Subsidiary Business - Blog Site Liabilities

[jergraves]

Hi,

First off I appreciate this forum and thank you for your time in advance.

I've created an LLC that has been running for over a year. It is a web-based business. The core business is research in a particluar industry.

I'm starting to expand my core business into a couple of different web-sites. Basically, expanding my single legal entity (LLC) to operate multiple businesses without creating a new legal entity for each business.

The expansion business is not related to my core. It is a user driven content blog site. Unrelated and unlinked (on the web) from my core business's site. This blog site is considered a subsidiary of my core business.

Even with all the CYA's in place in the terms of use, is it possible for my subsidiary business to be sued and hold up my core business from operation? I'm sure the answer is anything is possible.

Can these two different types of businesses co-exist under the same entity and still function if one runs into a law suit? Or is it better to suck up the cost and set them up separately? Anyone have any experience with this?

Some background, I currently have an attorney that I work with (retain). When I first started my business a year ago I interviewed 17 different attorney's based upon referral's and their background. Specifically looking for experience in technology, software and e-commerce. As I run into issues this particular person has always been able to assist me or refer me. Which isn't a problem. But dealing with this particular issue (cyber law related to blog sites) it has been a bit more of a challenge. So i'm looking for more feedback, places to look, possible recommendations or things to consider on the issue.

Thank you

Jeremy

 

[Michael Wechsler]

This is simple corporate law, so it seems. If all your blogs are under one legal entity then all the assets of the entity are subject to a claim against the entity. All the blogs or other assets owned by that company are affected. I know of no other way to separate liability for each of these blogs except to clearly have them be owned completely by different legal entities.

You interviewed many attorneys to ask what - to me - seems to be a simple question, although I could be wrong and missing something. What did they tell you?

 

[jergraves]

Thank you for the reply. I had a lot of information to go through and I was able to lump the responses into a few different categories depending upon who you spoke with. By the "who" i mean their legal background.

For me it all boiled down to risk and expense as I mentioned before. But I'm willing to trade expense to minimize risk. Therefore, I'm going to create a seperate entity and insure with a media liability policy. I retain legal representation but I am still searching for local representation with a background in cyberlaw.

Details of some of the things I heard which brought me to this conclusion -

I was looking for experience in cyberlaw. Specifically blogging. No one I interviewed seemed to up to speed on cyberlaw, with the exception of when I visited Silicon Valley. But I expected to find attorneys there with experience.

To ask what - First is to find future representation. Next is the bottom-line, which for me is like any business is to minimize risk and expense. Especially in this case because I'm not making any revenue except maybe in some advertising, but it is minimal. I wanted to see if I could squeeze a blog site unrelated to my primary core business under the same entity (LLC) with minimal risk and at the same time minimizing expense. So if my blog site were to be sued would that stop my core business from operating or cause other damage to keep it from operating. It was a pipe-dream to begin with but I have to investigate.

What I found was the attorney's with a corporate background had a response similar to yours all blogs are under the single entity which create a liability for my core business (core business is not blog related). Regardless if it is a subsidiary.

My understanding from talking to attorney's with this type of background was even if I file for a public domain license and state content is owned by the users, there is still liability since the site is the service provider for that content.

Attorney's with a small business background in Technology were more optimistic. A number of them mentioned Series LLC's. But Series LLC's according to most of them have not been tested in the state of California.

Attorney's with a real-estate background (I was referred to a few of these) just referred me to other attorney's with no experience and the response was to make the blog a separate entity.

The attorney's in Silicon Valley I met with all had a similar but aggressive responses. The "Yes, but" response. I think because cyberlaw is a relatively new or untested field this gave way for aggressive responses. I heard the following responses -

-create a series LLC (untested in the State of California)
-register your site with the creative commons organization so the information is public domain.
-tailor your terms of use with a massive cover your ass which this attorney could put together for me, which is "bulletproof", their words not mine.
-host your servers and establish your business in the phillipines or some other e-friendly country.

 

[Michael Wechsler]

It sounds to me like there is a lot of confusion going on here.

(1) A blog site means that you are publishing the core content, not the users. If the "users own their posts" it is a social networking or community site. We are now talking about apples and oranges and you need to be clear about which of these two you are talking about.

(2) The corporate attorneys are right on a corporate level and that will give you an idea as to corporate liability, not on whether the conduct you are engaging in will arise to a level of liability regarding the acts themselves, e.g. the actual blogging activities.

(3) Hosting your servers in another country isn't going to absolve you of liability in this country. People incorporate in another country for just that reason (see Kazaa if I remember correctly) and if your entity is US you will be sued in the US. Don't be fooled by this and this hosting issue is something a little different.

(4) I'd love to see this "bulletproof" CYA Terms of Use. With almost any defamation case you'll likely receive a takedown notice long before anyone wants to sue you and the issue is over. And the issue of whether you are liable is more than just a policy but also how you manage your website and its policies.