Imagine the following hypothetical: I've joined forces with a few friends and some Internet affiliates (you know, the folks you meet at conferences) to build what we now call a "team blog." The website aims at building a web community of video producers and community TV stations looking to share broadcast quality video. At first, we did it for the love, hacking together code, creating buzz for the service -- there were no real legal or business issues to complicate matters. However, when interest in the website grew, and organizations and government bodies started to show interest in using the service, problems grew like dandelions in a unkempt field. We had copyright issues concerning the video content, profit-sharing issues based on who contributed most to the code development, governance and decision-making issues, and trouble entering into contracts on behalf of the group. We needed to formalize our relationship, but didn't know where to begin. Should we be a non-profit, LLC, or a corporation?
The CMLP legal guide deals at length with the various business structures you can use to carry out online publishing activities (see the Creating A Business section). Probably the most promising structure for an informal co-blogging enterprise with minimal resources is an LLC, which combines some of the tax benefits of a partnership with the limited liability of a corporation, while allowing for a (relatively) flexible management structure. A primary reason for this flexibility is that state LLC statutes tend to defer to the LLC members' operating agreement on most governance issues. Drafting an effective operating agreement thus is an important and often challenging task for those seeking to form an LLC.
This week, Professor Hoffman at Concurring Opinions posted a potentially useful model blog operating agreement for an LLC, drafted by Professor Dave Johnson of the Institute for Information Law and Policy at New York Law School. This model agreement is especially interesting because Professor Johnson tailored it to an Internet-based, peer-production business model, instead of the traditional/hierarchical/top-down/brick-and-mortar model. What's more, he contemplates its use in connection with a new Vermont corporate law statute, signed into law on June 6, 2008, which enables electronic filing of formation documents, eliminates requirements for in-person meetings and physical headquarters, and allows for agreements among members to be embodied in electronic form. As Johnson explains in his fascinating paper, Virtual Companies, "[b]ecause limited liability company law is flexible, deferring in most cases to the terms of an operating agreement, these enabling provisions of Vermont law can be used to set up a new kind of legal entity." He elaborates:
While authority can be delegated to individuals to act as agents on behalf of the company when necessary, most decisions can be reserved for participatory voting by a transient, self-selected membership. A founder can articulate the goals of the company and recruit others to fill various pre-defined roles, conditioning or limiting participation on whatever basis seems appropriate.
Professor Johnson's model and article are well worth a look, both for those interested in establishing an LLC and for lawyers interested in adapting their practice or academic work to innovative online business models. That said, the model agreement is still a work in progress -- the Concurring Opinions post encourages readers to offer constructive feedback and suggestions on how Professor Johnson can improve it. Who knows? Maybe the next group of online publishers looking to formalize their relationship won't struggle as much as my group did.
(Jason Crow is second-year law student at Boston College Law School and a CMLP legal intern.)