Businesses using the online platforms to sell their products and services have an advantage over others. Taking business online is an excellent growth opportunity for an established company or for a new business.
A report from Statista predicts that there will be an approximately threefold increase in online return on investments. A rise of nearly 246.51% in worldwide e-commerce sale is predicted, to $4.5 trillion in 2021 from $1.3 trillion in 2014.
The taxes, trademarks, and other legal requirements are different for online businesses and offline businesses. Along with the advantages of being an online business comes complicated legal issues to deal with.
There are six important legal issues which you need to consider as you venture into the world of e-commerce.
1. Trademarks and Patents
A trademark can be for a word, and/or design. It acknowledges and differentiates the source of the goods of one party from others. A patent is a time-restricted property right for an invention. It is approved by the United States Patent and Trademark Office.
It is always advisable to do rigorous research before selecting a business name. This might not sound important, but doing so will help you down the road. The time and effort the research takes will be worth it. And it will make sure that you are not overstepping on other trademarks or patents with your business.
You don’t want a similar name or logo to another business. And you certainly don’t want another business to use your business name or logo. So it’s important to protect the legal status of your product and logo by trademarking it. Try to pick up a distinct name which is unique enough to apply for legal protection. And easy enough for customers to remember it and locate you online.
You can also hire an Intellectual Property lawyer. They can help prevent you from making mistakes. Investing money during the initial stages of your business can save you from huge losses in the future.
Ensure you collaborate and research with the suitable trademark and patent organization. They will help you start off in the right direction.
After two years, they had to change the name of one of their products. Another company found out that ActivePrayer had been using a variation of their name and were ready to sue them. Hence, Luke suggests doing research before you get the ball rolling.
When it comes to taxes, you must first perform some research and identify your target market. Because every country and state have different policies regarding taxes.
For example, you will exclude taxes in your display price if your target market is in the United States. But if your target market is located in Australia, shoppers are used to seeing all taxes included in the prices. Hence, all your display prices should include taxes.
Apart from the location of the target market, what are you selling and from where are you selling are also important concerns.
For example, if your clothing brand is situated in New York, you should know that there is a tax on clothing in New York. Similarly, in Britain, Value Added Tax (VAT) is applicable to all non-essential commodities. Likewise, in California, items sold in plastic bottles include an $0.11 recycling fee, including other taxes.
It’s always better to discuss all the tax-related issues with a tax professional and/or a local authority near you. The authorities or tax professional will help you understand specific cases which may affect your business.
You can also look for reliable and trustworthy online resources such as an e-commerce blog. For example, this guide to taxes for online businesses from BigCommerce. The guide explains everything related to taxes and can help you handle your taxes in a hassle-free manner.
Remember that taxes and regulations always keep on changing. That’s why hiring a tax professional or working with the local tax authorities is advisable. It is a significant aspect of keeping your business up and running.
3. Digital and Copyright Rights
It’s very important to protect personal information. But it is also equally important not to trespass on the rights for any images, text, or other forms of creation.
The Digital Millennium Copyright Act 1998 specifies that:
- Webcasters need to pay licensing fees to record businesses.
- Devices which are used to illegitimately replicate software cannot be manufactured and sold.
- Internet service providers are subjected to copyright intrusion for transferring data over the web.
- Commercially built software is subject to criminal consequences for dodging anti-piracy measures.
Darrah Brustein is a member of The Young Entrepreneur Council, and the founder of Network Under 40. After starting your online business, you may face problems with people overstepping on your intellectual property right (or vice versa). Hence, Darrah strongly suggests investing time and money into legally registering your copyrights. Once the registration is done, you don’t have to worry about it if an issue comes up.
4. Security and Privacy
Customer privacy and security should be your ultimate priority as an online business owner. As an e-commerce businesses owner, you might be collecting and keeping sensitive information about your customers.
Data like account numbers, credit card numbers, and personal contact number are often collected by e-commerce businesses. It is your responsibility to keep the information intact and beyond the reach of cyber criminals.
68% of customers don’t believe brands to handle their personal data correctly. Beyond the need to protect your customers’ sensitive information, it’s also important to keep , data secure to avoid potential legal issues.
Your e-commerce business may be subjected to state and federal privacy laws. It depends on which types of information you are collecting, and from whom.
5. Payment Gateways
When buying a product or service, there are many types of payment options available. As of March 2017, nearly 40% of customers around the world are paying through a digital payment system.
Credit cards, debit cards, cash on delivery, and digital payment systems are just a few of the available options. Digital payment systems are also known as Electronic Data Interchanges (EDI). EDIs are often used for online shopping and banking.
Before selection of a payment solutions, have a discussion with the provider about any restrictions they may have regarding the products or services you sell. Also be sure to read the laws mentioned in the Fair-Trading Act of 1989, before you start your online business.
6. Business Insurance
Usually, online businesses are unsure about which type(s) of insurance they need. But just like an offline business, online businesses also need some sort of protective cover for their goods and finances.
General liability, product liability, commercial liability, home-based liability, and professional liability are of the few types of insurance for small businesses. Work with an insurance agent for a better understanding of which types of insurance your business needs.
For example, product liability insurance is useful for businesses which manufacture, retail, and distribute a product and may be accountable for its safety.
If you want to protect your business from error, negligence, and malpractice, you may need to consider professional liability insurance. This insurance is also called omissions and error insurance.
Many established and new businesses are venturing out and exploring the digital world. Expanding businesses online breaks geographical boundaries, thus helping the company to grow at a faster rate. But along with such advantages comes the intricacy of many potential legal issues.
In addition to the legal issues mentioned above, there are other issues which you will also need to consider to keep your business up and running. Issues like shipping restrictions, licenses and permits, and age restrictions should also be researched to avoid potential problems.
Are there are any other legal issues which you think are important for an online business or e-commerce entrepreneur? Let us know in the comments below.