The internet has transformed the way all companies do business today, but it has especially changed retail through e-commerce. Any company that sells services, products, or other items online is subject to not only traditional laws affecting small business, but also a host of legal issues specifically affecting e-commerce. Understanding the range of laws that applies to e-commerce companies requires a wide breadth of knowledge. If you are considering starting or running an e-commerce business, schedule a free consultation with a lawyer from Priori's vetted network to ensure you understand and are complying with the full range of applicable laws and rules.
Starting an E-Commerce Company
Customizable, well-designed site templates and easy to use payment platforms have combined to significantly lower the barriers to entry to starting a small business online. Still, in advance of starting an e-commerce company, there are some legal points to consider:
Just as you would with a brick-and-mortar business, it’s critically important to formalize your business structure early on. There are many options for a formalized business structure, but the following are some common choices for e-commerce companies.
C-Corps. C-Corps are traditional corporations that are entities for tax purposes. Many venture capital investors look for a C-Corp structure.
S-Corps. S-Corps are structured much like C-Corps, but are more limited in terms of investors and stock options. S-Corps are taxed as pass-through entities.
LLCs. LLCs are flexible structures that are typically taxed as pass-through entities and subject to fewer compliance requirements
Each of these options have unique advantages and disadvantages. A corporate lawyer can help you weigh the pros and cons to decide which one is best for your business.
The domain name for your business serves as an online location and a brand/IP asset. Accordingly, reviewing both available domains and existing trademarks can help determine both what is available for use by your company, what related domain names it might make sense to purchase and whether the contemplated domain name works from an IP perspective. Speaking with an e-commerce lawyer can help you decide on the best course of action.
Generally, sales tax is levied at a state level and in many cases businesses are only are required to pay sales tax in states where the business has a “nexus” or physical presence. Accordingly, many e-commerce transactions are exempt--e.g., when customers ship to an address where a business doesn’t have a nexus, in many cases no sales tax is owed. However, taxation of e-commerce business is evolving rapidly and the application of sales tax duties, in particular, may change. For example, laws and rules intended to standardize internet sales tax rules are already under consideration at both the state and federal level. In addition, some states have already enacted “Amazon laws” that require Internet retailers with no physical presence to collect and pay state sales tax regardless. A lawyer can help you understand your state sales tax obligations.
Website Terms and Conditions
It’s generally considered important for e-commerce sites to have clear website terms and conditions. Terms and conditions generally inform consumers of your business’s contact details, identity, the products sold, shipping and delivery information (if applicable), return policy (if applicable) and limitations on liability. Poorly drafted terms and conditions can lead to business confusion and, in some cases, enforcement actions and litigation.
Clearly stating the conditions under which a return is acceptable and who pays for the return of the item in marketable condition can avoid significant customer confusion. Note, also, that some states impose a 14-day “cooling off period” by law during which customers are entitled to a refund regardless of the business’s policies. A lawyer can help you understand whether such rules apply to your business and how to integrate background legal rules into your policy.
Protecting Your IP
Building an e-commerce business can be extremely intellectual property-intensive. Everything from the technology and code running your shopping cart to the logos and stock photography used on your website is intellectual property--and it’s therefore important to consider how to protect the IP that belongs to you and to ensure you’re not infringing on the IP rights of third parties. An IP attorney can help develop a plan to protect your company’s IP and make sure you’re complying with the terms of all IP your business has licensed from other companies.
If you intend to collect personal information about your website visitors, including just tracking what is in their cart after they leave the website, your company is likely to be subject to a broad range of additional regulations and obligations. Most basically, such businesses are generally required to reasonably protect personal data and ensure that the business’s plans for use of such data is clearly written expressed to consumers. Data privacy is a growing area of regulatory interest, complexity and enforcement. A lawyer can help ensure you understand--and are complying with--the full breadth of applicable rules and regulations for your business.
When is a bad review on my company’s site considered defamation?
If your business gets a particularly negative review online, it isn’t necessarily defamation unless it can be proven factually false. That means that a review that says your shirts are ugly probably doesn’t qualify--even if you think it’s unfair. On the other hand, a review that says you stole credit card information when it is untrue can be construed as libelous—assuming you know who wrote the bad review. A defamation lawyer can help you assess the merits of a possible dispute.
Are there any other key e-commerce laws I need to worry about complying with?
Absolutely. E-commerce businesses are subject to a wide variety of laws, rules and regulations. A lawyer can help discuss what such laws, rules and regulations apply to your business and ensure compliance.