How Passwords Can Kill Your Business

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1. Feature: How Passwords Can Kill Your Business (4 min)

2. From the Archive:

   • Annual Gifting of Partial LLC Ownership Interests

   • Protect Your Business Name

   • Financial Benchmarks for SMB Owners

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They built an online following of seventy-five thousand fans and customers and then watched it disappear.

A dispute among the founders, control of a single Instagram login, and the absence of basic protections for the company’s digital assets turned an enviable position into a cautionary tale for every small business owner.

A promising business with a hidden weakness

Three friends with complementary skills launched a small manufacturing company and bootstrapped their way into a strong niche. Demand for their products grew quickly. With no marketing budget and no dedicated marketing staff, they relied on one shared Instagram account, which slowly and steadily accumulated 75K followers. That account became the central channel for their brand, customer acquisition, and even their trade show success.

As the company grew, it encountered what many owners think of as good problems. Orders backed up. New hires strained payroll and management capacity. Cash flow needed more active attention. Under that pressure, communication among the founders weakened, minor disagreements were not resolved, and tension in the partnership increased.

If your business depends on a website, a social platform, or an email list to reach customers, you are exposed to a similar risk, whether you have recognized it or not.

When one person holds the keys

Over time, one cofounder became disillusioned with the direction of the business and with his relationship to the others. He happened to be the person who controlled the Instagram account. The account was in his name, tied to his email personal address, and subject to his decisions.

When the relationship deteriorated, he began using the account against the company. He posted critical comments about the business and the other founders. Customers saw disarray and conflict where they had previously seen a coherent brand. Sales declined, and trade show results weakened. The other founders discovered that, as a practical matter, they had no clear legal mechanism to compel the platform to transfer control.

On paper, the company was owned by an LLC. In practice, its most important marketing asset was controlled by one individual who disagreed with how the business should be run. Within months, the company could not recover. The two remaining founders formed a new entity and opened a new Instagram account, this time beginning with zero followers. Four years later, despite their experience, they had rebuilt only a small fraction of the original audience, and they did so at considerable cost in time and money.

What an operating agreement might have changed

Warren Buffett has observed that it takes twenty years to build a reputation and five minutes to ruin it. He was not speaking about social media, but the point translates easily. For many small businesses, reputation now resides as much in search results, reviews, and social feeds as in personal relationships.

A well-drafted operating agreement might not have prevented this breakup but it could have made the result less destructive. If the agreement had clearly stated that the company owned all digital assets, defined how those assets would be administered, and set out the process for transferring control, the remaining founders would have had a clearer path to maintain access to the Instagram account and to other digital channels. Courts and online platforms are not designed to respond quickly to informal business disputes, but they are more likely to respect rights that are clearly documented and tied to the entity instead of to an individual.

Operating a limited liability company without an operating agreement leaves the owners subject to state default rules that were not written with social media accounts, online advertising accounts, or email service providers in mind. Those default provisions tend to be blunt, and they can produce outcomes that do not align with the expectations of the people who built the business.

Digital assets as core business property

For most small businesses today, digital assets are no longer peripheral. They include the company’s websites, domains, social media accounts, online advertising and analytics accounts, blogs, newsletters, email service providers, and ecommerce and marketplace logins. These assets perform functions that, a generation ago, were served by storefronts, phone lines, and printed catalogs. They are often the primary way customers discover, evaluate, and purchase from a business.

Even so, many owners have never taken a complete inventory of these assets. Accounts are opened in the moment, often by whoever is available. Email addresses used for registrations may be personal rather than company controlled. Outside agencies and contractors may hold administrative access. Departing employees may retain credentials long after their relationship with the business ends. The business continues to function until something goes wrong, and only then does anyone ask who actually controls the accounts that matter.

If your company’s records don’t address the ownership and control of digital assets, it is important to begin correcting that now. The same concepts apply, whether you operate as a corporation, a member managed limited liability company, or a manager managed one. An attorney who understands your situation can adapt the language and align it with your broader communications and technology policies.

What follows is sample language for a manager managed limited liability company. It is not legal advice and should be reviewed and revised by legal counsel before use, but it illustrates the issues that owners should address.

Sample digital asset clause for a manager managed limited liability company

Section 1. Company websites, domains, social media accounts, online advertising and analytics accounts, blogs, newsletters, and all other forms of Company communications and marketing, collectively “Digital Assets,” are the sole and absolute property of the Company regardless of the manner in which they are titled, administered, managed, updated, or altered. The Parties acknowledge and agree that many third party sites require that an individual be the listed owner or manager of a Digital Asset account. Regardless of that requirement, Digital Asset accounts are at all times the sole and absolute property of the Company.

A. Account Control. Digital Asset accounts shall only be opened and maintained using a Company owned email address and shall be secured with multi factor authentication and Company approved password management tools. Current usernames, passwords, and authentication methods for all Digital Asset accounts shall be maintained by the Manager or a designated Company officer. Members shall have the right to request login credentials in writing, and the Manager shall provide such credentials within three days. If any username, password, or authentication method for a Digital Asset account is changed, the Manager shall be notified in writing within three days of the change.

B. Transfer of Control. Upon written request of the Manager or a member, any Manager, member, or employee who controls a Digital Asset account shall, within three days, transfer all title, administration, and management authority for that account or those accounts to the party designated in the request. The Manager, member, or employee shall promptly complete all forms, applications, and changes required by any third-party platform to effect the transfer, regardless of whether that individual has resigned, has been terminated, or is no longer a member or employee of the Company.

C. Posting. The Manager and the members shall not, directly or indirectly, post any communication to a Digital Asset account that is knowingly false, misleading, or disparaging to the Company, its members, employees, or customers. No post shall mention, reference, or infer the existence of any disagreement, dispute, or complaint that the person posting may have with the Company, another member, or an employee. All use of Digital Asset accounts shall comply with the Company’s written social media and communications policies as amended from time to time.

D. Death of the Manager, Member, or Employee. To the fullest extent allowed by law, the Parties agree that the provisions of this Section 1 shall, upon the death of the Manager, a member, or an employee, apply to and be enforceable against the personal representatives, trustees, heirs, and other legal fiduciaries of the deceased Manager, member, or employee.

E. Survivability. The Parties agree that the provisions and enforceability of this Section 1 shall survive the death of the Manager, a member, or an employee, and any form of termination of this Agreement.

Where to place these protections

The appropriate home for digital asset protections depends on how the business is organized.

Corporations can address digital asset ownership and control in bylaws, board resolutions, formal policies, or key executive employment agreements. Bylaws are often the most suitable place because they are central, relatively durable, and familiar to directors and officers. Board resolutions and policies can then implement the framework the bylaws describe.

Manager managed limited liability companies can include digital asset language in the operating agreement. Doing so makes clear that these assets belong to the company and describes the authority and responsibilities of the manager.

Member managed limited liability companies should also address digital assets in the operating agreement, with the language adapted to reflect shared management. The goal is the same: clarity about ownership, control, and the process for transferring access when roles change.

A sole member limited liability company also benefits from an operating agreement between the owner and the entity. That agreement can coordinate with the owner’s estate plan so that, in the event of the owner’s death or incapacity, successors can demonstrate authority to manage and transfer domains, online storefronts, and social accounts. Without that clarity, there is a risk that crucial business assets sit in limbo while heirs and representatives attempt to satisfy platform requirements.

A practical checklist for the next thirty days

Owners who want to reduce this risk do not have to fix everything at once. A deliberate review over the next month can make a material difference.

First, prepare a list of all significant digital assets. Include websites, domains, social media accounts, ecommerce and marketplace platforms, online advertising and analytics accounts, and any email or service providers that hold customer data or communications.

Second, confirm the owner's email address for each account. Where you find a personal address, an address belonging to a former employee, or an address tied to an outside agency, change it to a company-controlled address that will remain with the business.

Third, centralize login information in a secure password manager approved by the company. Where available, enable multi-factor authentication. Limit administrator level access to a defined group of individuals whose roles justify that level of control and review that list periodically.

Fourth, ask your attorney to review your operating agreement, bylaws, and internal policies with digital assets in mind. The documents should state that the company owns these assets, describe who is responsible for them, and set out procedures for granting and revoking access as people join and leave the organization.

Fifth, make digital asset ownership and access a recurring item in your regular legal or financial review. Treat it as part of the basic maintenance of the business, similar to renewing insurance, updating beneficiary designations, or reviewing key contracts.

Address the issue before there is a dispute

Ten years ago, the loss of a social media account or a password could cause inconvenience and some loss of goodwill, but it was rarely fatal. Today, for many small businesses, loss of access to digital assets can disrupt operations, cut off sales, and damage reputation in ways that are difficult to repair.

Whether your firm is organized as an LLC, corporation, or another form, you can protect yourself by ensuring that digital assets are clearly treated as company property and that control of those assets is governed by written documents rather than by informal arrangements. Wherever possible, accounts should be opened and maintained under company-issued email addresses, and access should be updated when employees, contractors, or partners depart.

The founders in the opening story did not lose their business because they lacked talent or demand. They lost it because they allowed a critical asset to be held informally by one person. That is a risk you can identify now and reduce before you encounter your own hard lesson.

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