Free Speech in the Cloud

US-centric companies should keep in mind that there are different approaches to “free” speech in Europe and elsewhere from those in the United States. Because of the different treatments, questions about which jurisdiction’s* laws govern content on the internet become important, especially when content is stored in data centers (the “cloud”) that are accessible over the Internet from different countries

A recent case in France involving Twitter is focusing on the disparity in jurisdictional approaches. A French court ordered Twitter to identify people who had posted anti-Semitic and racist entries, breaking a French law against racist speech. Twitter has said it only divulges identity of users in response to a valid US court order, the jurisdiction where its data is stored. It has already removed the content from its site in France, the jurisdiction where the posting was violating the law.

Twitter does not have an office in France, which also plays into the jurisdictional question. In the past the physical presence of a thing or a person helped determine which government’s laws prevailed, but the ability to access data makes this issue irrelevant. Complicating the issue is that in other circumstances and in other jurisdictions, Twitter has touted itself as a special defender of free speech. Think of the uprising in Egypt. There is a natural tug of war between security concerns and the need to protect privacy.

This conflict between the laws of different jurisdictions makes it difficult for companies doing business around the world over the internet.

 

*Jurisdiction indicates which legal authority has the right to deal with and make pronouncements on legal matters and to administer justice within a defined area of responsibility or geographical area such as a sovereign nation.

LLC or Corporation? Which entity type should I chose?

Should I form an LLC or corporation? Choosing the form of entity for your new venture depends on your goals. Sitting down with your attorney and your accountant will help you sort through the differences and come up with the right choice.

Formality

Corporations require more formality (and therefore more potential expense): a formally elected board of directors, statutory officers, stockholders meetings, class votes on certain issues, and records of meetings. While LLCs have some formalities they must follow, the rules and requirements are not generally as strict or burdensome as the formalities that corporations must follow. For example, the laws do not generally require LLCs to have any annual meetings (although some LLC operating agreements require meetings – but that’s a choice you make at the time you are organizing your company).

Familiarity

Corporate law is better developed and thus more predictable, should there be any litigation. However, as the LLC entity is becoming more common, the law regarding such entities is developing as well.

Double taxation

C Corporations result in higher overall tax payments through “double taxation”. A business operated in corporate form must pay federal and state income tax on the corporate level. When those earnings are distributed by way of dividends, they ordinarily generate additional tax again, payable by shareholders.

Both LLCs and S Corporations avoid double taxation because all company profits are “passed through” and reported on the personal income tax return of the shareholders or, in the case of an LLC, the members. S Corporations have limits as to the number of shareholders (no more than 100) and their citizenship (all individual shareholders of an S Corp must be either U.S. citizens or permanent residents, with a few limited exceptions). Also, shareholders must be natural persons, so corporate shareholders and partnerships are generally excluded. In an LLC, income and loss can be allocated disproportionately among the owners. By contrast, in the S Corp, income and loss are assigned to each shareholder strictly based on their pro-rata shares of ownership.

Raising Capital?

If your company is considering raising venture capital, VC firms are traditionally more likely to choose the C Corporation as the type of legal entity for their investments (this relates back to the predictability of corporate law, and the fact that it is very unusual for LLCs to go public).


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