11 Online Business Laws You Should Follow
The early days of e-commerce were reminiscent of the Wild West. It was uncharted territory and everyone was doing everything they could to cash in on the madness. Not surprisingly, e-commerce laws were quickly introduced to protect all participants in an e-commerce transaction. After all, this was no mania; e-commerce sales are expected to surpass purchases in brick-and-mortar stores in just three years!
What is e-commerce law?
E-commerce law is a set of legal issues that affect the online retail industry. Every type of e-commerce company, like other businesses, must comply with certain laws and regulations, and failure to do so can result in legal problems and lawsuits.
While e-commerce retail giants like Amazon and Walmart, and service-oriented retail companies like Uber and Lyft, undoubtedly have an army of e-commerce lawyers ready to tackle any challenge, it’s not as easy for small and medium-sized e-commerce businesses due to budget constraints. So let’s take a look at some of the online business regulations that you as a commerce entrepreneur need to know.
11 e-commerce laws that every business needs to know
All e-commerce entrepreneurs need to consult with an attorney who is knowledgeable about e-commerce laws, as well as an insurance agent, to protect themselves and their businesses. In the meantime, we have tried to outline the laws and regulations that you need to be familiar with and ask an expert about.
Establishment of a business entity
Forming a limited liability company (LLC) is one of the most important things an e-commerce business can do for itself. When you form an LLC, you are creating a new business entity that is legally separate from its owners. This protects the owners’ assets from being used to pay liabilities to creditors in the event the company runs into financial trouble.
So if the LLC is unable to pay its debts, the LLC’s creditors can go after its bank account and other assets. However, the owner’s assets, such as their homes, vehicles, and bank accounts, cannot be affected. The LLC owner risks only the amount he or she invested in the business. As with anything, there may be exceptions, so it’s best to consult with an attorney who specializes in e-commerce law.
If you want to learn how to start an LLC, you can use this website: www.myusacorporation.com
“Nothing is certain but death and taxes,” Benjamin Franklin once said. So e-commerce entrepreneurs must apply for a tax identification number and determine if they qualify for sales tax exemptions and resale certificates. It’s important to remember that every state and every country has different expectations and standards when it comes to taxes, so it’s critical to research your target market.
For example, if the majority of your customers are in the U.S., you’ll likely want to list your process pre-tax, as is common in the states. However, if your target market is Australia, where customers are used to seeing after-tax prices, you’ll want to include the tax in the displayed price.
Other e-commerce tax laws depend on what you’re selling and from where. Here are just a few examples:
If you sell clothing from Washington, the clothing is taxed in your state.
Value-added tax (VAT) applies to all unwanted goods in the UK.
Goods sold in plastic bottles in California are subject to a $0.11 recycling fee and other taxes.
This is just one of the many reasons why consulting a tax professional can benefit your e-commerce business.
Choice of payment gateway
How do you want to get paid after the sale? There are many payment gateways, but not all are the same. Here are some considerations when choosing a payment gateway:
Is it hosted or non-hosted?
Is it equipped with anti-fraud features?
Are there any product restrictions?
Are there transaction, termination, monthly, or setup fees?
How do they handle payment processing issues, chargebacks, and holds?
There are three standard payment gateways
On-site payments. Large businesses typically use on-site payments that are processed on their own servers, where checkout and payment processing is done through your system.
Checkout site, payments off site. With this method, the front checkout is done on your site, but payment processing is done through the back end of the gateway.
Similar to redirected payment gateways, this method can simplify payment processes while providing more security on the back end.
Redirects. Redirects often include options for alternative payment methods, for example, the company allows the use of PayPal. If the gateway takes the customer to a PayPal payment page where the entire transaction is processed, it becomes a redirect.
Use of trademarks, patents, and copyrights
Although these words are sometimes used interchangeably, they are all very different. Here is our definition of all three of them.
What is a trademark?
A trademark is a type of intellectual property that consists of a recognizable sign, design, or expression that identifies products or services from a particular source and distinguishes them from others. The owner of a trademark may be a natural person, a commercial organization, or any legal entity. The trademark may be placed on the packaging, label, voucher, or on the product itself. Trademarks used to identify services are sometimes called service marks. ™ and ® are symbols usually indicating a trademark.
What is a patent?
This is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling the invention for a limited period of time in exchange for disclosure enabling the invention to be made public. In most countries, patent rights fall under private law and the patent owner must sue someone who infringes the patent to enforce his or her rights. In some industries, patents are an essential form of competitive advantage, in others they are irrelevant.
What is a copyright?
Copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, modify, display and perform creative work, usually for a limited period of time. The creative work may be literary, artistic, educational, or musical. Copyright is intended to protect the original expression of an idea in the form of creative work, but not the idea itself. Copyright is subject to limitations based on public interest considerations, such as the fair use doctrine in the United States.
Depending on the product or service you sell, you may be able to claim one or all of these protections. While not required, most e-commerce businesses will want to protect and control their intellectual property rights online. Even if you don’t do so, you should at least check to make sure you’re not infringing on other companies’ patents or trademarks; for example, if you sell unlicensed Mickey Mouse cell phone cases, you’re likely to get in hot water with Disney. This is something you can check online – for example on the Justia website.
Understanding transport restrictions
What are you transporting? Some items are restricted from shipping, while others are restricted by only certain carriers (so if UPS doesn’t ship your product, check FedEx or vice versa). Most carriers notify you of restricted items online. The most commonly restricted products include aerosols, perfumes, animals, fruit and vegetables, cigarettes, nail polish, or living plants.
You may be content with transporting products that are stored in the garage or attic. However, your business could end up being too big to legally run from your home! If you’re going to be storing a significant amount of stock, you’ll need to check your lease, property transfer agreement, or zoning regulations to see if there are any restrictions on running an e-commerce business from your home.
Of course, don’t panic – you don’t have to close the business. Instead, look into renting warehouse space or working with a third-party logistics company (3PL). By offloading warehousing and order fulfilment, you’ll reclaim your space and gain access to our technology and order fulfilment experts. You’ll also save money because we ship through fewer shipping zones and have negotiated rates with carriers.
Understanding age restrictions
All websites, without exception, must comply with the Children’s Online Privacy Protection Act (COPPA). The regulation, which will most likely affect your e-commerce business, states that you may not collect any personal information from children under the age of 13.
If your product is tailored to children, you’ll need to research the COPPA regulations in more detail.
If your product is designed for adults, you will need to check your country’s specific regulations and follow age verification procedures.
Getting business insurance
To protect yourself and your business from liability, you’ll want small business insurance. We recommend talking to a small business insurance provider to find out which insurance would be best for your business, product, and location. Some of the insurance options you may want to consider include:
General liability insurance helps cover the cost of responding to a claim where your business has caused property damage or bodily injury.
Product liability is a must-have for high-risk products such as CBD, vapes, or medical devices.
Professional liability protects your business from errors, mistakes, and negligence.
Commercial liability protects your business from financial loss if you are held liable for property damage or personal and advertising injury caused by your services, business, or your employees.
Licenses and permits
Does your business need a license or permit? While most online businesses don’t need them, yours may, depending on where you’re located, what you’re selling, and the laws about selling in that state or country. Legal Zoom is a great resource for information on e-commerce licensing and permitting regulations.
The Payment Card Industry Data Security Standard (PCI DSS) was created in 2006 by leaders of Visa, MasterCard, American Express, Discover, and JCB to protect all parties involved in payment transactions. Although PCI compliance is not a legal requirement, failure to follow PCI protocols can get e-commerce retailers into legal trouble. How?
Let’s say your business suffers a data breach and a subsequent investigation reveals that your processes were not PCI compliant. Then, you could be subject to thousands of dollars in fines and fees from the government and credit card issuers, and you could face lawsuits and insurance claims for non-compliance with PCI standards. This can cost you money, customers, and ultimately your business.
Compliance with FTC regulations
Are you planning to market or advertise your product or business online? Then the Federal Trade Commission (FTC) wants to talk to you! There are a number of rules you must follow to stay in compliance with the FTC. For example:
Will you send emails to customers? The FTC CAN-SPAM Act established requirements for commercial communications and gives recipients the right to request that you stop sending them emails. Failure to do so can result in severe penalties for violations.
Do you allow online reviews? The FTC’s Consumer Review Fairness Act protects consumers’ ability to share their honest opinions about products, services, or business conduct in any forum – and that includes social media.
Are you using deceptive marketing practices? Anything from false claims to fake reviews can get you in trouble with the FTC.
These are just some of the provisions you should know about. For more information, visit the FTC website www.ftc.gov
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