Informal Group

Perhaps the most common way of carrying on online publishingactivities is as part of an informal group of individuals actingcollaboratively. In this situation, there is no written partnership agreement or LLC operating agreement, and the individuals involved have taken no steps to create a formal business entity such as an LLC, a corporation, or a nonprofit organization.

A common example of this type of relationship is a so-called"co-blogging" arrangement. This could be a situation where two or morebloggers publish their content on a single jointly-run blog or websiteon a regular basis, sharing administrative responsibilities to agreater or lesser degree. Alternatively, it could be a situation wherea blogger or group of bloggers invite a "guest blogger" to publishcontent for a limited period of time (generally with no administrativeresponsibilities). Co-blogging is not the only example of this kind ofcollaborative relationship – any citizen media or other site runinformally (without an agreement or formal entity structure) by two ormore individuals fits the bill. For the sake of convenience, in thissection we will refer to individuals working in such a relationship as"co-publishers" because the activity all these different groups shareis publishing their content online.

While this form of publishing content has the advantage ofinformality and flexibility (no formation or operating costs, noburdensome bureaucratic requirements), it creates a great deal ofuncertainty about the legal and tax status of the co-publishers' relationship.This uncertainty can have negative consequences, including exposingco-publishers to personal liabilityfor the unlawful acts of their colleagues, and creating complicationsin the management and/or dissolution of the enterprise, as well as certain tax consequences. The sectionsthat follow discuss the advantages and disadvantages of operating as aninformal group and outline two methods for dealing with the legaluncertainty that goes along with it.

Advantages of Operating As An Informal Group

  • Informality and Flexibility: The advantages of operating as an informal group stem from its informality and flexibility. No burdensome paperwork or costly filing fees are required to form the group, and operating it requires no special burden or expense. Informality also allows for great flexibility in managing the group's activities and structuring the relationship between co-publishers. As a practical matter, working as an informal group may seem the "natural" choice for co-publishers who don't have a solid idea of what they want out of a co-publishing relationship or how long it will last. If an arrangement is "just between friends," it might strike the wrong chord to propose increased formality. More seriously, the bother and cost of forming a more formal entity seems wasteful and unnecessary if co-publishers don't have long-term plans to continue their publishing activity. While these advantages are real, they come at the cost of uncertainty and potential exposure to personal liability, as explained below.

Disadvantages of Operating As An Informal Group

There are several potential disadvantages to operating as an informal group:

  • Liability: One drawback for those engaging in online publishing activity as an informal group is personal liability for the acts of their co-publishers. The major liability risk for most citizen media sites or blogs is getting sued for defamation. Other significant risks includes legal claims for invasion of privacy, copyright and trademark infringement, and violations of trade secret laws, all of which could arise out of the act of publishing content online. Co-publishers could be held personally liable for the unlawful actions of their colleagues if they are deemed to be either:

    • Part of an informal partnership: A partnership is an "association of two or more persons to carry on as co-owners of a business for profit." Uniform Partnership Act § 202. If the individuals involved intend to carry on as co-owners of a business for profit, then a partnership is formed, and it does not matter if they have no specific, subjective intention to be “partners” or to create a “partnership." If your group does not generate revenue or intend to make and distribute profits, then you do not need to worry much about this issue.

      • If you generate advertising revenue from your website or blog, for instance, and your group distributes that revenue to individual participants after settling expenses (rather than, say, investing all of it back into running the website), then there is a strong likelihood that a court would characterize your group as an informal partnership and hold each co-publisher personally liable for the others' actions in furtherance of the partnership. In a group publishing context, articles and/or posts published by partners on the group website or blog probably would be considered "in furtherance of the partnership," although the law is not clear on this point.

      • If, on the other hand, your group website or blog generates no revenue, or the group uses all revenue to keep the operation running, then there is less likelihood that a court would characterize your group as a partnership. Another aspect a court might look at is whether your group is “carrying on” in any permanent way. Thus, a court might find that the usual “guest blogger” is not a partner with other bloggers on the site, even if revenues are generated, because they probably lack the intent to “carry on” as a business, which implies some degree of permanence (although certainly not perpetual existence).

    • The employer in an employer-employee relationship:Employers are liable for the unlawful acts of their employees committed in the scope of the employment.

      • As detailed on the Employee Versus Independent Contractor page, whether or not an employer-employee relationship exists (as opposed to an employer-independent contractor relationship or no employment relationship whatsoever) depends on the control the hiring party has over the manner and means of the hired party's performance of work, and courts apply a fact-sensitive, multi-factor test to make this determination. Compensation is not required.

      • As a general matter, the more independence co-publishers have in carrying out their publishing activities, the less of a problem this risk of liability poses. The reverse is also true: if you assign individuals in the group specific tasks and they carry out those tasks under your supervision, there is a significant chance that they could be your employees in the eyes of the law.
  • Lack of Framework for Management: While informality and flexibility sometimes are advantageous, these same traits may make it difficult to manage an enterprise on a day-to-day level. Beyond creating confusion and inefficiency, lack of a framework can lead to disagreement. Without any formal agreement to fall back on for decision-making procedures or delegation of day-to-day responsibilities, serious conflicts could arise between co-publishers on a whole array of management issues. Don't be fooled -- although we use a lot of space to discuss liability risks above, in real life you are far more likely to be plagued by these management problems than you are to be sued for what you write online.
    • Mistakes Regarding Tax Obligations: Operating informally, you might unknowingly disregard tax obligations. Potential tax pitfalls include failure to pay self-employment taxes, failure to obtain an Employer Identification Number, and/or failure to withhold employment taxes, in addition to disproportionate distributions or allocations of income if the relationship is classified as a tax partnership. For more on the tax obligations of small businesses, see the Tax Obligations of Small Businesses section of this Guide.

    Two Methods for Increasing Legal Certainty

    There are two ways that co-publishers can reduce the uncertaintyinherent in their informal group arrangement: (1) entering into a"co-publishing" agreement; or (2) forming a limited liability businessentity like an LLC, a corporation, or a nonprofit organization. Neither or these routes is a complete solution, but, in the words of Eric Goldman, both are "preferable to co-bloggers [or other co-publishers] doing nothing proactive to override the default rules."

    Co-Publishing Agreements

    Co-publishers can enter into a formal "co-publishing" or"co-blogging" agreement in order to clarify the status of theirrelationship and set out the parameters under which the group willoperate. If co-publishers are carrying on a business for profit, thenthis agreement will be legally indistinguishable from a partnership agreement, and they will have adopted the partnershipform of business. If co-publishers are not carrying on a business forprofit, then the group won't legally be a partnership, but theagreement can set out group decision-making procedures, delegateduties, and describe what assets (including copyrights) will belong toand be licensed to whom.

    The benefits of adopting this approach is two-fold. First, itis cheap and involves few requirements in terms of paperwork.Co-publishers can draft the agreement themselves, although there is noassurance that the entire agreement will be legally enforceable withoutthe assistance of an attorney. Besides signing the agreement, there areno other steps or legal requirements to make it binding. Second, thisapproach allows for a great deal of customization to take into accountthe specific circumstances of the group and its publishing activities.In other words, much of the flexibility of the informal group structurecan be maintained, but now with some framework to fall back on.Effective customization, however, sometimes increases complexity in thedrafting process, and may necessitate the assistance of an attorney tomake the agreement fully enforceable.

    Despite these advantages, there are limitations on what aco-publishing agreement can do. For instance, in an effort to avoidpersonal liability, co-publishers might put a clause in their agreementspecifying that the group is "not a partnership," or saying thatcertain individuals are not the employees of others. A court could givesome weight to this type of language, but would disregard it if thefacts showed otherwise. Additionally, assuming that the group isoperating for profit, a co-publishing agreement would not eliminatepersonal liability for the acts of co-publishers. As noted, with suchan agreement, the group would be treated like a partnership,which still exposes partners to personal liability for the unlawfulacts of partners taken in furtherance of the partnership. The agreementcould allocate liability in a particular way among the co-publishersthemselves (for instance, requiring one co-publisher to indemnify orpay back the others for liability arising out the group's publishingactivities), but this would not be binding against injured thirdparties. To obtain limited liability for the actions of other co-publishers, the group would have to form an LLC, Corporation, or nonprofit organization.

    Forming an LLC, Corporation, or NonProfit Organization

    Co-publishers can create a formal business entity like an LLC, corporation, or nonprofit organization. The common benefit here is limited liability,and each will bring the desired level of certainty to the grouprelationship (though not necessarily any more than a co-publishingagreement).

    There are benefits and disadvantages to each of these businessforms -- for specifics, please see their respective pages (linkedabove). The common disadvantage vis-a-vis a co-publishing agreement isthe relative expense and burden that they all require to form andoperate. Additionally, adopting these forms may remove some of theflexibility in management and other affairs that the group enjoyed inits informal days. This is not necessarily the case, however -- ownersof an LLC usually enter into an operating agreement,which allows for the same kind of customization found in aco-publishing agreement. Keep in mind that, even with a limitedliability business entity, co-publishers would remain personally liablefor their own personal misconduct, like writing a defamatory article orpost.

    Choosing Between the Two Options

    For a group that is not operating for profit, a co-publishingagreement may be the best course to take, because liability exposure islimited (the agreement does not affect this), and the agreementprovides a relatively cheap and easy way to bring increased certaintyto the relationship. Moreover, if the group generates no revenue, itmay be hard to justify the costs of forming and operating a more formalbusiness entity.

    For a group that is operating for profit, whether to go with aco-publishing agreement or a business entity with limited liabilityprotection depends to a great extent on the group's potential liabilityexposure. Some factors to consider in determining this exposure includethe number of individuals publishing content (the more people, the morerisk of liability) and the character of the published work (is it thekind of material that might be defamatory? other problems?). Theco-publishers would also need to evaluate their comfort threshold forrisk and any economic constraints that might stand in the way ofcreating a formal business entity.

     

     

    Last updated on August 20th, 2008

       
     
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