5 Legal Essentials for Online Businesses

By Kate Loyola | Last Updated: November 28, 2017

With Amazon, Etsy, Shopify, and other e-commerce websites and platforms out there, setting up an online business can take as little as a day. In the rush to launch your store and bring in customers, though, it’s easy to forget about the fine print.

An online business, while easier to start than its brick-and-mortar counterpart, is still a business. And like any good business owner, you’ll have to iron out some legal details. Here are a few to get you started:

[Bear in mind that this isn’t professional legal advice, and you should consult a bona fide lawyer. This list was made with US-based entrepreneurs in mind, but watch out for guides to other territories in the future!]

1. Legal Policies

For an online store, that means two essential documents:

Privacy Policy

Consider this a disclosure statement between you and any person you collect information from. Typically that means visitors–especially customers–of your online store, from whom you’re likely taking names, contact details, addresses, or other personal information.

Note that “personal information” isn’t limited to details that customers supply. If you use cookies on your website or track visitor behavior for your analytics, for example, that also counts!

A privacy policy sets out, in clear terms:

  • why you’re collecting that data,
  • what you’re using it for,
  • the limits of how it can be used, and
  • when it will be shared with third parties (if at all)

You’ll need a privacy policy to comply with privacy laws, especially if you’re working in areas like the US, Canada, Australia, and the European Union. Here are a few primers to key regions’ privacy laws:

A privacy policy doesn’t have to be elaborate or fancy. Some websites get by with a stock template from legal form websites, or with a simple statement about how they intend to safeguard the information. For best results, though, make sure to have a detailed policy disclosing exactly how you intend to use customers’ information.

Terms & Conditions

These are also known as Terms of Use, Terms of Service, or similar spins on the term. Simply put, this is the document that will protect you from lawsuits. It defines your relationship with clients and sets out the limits of your services and liabilities. Some important elements to have in your terms are:

  • Disclaimers and liability limits
  • Payment terms
  • Delivery policy
  • Return or refund policy (if any)
  • Dispute resolution procedures

Both documents need to be easily accessible from any page of your website. Most business owners place these prominently on their website footers. As past high-profile cases show, though, it’s best to ask customers to check a form confirming that they’ve read your terms and conditions before proceeding with transactions.

2. Taxes

Taxation can be tricky and confusing, especially since standards can vary among territories. However, this is also one of the most important legal requirements to iron out.

Tax law often has specific provisions for each product or service you’re offering, as well as how your business is structured. Washington, D.C., for example, requires that you charge buyers with sales tax; the state of Alaska, on the other hand, doesn’t. And if you’re not sure about how to pick a tax-friendly legal structure for your business, here’s a quick guide to help you out.

Due to the intricacies of the taxation system, it’s best to consult with a tax professional to make sure you don’t miss anything. Having someone to sweat the tax details for you will free up your schedule and attention so you can focus on growing your business. It doesn’t hurt to understand the basics of taxation, though, and the IRS has a list of publications that will give small business owners like you a leg up.

3. Trademarks, Copyrights, and Patents

If you’re selling a completely new product, app, or service, you’re probably already thinking about intellectual property (IP) laws. Even if you’re not a hotshot inventor, though, you might want to look into at least one of these:

Trademark

Trademarks protect your right to distinguish your product from others through the use of “a specific name, word, phrase, symbol, logo, design, sound or color” or any of those in combination. Similarly, a service mark does the same if your business offers a service rather than a product.

Trademarks don’t have a set expiration term, so you can keep it “active” indefinitely through continued use. You start getting limited “common law usage” protection as soon as you identify your business via a name or logo, but such protections are limited. For clearer and more extensive legal coverage, you can register a trademark with the US Patent and Trademark Office.

Copyright

Copyrights protect original created works, ranging from novels and movies to computer software and architecture designs. Copyright protection periods depend on factors like the nature of the work’s authorship or creation. For example:

  • Works created by an individual: Life of creator + 70 years
  • Works created anonymously, under a pseudonym, or for hire: 95 years from publication or 120 years from creation, whichever is shorter

Patent

Patents give inventors exclusive rights to the manufacture and use of their invention for a limited time. Patent durations vary according to the type of patent; a patent may cover inventions ranging from designs to industrial processes and machines.

4. Business Insurance

As an online store owner, you will typically be classified as a small business for the purposes of insurance coverage. Like taxes, insurance can be a tricky topic to navigate: there are different types of liability coverage for businesses. It’s best to speak to reputable insurance agents so you get a better sense of the options available to you.

Here are a few examples, as set out by the US Small Business Administration:

Who it’s forInsurance TypeFunction
Any businessGeneral liabilityProtects against financial loss resulting from bodily injury, property damage, medical expenses, libel and slander, defending lawsuits, and settlement bonds or judgments
Business that make, distribute, and wholesale or retail a productProduct liabilityProtects against financial loss resulting from defective products that cause injury or bodily harm
Businesses with property and physical assetsCommercial liabilityProtects against loss and damage of company property due to causes like fire, smoke, storms, and vandalism

5. Licenses and Permits

As Nina Kaufman writes in Entrepreneur, online businesses generally go through the same licensing requirements and processes as traditional brick-and-mortar businesses. Some areas will require a license before you can begin operations; others will only require you to file for a business license once your revenues reach a specific level. It’s best to consult your local laws and licensing authorities to make sure you’re fully compliant with the applicable regulations.

However, if you’re selling special-use products such as medical supplies, health supplements, industrial parts, and so on, you will probably need a corresponding license. Check with your local government or regulatory body to be sure.

The Bottom Line

Online businesses may be easier to start, but they’re not exempt from the legal requirements (and, okay, headaches) that come with any type of business. Any success you earn could easily be jeopardized if you’re not in the clear, so it’s best to put in your due diligence and ensure that your venture is in good legal standing. We’ll be covering more business law-related topics in-depth in the coming weeks, but in the meantime, I hope the above list gives you a good place to start!