entity? Can I run my business as a sole proprietor?
You could, but we wouldn’t recommend it. It presents far too many risks. Here’s why. From the moment you sell your first product or take on your first client you, become a business owner and expose yourself to liability. Your house, car, cash and any other assets are at stake. As a sole proprietor, you are the business. You face unlimited personality liability for all work done in the name of your business. Establishing the proper business entity means that you are now separate from the business. You are no longer the business.
The number one reason why you should form a business entity is to provide liability protection for your personal assets. Your house, car, cash or other assets, such as your intellectual property, can’t be taken from you because of business liabilities or debts. It’s also worth reminding you that the reason why you are building this business is to provide financial and lifestyle freedom for you and your family. That freedom and security goes away the second a business transaction or deal goes awry. Stop walking on the wild side. Save that for your global adventures, not your business. Set up a formal business entity.
That said, it is very important to understand that owning a business does not give you blanket liability protection. Think about how crazy this world would be if people could act irresponsibly, do whatever they wanted and then say, “Charge that to my business.” It doesn’t work that way. You still can be held personally liable if do any of these acts in the name of the business:
- you injure someone;
- you intentionally do something illegal, reckless or fraudulent;
- you personally guarantee a business loan; (which is common and unavoidable if you need the loan);
- you treat the business as an extension of your personal affairs (i.e. commingling personal and business funds) .
We tell you this just so you are aware that limitations do exist. But, if you are on the up and up, dot your proverbial i’s and cross your t’s, you will be fine.
My business is completely online. What does this mean for me legally?
Saying that your business is 100% online lends to a common misconception that your risks are limited. That you don’t have as much liability as the physical plant, or brick and mortar shop. The truth? You have the same amount of liability, if not more. At the very least, you can be sued (or will have to sue) in the state where your business is registered or where the transaction took place. In some circumstances, you can be dragged into court in the state where the person at the opposite end of the transaction is located.
Your business is not completely online. No business is. That is a myth. Unless you are a robot, a droid of some sort, dwelling inside the casings of your computer, your business is not only online. You are selling or entering contracts with other live humans. Both of you occupy space in the physical world. Therefore, your business occupies space in the physical world.
Let’s define what it means to have an online business.
Our definition is simple. An online business is a business that sells a product or service online. If a customer enters your website, clicks to purchase or receive something from you or a third party marketplace that you’ve authorized to sell on your behalf, then you have an online business. There is a business transaction that happens online with your customer. Payment doesn’t always have to be cash. A business transaction exists if you give your my email address in order to receive a free ebook or audio training. A business transaction exists if you download a free font or app. By entering a transaction with your website visitors; you automatically become bound by certain U.S. laws and legal requirements. Again, this post assumes that your business is legally set up in the U.S. and you are temporarily residing overseas.
Even if your business is based outside of the U.S. and you’re doing business with U.S. customers, you may be bound by these laws.
Therefore, as a best practice, your website should include the following policies.
Privacy Policy: You’ve seen this policy on plenty of websites. It is required if you collect any personal information from visitors of your website. At the very least, the policy should state the following:
- What information you are collecting from them.
- Who, if anyone, you will share that information with.
- How you will use the information.
You will usually see the privacy policy either in the footer of a website, or embedded as a link in the newsletter sign up box.
Terms of Use: The terms of use policy helps to limit you, the website owner’s risk, by providing your visitors rules associated with your website. Minimally, the policy will do the following:
- Describe the content that will be shared on your website.
- Provide rules for how visitors shall conduct themselves on your website.
- Provide a disclaimer for links to third party sites.
- Provide intellectual property information.
Copyright Notice: You should provide a simple copyright notice in the footer of your website to let visitors know that you are the owner of the published content. The notice should follow this format: Copyright © 2021 Creative Genius Law, LLC. All Rights Reserved. This tells visitors when you published the content, and who owns it, which could be you or your business.
Depending on the nature of your website + business, you may also need to include some additional policies.
Affiliate Disclosure Policy: If you are an affiliate for a particular company, and sell their products on your site then you must disclose that relationship on your website.
DMCA: The Digital Millennium Copyright Act (DMCA) notice provides a procedure to follow if someone believes that content on your website infringes on their copyright.
Earnings Disclaimer: Some business owners via a website, sell a product or service that provides an opportunity for the buyer to make additional money, either from enhanced skills or from a specific business opportunity. This disclaimer provides that there is no guarantee of outcome, and limits the liability of the website owner.
Health/Medical Disclaimer: If you provide health or medical information, you will want to have a disclaimer on your site to limit liability if people don’t receive expected results, or are injured because of information received on your site.
That’s it for today. There is so much more you need to know, though. If you did not check out last week’s post, we encourage you to do so, here. We also hope that you’ll join us for our upcoming virtual legal coffee chat, Legal Lessons for the Aspiring Digital Nomad, on Friday, March 26th at 6:00PM CDT. The event is free, but registration is required. Register at the link below + meet us back here next week, for an introduction on selecting the proper business entity for your business.