Legal issues in setting up an affiliate program?
Are there any legal issues with setting up an affiliate program? Basically a system where people can get rewarded for referrals.
Even if there's nothing major, are there any words you should make sure to avoid like "intern", etc.?
Just trying to get a general idea of the issues out there. I know that ultimately I should get a lawyer to writeup the terms, but just want to get a general picture to begin with.
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Where are you located? Where will your affiates be located? This makes a difference. – Gary E 12 years ago
2 Answers
In a non-regulated industry (like securities or real estate for example) most of your legal issues will be around how the associated affiliate disclose their relationship to you.
In many jurisdictions -- including in the United States -- individuals providing testimonial support in exchange for compensation must disclose this relationship.
Disclosure will be your friend -- make sure that your affiliate properly present their relationship to you to the individual they "refer" to you -- and you will be in much better standing for anything which comes your way.
If you are in a regulated industry -- for example if your price-comparison website is comparing a product which the person that does the actually selling needs to be licensed -- then there are much stricter rules. Sometimes the word affiliate or referral will need to be avoided. Sometimes you can pay a marketing fee-- and other times you can not.
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"must disclose this relationship".. What counts as disclosure? Suppose they're getting the word out on facebook, does every single message need to say something about them working forus? Or is it enough to add a line in the profile? – Babonk 12 years ago
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@babonk -- that would be a great question for your attorney who reviews your final affiliate agreement. My experience is that 90% of the time it would be fine in the profile. – Joseph Barisonzi 12 years ago
Aside from Joseph's answer- be aware that if you are selling taxable items many states have passed laws that make you responsible for collecting sales tax if you have an affiliate in their state. Without affiliates, you are only responsible for collecting sales tax in your state. With affilates, you have to collect sales tax in all states that you have an affilate in (provided that state has one of these special laws).
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+1 -- Thank you Gary for remembering the taxes issue. As they are doing business around the world they may also be tax implications in other jurisdictions. – Joseph Barisonzi 12 years ago
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I did forget, no matter where you are, you are expected to collect VAT for the EU. US comapnies are supposed to register in an EU member country and then chareg VAT on all EU transactions. Your are then expected to remit it to the EU member state in Euros. ANother complication of international business. – Gary E 12 years ago
