Launching an E-Commerce Business: 5 Basic Legal Requirements

E-commerce is now a fixture of the business world, if not fast becoming its dominant form of trade. Online sales afford business owners whole new markets and previously unimaginable opportunities to handle with ease multiple enterprises simultaneously. 

A digital platform however does not remove the obligation of parties in the sale of goods to understand clearly the terms of sale and their rights as the seller and consumer. Given the absence of face-to-face communication when purchasing online, e-commerce business owners should be particularly mindful of the legal risks they take as a part of day to day sales and ways they can manage these risks and unforeseen monetary fallouts.  

Below we cover five basic components of launching an e-commerce site that are crucial to managing the financial and legal risks involved in conducting business online. 

Website Terms of Use  

Your website’s ‘terms of use’ can work to mitigate your liability in the event that you fail to detect errors in the representation of your product or some other aspect of consumer engagement with your site. As a part of the terms of use, you are entitled to state the extent of your liability in those circumstances, and therefore protect yourself against more unfounded or outrageous misinterpretations of website information or terms of sale.  

Terms of use also operate to establish rules, prohibitions, or standards of behaviour of visitors to the site, that are otherwise not covered in other critical risk management legal articles and contracts on the site (see below). E-commerce site owners are entitled, for instance, to notify visitors to the site that they are banned from reproducing website content or will be banned for abusing website services.  

The circumscription of general website activity rules not only empowers e-commerce site owners to enforce those rules but also protects the site from the risk of abuses, especially where the site is specific about the laws governing spamming activity and the jurisdictions that control those laws (Federal, State, International, etc.).  

Privacy Policy 

The introduction of Digital Privacy laws globally means that all e-commerce business sites should include clear and easy to locate information about how the site collects, uses, stores, and protects the personal information of customers.   

When constructing a Privacy Policy for any website that requires the consumer to enter personal information, ensure that your Policy complies with privacy laws and guidelines that would operate to affect your e-commerce business. This would include Federal legislation (e.g. if you operate your business out of Canada you must consult the Digital Privacy Act; or if you operate the site out of America, you would need to consider the Federal Trade Commission Act and the Electronic Communications Privacy Act).  

Terms and Conditions  

The terms and conditions of your business sets out the contractual agreement that operates when customers purchase items from your business. This agreement, when it is drafted unambiguously and accurately, is therefore crucial to reducing the risk of future disagreements with clients over faulty goods or services, money owed or not paid, and other unforeseen transactional disagreements. Clear terms and conditions, and by extension the certainty they can provide to customers about their contractual position, can also contribute greatly to customer satisfaction.  

Most e-commerce websites will include at the very minimum details about the following in their terms and conditions:

·         Terms of Sale (e.g. how products can be purchased, what happens if the product is out of stock)

·         Payment Options

·         Cancellation Policy

·         Customer Guarantees

·         Return and Refund Policies

·         Shipping and Delivery Policies 

Where websites provide a service rather than products, a Client Agreement which ostensibly sets out the business’s and clients’ expectations is more appropriate. A Client Agreement usually states clearly timelines for payment, scheduling of the service, the manner of provision of the service, and how to handle disputes in the event of the failure of performance by either the business or the client.   

Trademarking

Registering your brand as a trademark provides the invaluable benefit of not only being able to protect the recognizability of your brand but also its profitability (by preventing copycats from generating revenue from imitation products or marketing referentially branded products – ever more common practices in online commerce given the digital replicability of designs and brand persona).

Conversely, e-commerce owners should be very wary of their infringement of existing copyright, patenting, trademark and design registration laws, which operate domestically and internationally. 

You can read more about the benefits and process of registering and authenticating your company brand as a registered trademark below:

Understanding the Trademark Filing Process in the United States International Trademark Protection: WIPO and The Madrid Protocol

Holding Company Ownership

If you are looking for ways to reduce the effect of any unforeseen costs of the business or want to minimize your e-commerce business tax obligations, then you might want to consider establishing your business as the subsidiary of a holding company.  

While a holding company can own all the assets its subsidiaries, the holding company itself often bears little liability for the debts of its subsidiaries. The corporate distancing of the holding company from its subsidiaries therefore allows subsidiary (each individual e-commerce venture for instance) to operate freely and fully funded, but without as much concern for the vulnerability of assets (which are in fact owned by the holding company).

In many countries, including Canada and the USA, the dividends a holding company receives from a subsidiary are taxed at a lower percentage than they otherwise would be if they flowed to an individual as a part of personal income. The division of business revenue amongst several subsidiaries moreover decreases the overall tax owed for the revenue by reducing the amount of taxable revenue and therefore downgrading each subsidiary’s tax bracket (provided the tax system is progressive).

If you would like any further assistance with setting up an e-commerce business, particularly with regard to taxation, risk management, and other legal requirements, don’t hesitate to contact Borderless Counsel today.