Let’s say you bake delicious croissants and those who have tasted them expect fresh pastries every day. Today, an Instagram account with pictures of croissants from different cafes and their reviews is probably a more profitable business.
Croissants are a traditional trade. But if you are selling social media accounts, the validity of the deal costs a lot more. A recent Ukrainian alternative is the Virtual Assets Law (the “Law”). What risks need to be considered and how to mitigate them, why Ukrainian jurisdiction could become a new black for virtual assets – read on.
1. Social network account as a “virtual crescent”
The law created a new type of property – a “virtual asset” which can take different forms: cryptocurrencies, domain names, game avatars, social media accounts, NFTs, etc.
An account can be part of different transactions:
(1) simple (sell, take out a secured loan, contribute to the share capital of a company);
(2) complex (benefit sharing and distribution, creation of derivative assets: NFTs, virtual reality objects; damage assessment);
(3) selling as usual (account has enough content and followers to generate revenue).
2. Account on social networks: filled croissant
If followers are the key value of the account, it would suffice to agree on the basic terms. If you’re buying an account for content or monetization, pay attention to detail, check the risks, and structure the transaction.
When negotiating the deal, check the croissant filling as the most valuable assets are hidden inside. This involves acquiring copyrights, trademarks, monetization rights, etc. Without them, you will have problems marketing the asset.
If you have public social media groups (with a significant number of followers), the fill may not consist solely of advertising rights. Media holdings may be incentivized to acquire such a “crescent” (as a place to sell customer advertisements).
3. The head baker of the account
Although the account exists within the social media platform, the latter is hardly involved in the transactions. The owner is the one who has the login and password, the one who controls the content and monetization.
If social media prohibits the sale of accounts, it is unlikely to take into account the claims of the parties to the transaction. A court may consider this prohibition and challenge the validity of the agreement. In case of problem, you must choose in advance the law of the country which validated the agreements on the virtual assets. The law will increase the chances of obtaining a defense in a Ukrainian court or even an arbitration institution.
4. Bakery without jurisdiction
The law introduces a marketplace for virtual assets with sellers and buyers, which may have agents and officially registered marketplaces. The parties may be residents of different countries but choose Ukrainian law to govern the purchase contract.
If you’re dealing with an agent (a website that acts as a venue for virtual asset merchants), consider a dispute resolution mechanism. If payment is to be made before the account is transferred, it is important that the agent has access to everything the buyer needs to control. If the seller is in default, the agent can keep the property until the dispute is settled. When it comes to monetization, copyright, or branding, a typical website cannot meet this requirement.
5. Do you need a receipt to sell a croissant?
Ownership of the account must be confirmed by a username and password, which guarantees access to the account. The agreement must contain a list of the assets acquired with the account, namely:
(1) content with a list of copyrights and warranties;
(2) individuals’ permissions to use their likenesses and names;
(3) specifics of use of the mark.
Check whether there are any restrictions on the acquisition of the asset and the risks of termination of advertising agreements.
6. Croissant Diet (restriction on selling accounts)
While some social media do not allow the licensing or sale of accounts (e.g. Instagram), others do not prohibit the sale of accounts (YouTube, Telegram).
Before executing an agreement:
(1) check whether social media imposes restrictions; and
(2) consult an attorney about how the restrictions might affect the validity of the transaction. A lawyer can advise you on options to reduce financial and legal risk.
7. Bon Appetit
Today, websites that process payments are account sales agents. They promise assistance with a dispute, but until it goes to court, you should expect nothing more than a correspondence. The agent’s ambiguous status affects the validity of the agreement and therefore the remedies available to the defence.
A court in your jurisdiction is unlikely to consider a claim against a counterparty that is only known through an avatar on a website. The obvious risks are losing money (if you are a buyer) or the account (if you are a seller).
8. Sell croissants in a new bakery
A virtual asset has legally become property, so illegal actions against it can be punished by criminal prosecution. If you chose Ukrainian law and ended up in court, you can seek account renewal or access or other appropriate remedies as well as an interim injunction.
From now on, it is no longer necessary to invent how to convince the judge that the social network account is a precious asset. Whoever chose the Ukrainian jurisdiction can defend the virtual asset or the income from the sale of the asset.
9. Tax on croissants
The law will enter into force after the amendment of the Tax Code of Ukraine. If the circumstances are favorable, we expect the law to come into effect this fall of 2022.
The seller should be interested in the taxation of virtual asset transactions because he will make a profit and will have to pay taxes. Some transactions will not have specifics in terms of taxation but, if you are a Ukrainian resident, wait for legal updates.
We will follow the changes and keep you informed of the opportunities offered by the Virtual Assets Act (on domain names, game avatars), so stay tuned.
