Skip to content
3 Key Legal Things About Passive Income

3 Key Legal Things About Passive Income

Let’s start out with the big question: what actually is 'PASSIVE INCOME'?! Passive income is any type of income that is not earned by a direct activity. Thus, you aren't trading your time for money. Establishing a well-thought-out passive income revenue stream is a great avenue for service-based business owners who spend the majority of their business hours servicing clients and are getting paid only for the hours they are actually working for the client. Having that added layer of passive income revenue hitting your business bank account is a great way to make a little extra money on the side. It allows you tons of freedom because you put in the effort at the beginning to set up and then reap the benefits into the future with little to no effort to earn and maintain.

Now, back in the day,  most people only recognized passive income through the real estate market. You could 'make money while you sleep' by renting out real estate (long term or short term) and generate a profit every single day. However, now it's entirely possible to reap those same benefits utilizing passive income online!

But, before you do anything else, I want you to know that there are a few big legal considerations to keep in mind when you are ready to begin your journey into the online, digital passive income space. Those 3 key legal things are: (1) legally adding people to your email list, (2) having the correct online contracts in place to protect your passive income products, and (3) trademarking or copyrighting any necessary intellectual property.

Legally Adding People to Your Email List

Of course, you need to start building an email list in order to market your new digital products. That’s usually step number one! However, the biggest issue I see when people start out implementing passive income revenue streams is that the legal side of their opt-ins/freebies/lead magnets (these terms are used interchangeably) is not up to par. When you have a pop-up or landing page that asks a potential customer for their email address and name in exchange for a free guide or resource, you need a legal disclaimer attached to that. So, before your potential customer hits ‘submit’, make sure you have a quick little memo that establishes that by clicking submit they agree to your company sending them marketing emails and agree to your privacy policy listed on your website (remember, you HAVE to have a privacy policy linked in the bottom footer of your website when you are acquiring any type of personal information from people landing on your website!).

Having the Correct Online Contracts In Place To Protect Your Passive Income Products

When you set up shop online—whether that’s through a digital product shop, online course, membership product, etc.—you need to have the correct contracts in place to protect you!

Here are the top contracts you may need depending on your situation:

  • Website Terms and Conditions: These are the terms of use of someone using, scrolling, and potentially purchasing something on your website. Usually, Terms and Conditions include a brief explanation of your business’s refund policy, disclaimers regarding your products/discounts/sales, advertisement disclaimers, and anything related to affiliate marketing on your website. This type of contract should be used on everyone’s website who sells a passive income-related product (single digital downloads, courses, memberships, etc.)!

  • Digital Product Purchase & Use Agreement: Upon checkout of a digital product, you need to have a customer agree to a Digital Product Purchase & Use Agreement. Make sure this contract is agreed to by your customers prior to purchasing and is conspicuously disclosed on the checkout page and at the bottom footer of your website. This contract will include clauses such as your company's ownership of the digital product copyright, no refunds due to the immediate nature of digital product delivery, one license to use the digital product, and much more. This type of contract is oftentimes referred to as a "clickwrap agreement" for digital products and you will often see it in a small box that customers can scroll through during the checkout process.

  • Online Course Agreement: If you are planning to sell an online course, instead you will need to use a specific contract related to purchasing online courses. An Online Course Contract will address your policies on chargebacks, refund requests, payment plans, communicating with you outside the course, confidentiality, copyright ownership, and more.

  • Membership Program Agreement: A Membership Program Agreement should cover things such as member fees (first month due upon purchase and cancellation procedure for future months), terms of your membership (continual access to your membership hosting platform so long as the customer pays their monthly dues, etc.), bonuses, storage of information, communication with students, waiver of liability, that you don't guarantee automatic results, and more. 

Trademarking and/or Copyrighting Your Online Course

There are two types of ways to protect your intellectual property: through trademark registration or through copyright registration. Trademarks protect brand names, business names, and slogans, while copyrights protect original works fixed in a tangible medium (aka your course slides, pdf downloads, etc.) Thus, if you come up with a super unique name for your online course that you want to ensure no one ever takes, you should consider trademarking it. Federal trademarks cost around $1500-$2000 when you work through the process with an attorney (which TLP highly recommends because federal trademarking through the USPTO can be a lengthy and confusing process if you are not well-versed in trademark laws) plus any fees associated with filing the application.

Similarly, if you have unique course slides or pdf content that your students have access to, make sure to first add a copyright symbol (©) or disclaimer on all your content. This is a good way to provide notice to your students that the content is owned by you and they should not reproduce it and violate any copyrights. However, this isn’t a sure-fire way to dispel people from disseminating your content or using it for their own commercial purposes. That’s why officially registering your course content with the U.S. Copyright Office is always the best option. Registering your copyright adds a necessary, additional layer of protection that allows you the ability to bring a lawsuit against anyone that is stealing your stuff (and acquire automatic damages!). Copyright registration is pretty straightforward and can be done on the U.S. Copyright Office’s website for $45-65 (depending on if you register just one work or send in all your course modules (PDFs, workbooks, etc.) in one bundle). 

By understanding these key legal things related to passive income, you are well on your way to creating a legitimate online business empire! To learn more about passive income, feel free to download our FREE guide: How to Set Up Your Biz for a Profitable (+ Legal) Passive Income Stream

THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.

See our full disclaimer here.

Previous article What Every Adventure Photographer Needs to Know About Assumption of Risk


Sherry Smith - March 14, 2022

Thank you for continuing to post articles, blogs, tips and more! The advice from is always extremely beneficial.

Warm regards,
Sherry Smith

Leave a comment

Comments must be approved before appearing

* Required fields

Join the Community

Join the Community

Be a part of 8000+ TLP Community Members in this safe space and get real-time answers from Paige and her legal team daily!

Join Now