Educational Business Basics
Important Legal Terms for a Coaching Business
Affiliate Marketing: Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.
Note: It is a good idea to memorialize such affiliate marketing agreements in writing. If you are an affiliate and endorse someone else’s products or program pursuant to FTC Guidelines that affiliation must be disclosed.
Info Product: Any product or service that you can sell to another to provide them with information, usually about a specific topic.
Note: Info products include, but are not limited to, books, e-books, audios, videos, DVDs, seminars, tele-seminars, coaching, consulting.
Chargeback: A forced refund of a credit card transaction usually due to a client dispute; the money is sucked from your merchant account upon request of the client.
Note: To avoid chargebacks include a waiver of the right to chargebacks in your client contracts and terms and conditions of purchase of your info products.
Errors and Omissions policy: Form of professional liability that protects you and your business from claims if a client sues for negligent acts, errors or omissions committed during business activities that result in a financial loss for the client. These are potential causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm.
Indemnification: An indemnification clause obligates a party (or both parties) to compensate the other party for losses, liabilities, or damages usually due to a breach in a contract.
Corporation: An entity separate and distinct from the individual owner that may reduce personal liability.
Sole Proprietorship : you are your business, there is no separation, you are liable for all debts.
Types of Corporate Entities:
According to the IRS, S-Corporations and LLCs are ‘considered by law to be a unique entity, separate and apart from those who own it.’ This allows for a limit on the financial liability for which an owner (aka ‘shareholder’ or ‘member’) is responsible. What differentiates the S-Corp from a traditional corporation (C-Corp) is the ability to have profits and losses pass through to the shareholder’s personal tax return. Consequently, only the shareholders, and not the business itself, are taxed.
- Limited Liability Company (LLC):
An LLC provides for an entity separate and distinct from the individual owner(s) in order to reduce personal liability. An LLC has the ability to have profits and losses pass through to the member’s personal tax return. Consequently, the business is not taxed itself, only the shareholders.
- Sub Chapter S-Corporation:
An S-Corp is a corporation that has received the Subchapter S designation from the IRS. A business must first be chartered as a corporation in the state where it’s headquartered then file the election to be considered an S-Corp. IRS restricts S corporation ownership.
Piercing the Corporate Veil: Despite having set up an entity such as an LLC or an S-Corp, a plaintiff may be able to ‘pierce the corporate veil’ and go after your personal assets in a lawsuit. If you do not treat the entity as separate and distinct from yourself than you may find yourself in jeopardy of having the corporate veil pierced. This happens many times when the owners of a corporation or an LLC do not maintain separate bank accounts; comingle personal and corporate funds, treats assets of the entity as their own, etc.
Joint Venture (JV): JV is a business agreement in which the parties agree to develop, for a specific time, a new entity or new assets by working together. The parties to the JV exercise control over the enterprise and consequently share revenues, expenses, and assets. In the coaching industry the term JV is used fairly liberally to mean any partnership or project with another.
Intellectual Property (IP) Rights: Include patents, trademarks, copyrights, and trade secrets. Relevant to most coaching businesses are trademarks and copyrights. These IP rights are relevant from both a protection and a clearance perspective. It is important to protect the IP that your business creates, not only to proactively protect yourself, but also because it may create additional revenue sources for you.
Trademarks: Any name, symbol, design, scent, sound, color or motion that is capable of distinguishing the owner’s goods from the goods of others in the marketplace. You want to protect your brand, your identity. Your clients and potential clients come to identify you by you brand, your logo, your trade name, etc.
Copyrights: Protect the expression of an idea (i.e. original works of authorship fixed in any tangible medium of expression). Protect the material you create. The free reports, the course material, the audio and videos that your business creates these are all protectable via copyrights.
Note: Do not take images from other websites, unless they are properly licensed to you. Images on Google Images are not free of copyright, so do not take them and post them on your site.
Trade Secrets: Think the formula or secret recipe for Coca-Cola ®. There may be certain things in your business that you want to protect and keep secret such as your list. It is protected by keeping it a secret and maintaining control over it, which is generally done by contracts and agreements and controlling access to it.
Non-disclosure Agreement (NDA): Also known as a Confidentiality Agreement (CA), Confidential Disclosure Agreement (CDA), Proprietary Information Agreement (PIA), or secrecy agreement. An agreement between at least two parties that outlines the sharing of confidential information, material, or knowledge. Both parties may share confidential information or one may disclose their confidential information to another. The parties agree not to disclose the confidential information shared. Generally the information is shared for a specific purpose, such as to analyze a potential JV relationship. The best practice is to have an NDA in writing. An NDA creates a confidential relationship between parties to protect any type of confidential and proprietary information or trade secrets.
Federal Trade Commission (FTC): A committee that acts in the interest of all consumers to prevent deceptive and unfair acts or practices. The FTC regulates a number of areas related to a coaching business. Email marketing, CAN SPAM, endorsements, testimonials, guarantees, and offers are all governed by the FTC.
CAN SPAM Act: CAN-SPAM Act establishes requirements for commercial messages, gives recipients the right to have you stop emailing them (“unsubscribe”), and spells out penalties for violations. If you send emails to your list for commercial purposes your acts are regulated by the CAN-SPAM Act.
Endorsements: The FTC establishes guidelines that regulate endorsements. The guidelines generally reflect three basic principles in relation to endorsements and testimonials:
- Endorsements must be truthful and not misleading;
- Disclosure of a connection between the endorser and the product maker or service provider ( this includes disclosure of your affiliates if you receive something off value); and
- If the advertiser doesn’t have proof that the endorser’s experience represents what consumers will achieve by using the product, the ad must clearly and conspicuously disclose the generally expected results in the depicted circumstances.
Testimonials: See “Endorsements”
US-EU Safe Harbor Framework: Provides a method for US companies to transfer personal data outside the European Union in a way that’s consistent with the EU Data Laws. Important to consider if you have a joint venture with another in the EU.
Work for Hire Agreement: An agreement between you or your entity and any independent contractor you hire that ensures that you own all rights in and to whatever it is that the independent contractor creates on your behalf. This includes your website design, logo design, and layout of any reports or course books. It is extremely simple and extremely important. It may even include blog posts or other content that another writes for you. Any work a paid or salaried employee does for you will be considered owned by the business, but it is good practice to have employees execute a work for hire agreement in your favor as well.
Assignment: A transfer of all rights and ownership of a product, asset, or business from one person or entity to another.
License: A transfer of some rights or ownership under certain circumstances (i.e. a lease or rental of rights).
Release: A document where one party gives up a right it would otherwise have. As a coach releases are important and you should have them at all events live or over telephone.
Media Release: be sure participants in your call or those attending your event sign a release authorizing the use of their likeness in future publications such as videos, books, or blog posts without a royalty payment.
Tort Release: if your events include any action where the participants can potentially get physically hurt or injured be sure to get a signed release prior to them engaging in the event to be sure you are not liable.
Virtual Assistant (VA): A VA is generally self-employed and provides professional administrative, technical, or creative (social) assistance to clients remotely, rather than from the employer’s office. Many think that a VA is an independent contractor, but you must be careful to ensure that the VA is truly an independent contractor and not your employee. The IRS and many states have factors that determine if someone is an independent contractor or an employee (i.e. they have more than one employer, amount of profit and loss, pay schedule, integration and importance of the services, training, tools and equipment, location of work, etc.). If the VA is truly an independent contractor rather than employee, you are not responsible for any employee-related taxes, insurance, or benefits, unless those indirect expenses are included in the VA’s fees.
Online Business Manager (OBM): A virtual assistant that manages your online business. See “Virtual Assistant.”
Room Block: A minimum number of rooms set aside for booking at a specific rate.
Attrition: Compensation to the hotel for rooms that might have been sold had they not been blocked off and removed from the market by contract. Attrition fees are generally applied when a conference group cannot fill an agreed upon percentage, of the contracted number of rooms. The organizer is responsible for using a minimum number of sleeping rooms per the contract and if those minimums are not met, attrition penalties, meeting room, and exhibit hall charges may apply.
Food and Beverage Guarantee (F&B Guarantee): A guarantee of the amount money spent on food and beverage by you and/or the attendees at an event. Once guarantee is given you will be charged for the guarantee or actual expense, whichever is higher.
Mitigation Clause: Require that the hotel or venue must use all reasonable efforts to resell cancelled rooms in order to reduce your potential damages. This may include a deduction for overhead expenses.
Risers: Not a legal term, but you should know that people tend to fall of them.