Setting Up Your IT/Media Enterprise as an LLC

Posted on | June 9, 2011 | No Comments

First off, I am neither an accountant nor an attorney so by all means obtain proper counsel for setting up your business.

That said, I’m often asked about setting up a company and wanted to point out some options and things to think about when starting up your business. In particular, you should look at the benefits of setting it up as a limited liability company (LLC).

The major options for creating a company are a sole proprietorship, partnership, and corporation, although an interesting legal option is the limited liability company. Although not recognized by the Federal government for tax purposes, this valid legal form combines some benefits of a corporation, particularly the limited liability, with the more manageable aspects of the partnership or sole ownership. Note, it is a company, not a corporation, and it can be used for non-profit status but presents a few challenges tax-wise.

You can go to one of the many online services to set up your LLC. For example LegalZoom will allow you to form your company over the Internet and charter it in most any state including Delaware, a popular “location” due to its history of corporate law. They will prepare and also file your paperwork with Delaware’s Division of Corporations.

This would include the Articles of Organization that lists the name of the company (must include LLC abbreviated or written out), mailing address, duration (perpetual or for a set amount of time) , state location (ie Delaware), organization and management structure, initial contributions, etc. They may also assist in conducting a name search, establishing a trademark, getting a tax ID, and even filing for a patent.

Once your articles of organization have been successfully filed, your LLC begins its existence as a legal business entity. One of the first things you need to do is to get a bank account. For that you will need your articles of organization that proves you have a business license, the tax identification number (or EIN number) and the authorized members of the LLC. You might want to talk to a banker first, they can get probably advise and get you a Tax ID for free (vs. $75 at LegalZoom)

Something you must think seriously about is an Operating Agreement. This is not required by the state but is one of the most important steps in maintaining your liability protection, preventing disagreements between the members, and raising additional capital. An operating agreement specifies members’ ownership percentages, the members’ draw or salary, bonus distributions, and any privileges or enhanced ownership rights given to any members. The management plan should also include the duties, rights, and responsibilities of non-members employees.

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED

G-8 Declares Support for Internet’s Role in Democratic Movements

Posted on | June 2, 2011 | No Comments

The G8 Declaration:
Renewed Commitment for Freedom and Democracy

May 26-27, 2011 (released on May 27, 2011)

The Group of 8 nations (G-8) recently met in Deauville, France and among other issues, affirmed the role of the Internet. The Obama administration has taken a more multilateral approach to world affairs than the previous administration and the Internet has not received much attention by the G-8 since the Clinton Administration. It also directed attention to other issues such as nuclear safety, climate change and biodiversity; as well economic issues such as trade, innovation, green growth and accountability on development issues.

No doubt, the role of Facebook and Twitter in recent democratic movements in the Middle East provided motivation for the statement. Many members are part of NATO which is currently engaged in military action in Libya in support of ousting long-time dictator Muammar Gaddafi, who has ruled that country for nearly 42 years.

The issue of net neutrality was given a nod while strong support was expressed for the role of intellectual property protections, prompting concern by Russia.

Questions linger about the relevancy of the G-8 which only includes one BRIC nation, Russia. The other current members are the US, Canada, France, Italy, Germany, Japan, and the United Kingdom.

The text is as follows:

II. Internet

4. All over the world, the Internet has become essential to our societies, economies and their growth.

5. For citizens, the Internet is a unique information and education resource and thus can be a helpful tool to promote freedom, democracy and human rights.

6. For business, the Internet has become an essential and irreplaceable tool for the conduct of commerce and development of relations with consumers. The Internet is a driver of innovation, improves efficiency, and thus contributes to growth and employment.

7. For governments, the Internet is a tool for a more efficient administration, for the provision of services to the public and businesses, and for enhancing their relations with citizens and ensuring respect for and promotion of human rights.

8. The Internet has become a major driver for the global economy, its growth and innovation.

9. The openness, transparency and freedom of the Internet have been key to its development and success. These principles, together with those of non-discrimination and fair competition, must continue to be an essential force behind its development.

10. Their implementation must be included in a broader framework: that of respect for the rule of law, human rights and fundamental freedoms, the protection of intellectual property rights, which inspire life in every democratic society for the benefit of all citizens. We strongly believe that freedom and security, transparency and respect for confidentiality, as well as the exercise of individual rights and responsibility have to be achieved simultaneously. Both the framework and principles must receive the same protection, with the same guarantees, on the Internet as everywhere else.

11. The Internet has become the public arena for our time, a lever of economic development and an instrument for political liberty and emancipation. Freedom of opinion, expression, information, assembly and association must be safeguarded on the Internet as elsewhere. Arbitrary or indiscriminate censorship or restrictions on access to the Internet are inconsistent with States’ international obligations and are clearly unacceptable. Furthermore, they impede economic and social growth.

12. The Internet and its future development, fostered by private sector initiatives and investments, require a favourable, transparent, stable and predictable environment, based on the framework and principles referred to above. In this respect, action from all governments is needed through national policies, but also through the promotion of international cooperation.

13. We commit to encourage the use of the Internet as a tool to advance human rights and democratic participation throughout the world.

14. The global digital economy has served as a powerful economic driver and engine of growth and innovation. Broadband Internet access is an essential infrastructure for participation in today’s economy. In order for our countries to benefit fully from the digital economy, we need to seize emerging opportunities, such as cloud computing, social networking and citizen publications, which are driving innovation and enabling growth in our societies. As we adopt more innovative Internet-based services, we face challenges in promoting interoperability and convergence among our public policies on issues such as the protection of personal data, net neutrality, transborder data flow, ICT security, and intellectual property.

15. With regard to the protection of intellectual property, in particular copyright, trademarks, trade secrets and patents, we recognize the need to have national laws and frameworks for improved enforcement. We are thus renewing our commitment to ensuring effective action against violations of intellectual property rights in the digital arena, including action that addresses present and future infringements. We recognize that the effective implementation of intellectual property rules requires suitable international cooperation of relevant stakeholders, including with the private sector. We are committed to identifying ways of facilitating greater access and openness to knowledge, education and culture, including by encouraging continued innovation in legal on line trade in goods and content, that are respectful of intellectual property rights.

16. The effective protection of personal data and individual privacy on the Internet is essential to earn users’ trust. It is a matter for all stakeholders: the users who need to be better aware of their responsibility when placing personal data on the Internet, the service providers who store and process this data, and governments and regulators who must ensure the effectiveness of this protection. We encourage the development of common approaches taking into account national legal frameworks, based on fundamental rights and that protect personal data, whilst allowing the legal transfer of data.

17. The security of networks and services on the Internet is a multi-stakeholder issue. It requires coordination between governments, regional and international organizations, the private sector, civil society and the G8’s own work in the Roma-Lyon group, to prevent, deter and punish the use of ICTs for terrorist and criminal purposes. Special attention must be paid to all forms of attacks against the integrity of infrastructure, networks and services, including attacks caused by the proliferation of malware and the activities of botnets through the Internet. In this regard, we recognize that promoting users’ awareness is of crucial importance and that enhanced international cooperation is needed in order to protect critical resources, ICTs and other related infrastructure. The fact that the Internet can potentially be used for purposes that are inconsistent with the objectives of peace and security, and may adversely affect the integrity of critical systems, remains a matter of concern. Governments have a role to play, informed by a full range of stakeholders, in helping to develop norms of behaviour and common approaches in the use of cyberspace. On all these issues, we are determined to provide the appropriate follow-up in all relevant fora.

18. We call upon all stakeholders to combat the use of Internet for trafficking in children and for their sexual exploitation. We will also work towards developing an environment in which children can safely use the Internet by improving children’s Internet literacy including risk awareness, and encouraging adequate parental controls consistent with the freedom of expression.

19. We recognize the importance of enhanced access to the Internet for developing countries. Important progress has been achieved since the Okinawa Summit and we pay tribute to the efforts made by developing countries in this regard as well as the various stakeholders, governments, the private sector and NGOs, which provide resources, expertise and innovation. We encourage initiatives, in partnership with the private sector, on the use of the Internet with a development purpose, particularly for education and healthcare.

20. As we support the multi-stakeholder model of Internet governance, we call upon all stakeholders to contribute to enhanced cooperation within and between all international fora dealing with the governance of the Internet. In this regard, flexibility and transparency have to be maintained in order to adapt to the fast pace of technological and business developments and uses. Governments have a key role to play in this model.

21. We welcome the meeting of the e-G8 Forum which took place in Paris on 24 and 25 May, on the eve of our Summit and reaffirm our commitment to the kinds of multi-stakeholder efforts that have been essential to the evolution of the Internet economy to date. The innovative format of the e-G8 Forum allowed participation of a number of stakeholders of the Internet in a discussion on fundamental goals and issues for citizens, business, and governments. Its free and fruitful debate is a contribution for all relevant fora on current and future challenges.

22. We look forward to the forthcoming opportunities to strengthen international cooperation in all these areas, including the Internet Governance Forum scheduled next September in Nairobi and other relevant UN events, the OECD High Level Meeting on “The Internet Economy: Generating Innovation and Growth” scheduled next June in Paris, the London International Cyber Conference scheduled next November, and the Avignon Conference on Copyright scheduled next November, as positive steps in taking this important issue forward.

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED

LinkedIn Social Media IPO Raises Questions of a Global Internet Bubble

Posted on | May 26, 2011 | No Comments

Linkedin and the recent slew of Chinese Internet IPOs have both revitalized the IPO market and raised concerns about a new “dot-com” bubble. This time, though, it’s global. LinkedIn, the social media site for professionals was priced at $45 last Wednesday May 18, 2011 and closed Friday at over a $100 a share. The social media company was originally planning to offer 7.8 million shares at $32 to $35 giving the company a valuation of over $3 billion but the equity markets thought differently and collectively valued the company at $80. Is a company with last years earnings of $15.4 million worth some $8-9 billion? What does it mean for upcoming planned IPOs such as auto and mortgage lender Ally, embedded semiconductor device maker Freescale, coupon coordinator Groupon, material science innovator Momentive, and retail brand ToysRus? Not to mention media darlings Facebook and Twitter? Are we headed for another Internet bubble with its inevitable crash?

Here are 5 factors driving social media stocks:

First. The good news is that the benefits of social media and e-commerce are proving significant and real – largely due to their global reach, rich multimedia, cloud storage capabilities and viral strategies that utilize network effects to reach huge numbers of people quickly and cheaply. The Internet’s new mobility has gone beyond laptops to netbooks, smartphones and tablets such as the Apple iPad and Blackberry Playbook and have meant much more activity on the net and many more clicks for content providers and eyeballs for advertisers.

Second. Social media continues and accelerates the Internet’s globalization imperative. Although censorship exists and countries can and often block aspects of the Internet such as Facebook and Twitter, the web has continued to become an important part of the daily lives of people from countries around the world. As the above video mentioned, Linkedin has over 56 million of its 100+ million users from outside the US. Cities like Abuja, Cairo, Bangkok, Jakarta, and Rio de Janeiro have some of the most prolific social media user populations.

Third. We continue to see an economic recovery in the US since the financial crises of 2007-2009 and even faster growth in the BRIC countries. Lower interest rates have been a factor due to the to the US Federal Reserve’s “petal to the metal” financial intervention and mediocre fiscal stimulation by the government have placed the US on a firmer though still shaky economic foundation. Meanwhile growth around the world has proceeded on a faster pace despite rising commodity prices.

Fourth. Global exchanges and investment banks are hungry to list the new social media companies and for the trading activity they can bring in, especially with peaking asset prices. The lower interest rates have meant that cheap money has been scooped up by big speculators who have been able to borrow a lot of money due to liberal margin requirements to ride a number of other appreciating assets, including the stocks of the DJIA that has gone from a low of 6,470 on March 6, 2009 up to the current trading range around 12,300. Traders have also sent gold to over $1450 and oil to $100 a barrel for an unprecedented period of time. With these assets reaching significant valuation heights, investors are starting to look elsewhere. Why not social media?

Fifth. Another factor is the role of the so-called secondary markets that facilitate the exchange of shares in privately held companies. Much of the action is taking place in online exchanges where companies like Facebook or Zynga are not required to disclose financial information. One of these private exchanges, Secondmarket.com/ reported more than $100 million in private stock transactions during the first few months of 2011, primarily in shares of social media companies like Facebook and LinkedIn. These secondary markets have gone online to provide an environment for buying and selling previously illiquid assets like unregistered stocks and warrants, commercial loans, and a variety of corporate and residential mortgage-backed securities. Employees of these unlisted companies, for example, are often tempted to cash in their shares. Social media stocks of pre-IPO companies have proved to some of the most popular as companies delay listing on major exchanges because the threshold for listing is so high. Add the fact that the hype on these stocks has gone viral and the actual amounts available are low, the high demand for limited supply is forcing prices to rise.

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED