We all know that social media provides businesses with an effective way to interact with existing and potential customers and promote their goods or services. The speed with which advertisements or promotions through social media can “go viral” gives these platforms many advantages over advertising through traditional media.
It is for that reason that social media accounts have been the key to the fast growth for many entrepreneurs and their businesses, and are in some cases the most valuable assets of the business.
It therefore goes without saying that the buyer of a business will generally also want that business’s social media accounts as part of the transaction.
To maximise the value that both the buyer and seller get from the transaction and streamline the sale process, you will need to be aware of the potential legal traps in “buying” or “selling” social media accounts. Unlike many other “traditional” assets that are transferred as part of a sale of business transaction, this is not as simple as may be expected.
What to watch for?
When creating a social media account with a social media platform (for example, Facebook, YouTube, Twitter or Pinterest) you are usually either required to agree to their terms of service or will be deemed to agree to them.
Hidden within these terms are usually a number of conditions that will impact on a business’s ability to transfer its social media account to the buyer of its business. Examples of these provisions include restrictions or prohibitions on users:
- Sharing their password.
- Allowing others to use their account.
- Transferring their account (although the terms of some social media platforms provide that users may transfer their account if the provider first consents to the transfer).
For those social media platforms that allow transfers with consent, unfortunately they are yet to publish any formal procedure to obtain their consent to a transfer. Therefore chances are the process is slow and uncertain, and this should be factored in when the buyer and seller are negotiating the sale transaction.
What can be done?
If a business has one or more particularly valuable social media accounts that the buyer wants as part of the sale transaction there are potentially a number of strategies to make that happen.
The simplest strategy is for the owners to sell their entire company (which holds the social media accounts) rather than just its assets and the social media accounts. However, some buyers may not want to buy the entire company, particularly where they consider there may be “skeletons in the closet” such as undisclosed third party claims or unpaid tax bills or employee entitlements.
Other strategies may exist, but each has its own advantages and disadvantages. For example, while asking for permission from the social media platform to consent to the transfer may be the preferred solution, as mentioned before there are uncertainties about how that is done and how long that takes.
On the other hand, while the seller can simply pass the logins and passwords to the buyer on completion, it probably constitutes a breach of the platform’s terms, which may mean the platform’s account can be suspended or even terminated. This could potentially destroy the value of those accounts.
Another strategy could be to contractually appoint the seller to manage and operate the social media platform on behalf of the buyer after the sale. However, the arrangement becomes problematic and risky over time if the commercial relationship with the seller deteriorates or changes.
Finally, the parties could consider deactivating the platform’s accounts so the buyer can set up its own accounts under the same name. Although in principle this may seem logical, it may result in all of the business’s current followers/likers/ subscribers being lost, or a third party may opportunistically register those accounts during the “changeover” period. Both of these scenarios would expose the buyer to a risk that the value to those social media accounts are lost.
Depending on the terms of the company or business sale agreement, failure to have the accounts transferred could also result in a reduced purchase price or the seller paying damages to the buyer, and the buyer not getting what it bargained for.
It is therefore important to consider these legal and practical issues when negotiating and structuring a transaction that involves a transfer of social media accounts.