This is our blog, where we post stories, insights, and (hopefully) interesting content for everyone to enjoy. Alec is the primary author of all of these posts, he posts about every three weeks. If you have any questions about anything you read, please don’t hesitate to contact us for more information.
Legal Issues with Crowdfunding for Small Businesses
June 13, 2019 — Auz Burger
Crowdfunding sites like Kickstarter have become a popular way for small businesses and products running quickly. The basic idea with these crowdfunding sites is the business owner begins a campaign where they set a specific amount of time they want it to run, usually a campaign lasts about 30 days. They set a goal amount of money, which if they get there, the campaign is considered successful.
These campaigns are rewards based, so the owner offers some sort of product as a reward for those who pledge the project; usually, there are different pledge levels, so someone can get multiple things, or different things depending on what they choose to pledge. Once the campaign is successful and the funds have cleared for the owner, they can begin production on the promised products, and eventually, the finished product is sent out to the backers.
This is great if you already have a small business and an idea for an innovative new product, but you do not have the revenue to produce the product yet. If after the completion of your crowdfunding campaign you realize that it does not work the way you wanted it to or there is some other issue with the product, you have not wasted precious resources from your business to try this product out.
While this sounds like a wonderful way to boost your small business or get it off the ground, there are some legal issues that can come up in the process that you should be aware of.
Intellectual Property is business assets that have value, but no substance. This is most commonly copyrights, trademarks, and patents. There are two types of intellectual property issues that tend to come up in crowdfunding campaigns
The first is the campaign creator putting up a photo or video and there is a patent or copyright on that photo or video. The person who owns the patent or copyright can then sure the creator for copyright infringement. This is simple enough to avoid; if you do not have the copyright or permission to use it, do not put it up on your campaign site.
The second is ideas from campaigns being stolen, then knockoffs are made. Putting your idea on a public crowdfunding site can risk it being stolen or copied, and the crowdfunding sites have in their terms and conditions that they are not liable for anything like that happening.
Using a crowdfunding campaign to raise funds for your business forms contracts between you and your backers. The terms of the contract between the creator and the backers are often vague though, leaving things open to interpretation.
To help with this contract, you need to be careful of your wording in describing the campaign rewards and ensure that you can reasonably fulfill the rewards. The way you word the project is really what matters here, you have to be careful about what exactly you describe you will be delivering. If something goes wrong in the production of the project, questions will come up about what exactly was promised and if those promises were met, which is why it is so important to be crystal clear what exactly you will be delivering.
Failing to deliver the product at all can lead to a lawsuit, and for the most part, the crowdfunding platforms will not get involved in the suit. Delivering a sub-par product can also lead to a breach of contract lawsuit, whether the backers file them individually or as a larger class action suit.
Taking the time to fully read the terms and conditions before beginning your campaign can also help you avoid a lawsuit since you will know what you may be legally liable for before launching your campaign. On most crowdfunding sites, the terms say something about refunding the money you raised if you are unable to deliver, which tends to be problematic because, by that point, the funds have been spent on production.
Fraud and Consumer Protection Claims
If you overpromise what you plan to deliver to your backers and end up unable to deliver, this can lead to more than just a breach of contract. You can find yourself the subject of a fraud lawsuit or be found guilty of violating consumer protection or false advertising laws. This is all based on the belief that you misstated what you would deliver when you accepted your backers’ money. This is another reason why it is so important that you word things clearly and carefully when presenting your project.
It is not just your backers that can file claims against you either, the Federal Trade Commission (FTC) has been known to take action against crowdfunding creators who they believe to be in violation of these laws. The FTC began taking a larger role in monitoring fraudulent campaigns a few years ago, cracking down on creators who lied and did not deliver. The FTC is in charge of stepping in when a charity lies to its donors, so crowdfunding campaigns fall under their jurisdiction too.
Some backers on crowdfunding sites tend to cry “fraud” if the slightest thing seems to go wrong, like the project not being finished on time, but it is important to keep in mind that when you are backing a crowdfunding campaign, you are not buying something from Amazon that has a guaranteed delivery date and can easily be returned or exchanged. Backing a campaign means they are putting their faith in you, the creator, to create the product you have displayed, and to communicate any issues that arise along the way.
A crowdfunding campaign can be a major boon for a small business, but it is important to keep in mind the legal challenges you could end up facing if things go wrong. One of the biggest issues that backers complain about is not that the rewards are late, but that the creator did not communicate the problem. Many backers are fine with their rewards coming late as long as they know why.
Only nine percent of projects on Kickstarter fail to deliver any rewards. Sometimes things happen that you cannot predict. Communicating with your backers and being careful of exactly what you promise will help you to avoid legal troubles with your backers.
What Does a Commercial Real Estate Lawyer Do?
May 1, 2019 — Auz Burger
Commercial real estate laws are what regulate the sales of business properties. It also handles other things like zoning issues, commercial leases, liquor licensing, and property or land use. So, a commercial real estate lawyer is someone who specializes in those laws in an area.
A lawyer in this field oversees your purchasing or leasing agreements, closing information, mortgage information, and even zoning ordinances. They are with you from start to finish in the real estate process, guiding you through a complicated legal field.
Commercial real estate lawyers may handle contract negotiations, various types of commercial leases, and representing clients in court. A large aspect of commercial real estate law is commercial banking, so a commercial real estate lawyer may also handle things like securing a loan for your business and obtaining a line of credit for your business.
Buying commercial property is not a quick, straightforward thing. There are a lot of problems and challenges that can arise including leaseholds, corporate ownership, and environmental issues. None of these things are easy to resolve, so hiring a real estate lawyer, in the beginning, can make things less of a headache for you, because they’re trained to navigate these fields and deal with any other issues that arise during your real estate purchase.
Even the simplest negotiations can be stressful and emotionally taxing but getting emotional during a negotiation isn’t a good thing. Having your commercial real estate lawyer with you means you have someone who isn’t emotionally attached to your business and can navigate the negotiations without emotions getting in the way; this will help you get the best possible resolution to your negotiations.
A commercial real estate lawyer is trained to help you spend time vetting the property you’re interested in buying or leasing, so they can help make sure the property is exactly what you want before you move forward with the deal. Their trained eyes can pick up on little things you may overlook because this isn’t your field of expertise.
Buying or leasing commercial real estate is much different from buying or renting a house. The lease for a commercial property tends to run for longer while buying the property can come with its own risks and challenges that you may need a lawyer for. Your lawyer is there to help protect your finances and get you the best deal out of your purchase or lease.
The laws for commercial real estate are usually pretty complex, and they tend to vary from area to area. They can even vary in the same city in some cases. If you’re seeking to purchase or lease commercial real estate, calling a lawyer beforehand can make everything go much smoother for you, and you’ll have access to someone who can answer your questions quickly.
Imagine being ready to begin construction on this parcel of land you’ve purchased for your business, but just before you break ground you learn there’s a zoning law that’s standing in the way of your construction. Hiring a commercial real estate lawyer, in the beginning, means they’ll be aware of that zoning law and will help you find a different plot of land or an alternative to work with the zoning laws.
Leasing Buildings Commercially
April 30, 2019 — Kristen Cherry
If you’re just getting ready to launch your small business, chances are, you’re looking to lower your risk any way you can, which may include leasing space instead of buying. Yes, real estate can be an investment, but the capital required to launch will be considerably less if you start out renting. To protect your business and the money you are putting into it, educate yourself as much as you can on the ins and outs of commercial real estate law. Know some of the key considerations and savvy questions to ask before signing on any dotted lines.
What’s Going on Around Your Business Space
Visibility, foot and road traffic, and the nature of the businesses around you are all going to hugely impact your business’s chance of success. Find out as much as you can about plans for building, time left on leases/future endeavors in the spaces adjacent to yours, changes in road/parking lot construction — it all matters.
A busy suburb (and they’re getting increasingly busy as millennials start families and head out of cities) is going to have crazy rush hour traffic. Is your potential space easy to get into and out of during high-traffic times? If it’s not, are there plans in place to mitigate that problem, and when are they going to be executed? These are things you need to know.
Another consideration: what kinds of businesses are established or are planning to be established near yours? If there’s an anchor store all but guaranteed to bring in traffic, that could be your golden goose. But if the anchor reneges or abandons the space, your golden goose has flown the coop, which could mean bad news for your business. Or let’s say your business is a workout facility, which is right next to a healthy cafe, potentially a huge win-win, but if the healthy cafe becomes a traditional bakery…you see where we’re going. Consider a co-tenancy clause if the success of your small business is relatively dependent upon the longevity of adjacent brick-and-mortars.
Tenant vs. Landlord Responsibilities
Commercial properties differ from residential properties in myriad ways. If you’ve ever rented an apartment, you likely experienced the joy of simply calling your landlord to report a maintenance issue and then having it repaired in a few days, no invoice sitting on the counter for you. Often, with commercial properties, the tenant is responsible for minor repairs. The landlord is required to make the property inhabitable and may also be required to make structural repairs to the building, but smaller repairs may be up to you to handle. Similarly, financial responsibilities may be divvied up between landlord and tenant, i.e. you pay for the utilities, he or she pays the property taxes.
If you share common space — bathrooms, hallways, fitness rooms — with other businesses in the building, tenants may be paying for that in included square footage and may be responsible for maintenance of those areas, or that may be one area where the landlord maintains responsibility for upkeep. These things should be hashed out and put in writing up front to prevent conflict in the future and to assist you in monthly budgeting.
Option to Buy
In that same growing suburb, new businesses are coming in and are ready to buy up space. You may not be ready to do that now, but you want to be given the option if your landlord decided to sell down the road, right? That’s where the Right of First Refusal comes into play. If you have the financial means to buy the space/building, you’d hate to have it sold out from under you, forcing you to relocate.
Launching a business or relocating–either option is overwhelming. But in the flurry of to-do lists, don’t let your leasing space just be “find a cool place we can afford.” Commercial leasing laws vary by state, but in some, you will be required to pay the rent on the remainder of your agreement even if you choose to move out of the property. To protect your interests and stay on the right side of the courtroom, it’s critical to educate yourself, not only to ensure that you select the right space for your new second home, but to help you sign the healthiest lease agreement possible.
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