Social media is a phenomenon that is gaining momentum in popularity by the day. Social media providers (SMPs) provide services that allow users to interact with others and share and create content through online communities.
As such social media may present great marketing opportunities for business of all sizes to promote and market their brand and business.
If you have a business utilising social media you may eventually wish to sell your business and the associated social media accounts (SMAs).
Similarly, if you wish to buy a business which has associated SMA you would want to make sure that you obtain the benefits of the social media presence.
However, realising or purchasing the value of a business’ social media account may not be as straight forward as compared to some other assets of a business such as internet domain names or intellectual property including registered and unregistered trademarks.
What follows is an overview of items to consider when buying or selling a business together with the associated SMAs.
Services of SMPs
The services provided by the major SMPs can be grouped generally into the following categories:
- promotional;
- database;
- billing;
- client list;
- access to platform;
- connection;
When selling or buying a business it is important to identify the services provided by the SMPs as it will have implications on the method of transferring the social media account associated with the business.
Another reason to identify the type of service provided by the SMP is that the terms of service varies from SMP to SMP. For example, while SMPs that provide billing services such as PayPal® allow businesses to open an account in the name of the business other SMPs only allow accounts to be opened by individuals in their personal capacity.
The terms of service of most major SMPs which are opened by individuals in their personal capacity may not be transferred without the authority of the SMPs. Some, such as LinkedIn®, expressly forbid you as the account holder to sell, trade, or transfer your LinkedIn® account to another party.
Other SMPs, such as Facebook®, Twitter® and YouTube® expressly allow a transfer if express consent or permission is obtained from the SMPs. However, evidence and experience suggest that there is generally no formalised procedure to obtain SMPs’ consent to a transfer, no requirement for an SMP to act reasonably in response, and little, if any, prospect that it will respond at all.
This means that transferring ownership or at least the value of SMAs requires a re-examination of the conventional process of buying or selling a business asset.
Value of the Assets
SMA may form a core part of the business which you may be looking to buy or sell or it may form an ancillary part of the business. In either case, there will be intrinsic value in the SMA associated with the business provided the SMA accounts can be transferred. The value may lie in the followers of the Facebook® pages which allow the business to promote and market its’ product or service among the followers, or the professional connections on LinkedIn® accounts who refer work to the business or the details of the clients stored on the social media account under the SMP.
Identifying the assets of the business will help to determine the value of the transaction. By ascertaining the identity of the assets you will be in a better position to carry out the process to transfer the ownership or the value of the SMA.
For example, there is trend among financial advisers to use social media to some extent, with LinkedIn® and Facebook® usage among planners on the rise. According to some reports, linking adviser planning software to social media platforms is part of the next generation of financial advice. In this instance, as the purchaser you should ensure that the data contained on the social media platform if not the SMAs themselves should form part of any purchase and not just the adviser planning software or the personnel of the business.
Ownership
The issue with the above is that many SMA are created by individuals in their own personal capacity. Therefore, the terms of service is between the SMPs and the individual in their own personal capacity which means that the SMAs are not transferrable or assignable to the purchaser without the permission of the SMPs.
On the other hand, if the individual who holds the social media account is an employee of the business who will remain employed by the purchaser of the business then it may be possible for the employee to maintain management of the social media account on behalf of the business under the terms of employment between the employee and the purchaser of the business. In practical terms, this means the purchaser of the business may retain control and therefore value of the social media account without going through the angst associated with an actual transfer of the social media account.
Meanwhile there are SMAs that may be opened and maintained under a business entity. For example, PayPal® allows individuals authorised by their business to open and use the account. Before creating such an account PayPal® requires that “you have your business information available before you start, including your business type and details of key individuals associated with the business.” Therefore, by purchasing the business, it may be possible that SMA opened under a business would only require updates to that account such as details of key individuals associated with the business without the problem of having to obtain the prior permission of the SMP.
Possible Transfer Options
Ascertaining the type of service provided by the SMPs together with the value and ownership of the social media account associated with the business should help the potential purchaser or seller to identify the most practical and efficient method to transfer the value of the social media account associated with the business which requires consideration of alternative strategies.
Furthermore if you are the vendor you should carry out your due diligence before entering into negotiations and offering your business for sale with the SMAs. You should prepare your business assets including the SMAs for sale well before offering to the market knowing if the SMAs can be transferred or not and the requirements to transfer.
The following strategies are possible options to transfer the value of a social media account with each carrying certain risks of its’ own.
Option 1: Purchase the business entity that controls the SMAs
For the purpose of gaining control of the SMAs a purchase of the business entity rather than a purchase of the assets owned by the business entity may be utilised to avoid many of the difficulties noted above.
However, this will often be an unattractive option where, for example, the business entity is heavily geared, has a restrictive or complicated equity structure, or has assets that a purchaser has no interest in acquiring or would give rise to adverse tax consequences.
In circumstances where purchase of the assets is required, other methods of gaining control of the SMAs associated with the business should be considered.
Option 2: Require the existing holder of social media account to carry out pre completion obligations
As part of the purchase, the purchaser could require the vendor to carry out certain pre completion obligations which may include requiring the vendor to obtain the permission and authority of SMPs to transfer SMAs associated with the business to the purchaser. To that end the purchaser could require the existing account holder to check with the SMP as to whether a transfer of social media account is possible.
Once pre completion has been carried out and if the permission of the SMPs have been obtained then for the purpose of the completing transfer of the SMAs the existing account holder will need to provide the current password to the purchaser and agree not to access those accounts in the future. The purchaser could then change the password to prevent the existing account holder to access the SMAs in the future.
Option 3: Appoint the existing holder of social media account to maintain the social media account as an agent
Like option 2, appointing the existing account holder as the purchaser’s agent to maintain the SMAs of the business is unlikely to be considered a breach of the SMPs’ terms of service because it would not involve an unauthorised transfer, assignment of ownership or password disclosure.
But, unlike option 2, this option relies on the purchaser maintaining a positive relationship with the existing account holder. If the relationship deteriorates, there will be a risk that the existing account holder will cease to act as the agent and therefore putting at risk control of the SMAs.
Option 4: Vendor agrees to deactivate its social media account and agree not to open any new account under certain conditions. The purchaser is to then establish new account with the same or similar names while placing the existing holder under a restraint.
This option has the benefit of not requiring the cooperation of the existing social media account holder and would not likely breach the SMPs’ terms of service as it would not involve an unauthorised transfer.
However, not all SMPs immediately make the name of deactivated accounts available for other users following deactivation. The purchaser might have to suffer through an unavoidable time lag or, worse, cyber-squatters might pick up the name before the purchaser does.
More importantly, it is not generally possible to transfer the followers, fans, subscribers and the like of the deactivated accounts to the new accounts. The slate will be wiped clean, thus destroying what made the SMAs of the business attractive in the first place.
To minimise the loss of ‘followers’ following a change of ownership, a clause may be inserted in the asset purchase agreement requiring the vendor to make contact with all existing ‘followers’ for the purpose of inviting all existing ‘followers’ to follow the new social media account.
Corporate Lawyers Sydney at Pavuk Legal can assist with the above and many other legal aspects.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
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