With the fast development of technology and internet in particular, the increasing connectivity and accessibility has created an immense pool of possibilities for the ecommerce industry, that is, selling products online. The modern internet has created the possibility of a massive outreach, and it has never been a better time to launch an ecommerce business.
However, you should always ensure that your transactions are legally straightforward – you get money upfront for selling and delivering goods as described within a specified timeframe.
In this article, we will list some of the essential legal consideration that should cover the vast majority of your transactions, required for properly running and protecting your ecommerce business.
1. Choosing your business’ legal structure
When it comes to choosing a business entity, two of the biggest considerations are taxes and liability.
Sole proprietorship – This business structure is a one-person stop, because there’s no separation of the person and the business: the business’ income will be filed in conjunction with the person’s income. If the sole proprietorship were to be sued (for whatever reason), their personal assets (business and personal assets, such as your home, your car, and personal bank account) can be taken away.
Limited liability company (LLC) – LLC is a legal entity that separates businesses from their business owners. In the eyes of the state, the business is recognized as a person, and has its own liability. As for filing and paying taxes, each state has different requirements which you should explore.
Corporations – Corporation also limits personal liability. However, the difference between a corporation and a LLC, is that a corporation is owned by shareholders and managed by officers (who are controlled by a board of directors), while LLC is owned by one or more members. Also, a corporation is double-taxed: one tax is on the dividends the company pays to its shareholders, and the second tax is the tax on its profit. If you make an S-Corp election, you won’t have to pay any taxes but the ones on the shareholder level.
Bear in mind that you can change your business structure at any time if it makes sense for you to do so.
2. Ecommerce terms and conditions
The terms and conditions of your Ecommerce business can contain a number of clauses to protect you, as a merchant, in the selling process. These are some of the things that you should include in your Ecommerce terms and conditions (the list is non-exhaustive).
- Liability limitations. In a bid to limit most future claims, this has become a standard practice in most contracts. However, certain claims to liability you can’t contract away from, such as those causing personal injury or death. Otherwise, this can reduce your future obligations and keep legal costs to a minimum due to broad exclusion of other kinds of damages.
- Delivery terms. When you have your delivery terms in check and your customers accept these, you can prevent or solve many refund requests or support issues by referring to these terms (provided that they are reasonable and fair).
- Information Commensurate with latest CCR. CCR (Consumer Contract Regulations) determine information that must be made clear (via terms and conditions) to consumers who purchase online. This includes contact details, the products you sell, and the ways your customers can contact you.
3. Ecommerce refunds policy
If you don’t recognize that refunds will be required from time to time, you will hamper your conversion. They are an important factor of building trust relationships with customers, so try to be liberal in your refund policy. Refund cancelled purchases within 14 days (the “cool off” period), ask the customer to pay the shipping costs of returns, and expect your products to be returned to you in a merchantable condition. Be sure to track the reasons for refund requests and refund activity, and work to keep them as low as possible.
4. Ecommerce shipping and delivery policy
A clear and well-defined shipping and delivery policy is a must, and your customers should know how their packages will be delivered and when to expect them. Specify delivery costs and timeframes, and terms on shipping promotions (in case you offer shipping promotions and discounts to encourage customers to increase their spend). A clear policy can prevent problems that may arise from disgruntled customers.
5. Handle customer financial data
All organizations that store, process, and transmit credit card data must be compliant with the PCI DSS standard (Payment Card Industry and Data Security Standard). The PCI Security Standards Council was founded by a number of financial institutions, and is responsible for the security standards that protect personal account data.
These standards require organizations to use a firewall, make use of the latest security, authentication, and network intrusion detection systems. Every online retailer must meet all PCI DSS requirements.
6. Ecommerce data protection
All website owners should be mindful of the law regulations of data protection. You will need to be registered under the Data Protection act if you intend to collect your website visitors’ personal information. This data must be handled in compliance with the law at all times. The people from Shopify have created an exhaustive legal guide for ecommerce business owners that is really extensive and will provide everything you need to know on proper handling of sensitive data.
In order to run a legal business, limit your liabilities, protect your customers, and limit any potential legal costs to a minimum, you should conduct your business in compliance with state laws, as well as define and clearly communicate your business’ terms and conditions. This will protect the interests of your business. Set out the terms of business (consult a lawyer where you can’t handle things yourself), and secure customer agreement at the point of sale (when the contract sale is created).