Buying a website – legal issues and pitfalls

Buying or selling a website Websites are now a vital part of many businesses, so if you are buying a business you need to do your homework. Typically, you will instruct an accountant to look at the financials and a lawyer to look at the legal aspects. Bearing in mind the importance and value a

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Buying or selling a website

Websites are now a vital part of many businesses, so if you are buying a business you need to do your homework.

Typically, you will instruct an accountant to look at the financials and a lawyer to look at the legal aspects. Bearing in mind the importance and value a website may have as part of a business, you will need to be aware that all may not be as it seems and to do your homework accordingly.

So what are the potential risks and pitfalls ?

Domain ownership

Don’t assume that the domain associated with the website is owned by the seller, whether a corporate entity or individual, in many cases that’s not accurate as the domain may have been bought when the business was started in a different individual’s name.

Website design and content

Who owns this? It may be the seller but it could also be owned, in whole or in part by the web developers/designers if rights were not specifically assigned at the time it was created.

Web traffic now and in future

Firstly request that as part of the disclosure by the seller, you are given full access to web analytics, especially google analytics and webmaster tools, which you should expect to be in place with any website of value. Analyse whether the traffic comes from pay per click or non-paid (organic traffic) and study the trends, which with google analytics can go back possibly years and with webmaster tools several months.

Google penalties in past and future risk?

Sharp drops in traffic may  indicate a penalty which would be a cause for concern and merit further enquiry and investigation.

Overall market position in it’s niche

There are tools which provide useful data as to how the website is doing in terms of rankings, how competitors are doing, trends and so on.

Website due diligence

Whether the seller provides you with access and data or not, ensure an expert cross checks what the seller says or provides – an online marketing expert can offer help as to whether the seller is being upfront and honest.

Check indexed pages, links and content

It is important to check how many pages on the site are indexed by google, which can easily be achieved by a google search using site : (site url) and potentially to check that most of the content is original (copyscape is a good tool for checking). As google is penalising many sites now for inbound links that are unacceptable, it;s important to check the link profile as it may flag up risks going forward. A google penalty is likely to devalue the site hugely, so it;s important these aspects are checked, preferably by an experienced online marketeer who can prepare a report as part of the due diligence process.

Legal compliance with online trading laws

Does the website currently comply with online trading laws such as EU cookie law, data protection and the Distance Selling Regulations ? If not, you would be taking on a big risk, and at the very least would need to ensure this is corrected and to obtain an indemnity from the seller.

Linked website social media accounts?

Social media is now highly connected with a website business so it’s important that any social media accounts associated with or linked to the website are also included in the transaction. With an e-commerce site, are there affiliated accounts or interests – for example EBay – these will need to be transferred also.

Online reputation 

Google the website you are interested in buying, any underlying business and be aware that any adverse comments or reviews may damage the business and are very difficult to remove.

Warranties/retention to reduce risk?

As with buying any business, consider what warranties should be sought from the seller, possible non-competition covenants are also important and if possible, insist on a retention of as much of the purchase price as possible for a period post completion, although it is important to define the criteria for this carefully and obviously, likely that the seller will try and resists a retention.

Fresh content

Who will update the site ? – it’s all very well buying a site that is doing well, but maintaining a website, especially one with lots of products or services, is very time consuming. The content needs to be kept up -to-date, such as pricing for goods, availability and with other content, is it accurate and up-to-date ? Search engines are now increasingly also favouring sites that create fresh content, which again, requires time and effort. You will need to understand your business and the market to be able to keep up and do you have the time or resources to do this ?

Website security/back up/hosting/site speed/ranking factors

All of these factors are vital – websites do get hacked, so security is important and site speed is also a ranking factor with google, so these issues need to be considered and checked.

If the website is e-commerce where are clients from? – enforcement issues internationally?

With an e-commerce site, consider where the buyers come from – what happens if there are problems or disputes ? International law is complex and a site which gets most of it’s business internationally would be considered higher risk.

Overreliance on google -where does the site traffic come from?

If it’s mostly google, that’s risky. Google is constantly changing and there can be no guarantee of future rankings. A site that gets traffic from a number of different sources is preferable It is easy to check where the traffic comes from via analytics tools, such as google analytics. If analytics aren’t set up or made available to you with historical data, that would be another significant risk factor and possibly somewhat suspicious.

Goodwill

Especially if buying site separately from rest of business – goodwill is notoriously difficult to value.

Contract to buy or sell a website and domain

many domains and websites now sell for big money. As can be seen above, there are many issues, risks, pitfalls and uncertainties. the last thing either buyer or seller should want is litigation, so clarity is important to protect both sides. A seller should be wary of offering warranties about website traffic and performance, it’s virtually impossible to guarantee these. From a  buyer’s perspective, it makes sense to try and negotiate payment which s partially deferred just in case there is a lurking problem or issue. make sure you remember the basics as well – if a website is intrinsically linked to a business, are you buying that business as well – what about the risk of passing off or confusion. Ensure that a domain, website and any social media accounts are in fact legally, in intellectual property law terms, owned by the person or entity purporting to sell. A well drafted, clear website and/or domain sale agreement is essential, as is having it drafted by lawyers who understand the issues and how websites and web traffic works.

If you are buying or selling a business which includes one or more websites or are buying or selling a website on a standalone basis, specialist advice is important. We would be delighted to assist, so please do get in touch.

 

 

commercial law • Debbie Serota

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