4 Key Legal Issues To Consider When Starting an E-commerce Business

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Date published: 13 Jul 2021
by DocPro Legal

As everything is going digital, so are entrepreneurs and business owners. Setting up an e-commerce business, where you can sell goods/services online directly to customers, can take less than an hour, making it simple to start your operations. However, while accessibility is making this easier, this also means that many online business operators neglect the legal issues involved in running an E-commerce website. 

 

If you are thinking of starting an e-commerce business, these are the legal issues that you have to be aware of, to be compliant with the law. 

 

 

Why is it important to be legally compliant as an online business? 

 

The growth in internet and online activity has led to various regulatory issues surrounding the legality of operating a business online. Oftentimes, business owners will find themselves in trouble when they forget to consider the legal factors of the business. This could lead to legal disputes and extra costs that could have easily been avoided. Thus, to minimise these legal risks, it is best to create a secure and legally compliant online store. 

 

Incorporating your business 

 

When running a business on an online platform such as a website, it is important to first set up your company if any purchasing or selling is involved. If you fail to do so, the business activity might be considered illegal. 

 

Registering your company is referred to as incorporating your company, which means you are registering your business to be a limited company. When you become a limited company, your business will be a separate legal entity from you. This means your liability as a business owner will be limited, compared to if you were a sole trader because your personal assets will be protected from personal liability for debts arising from the business. Essentially, this creates a ‘safety net’ for the business owner in terms of minimising the risks relating to the business. 

 

Every jurisdiction has different requirements and specifications for registering a company. To find more information, check your local governmental resources on the steps to take to incorporate your company. 

 

Terms of use and Legal Policies 

 

Moving on to what is on your website, the content on your online store is just as important. By having these relevant pages on your website, you can limit your liability and better protect your online business from future legal disputes relating to the delivery of your goods or services. 

 

Here are 4 important legal policies to include on your website: 

 

 

  • Terms of Use 

Whether a website is being used as a business platform or not, it should have a Terms of Use page, which is also commonly known as Terms and Conditions. These are rules and restrictions that have to be followed by the customer using your website. 

 

This is important for E-commerce websites because they act as the ‘contract’ between the visiting customer and your business when they are accessing the website. Thus, you can assume that the customer has agreed to the terms and conditions listed on your online website. 

 

While this is not a legal requirement, a significant advantage of having a page for Terms of Use is to limit your business’ liability. These liability disclaimers will exempt your business from any responsibility for damages that your customers suffer after using your products/service. For instance, the terms and conditions may list out all potential damages that the business is not liable for. 

 

By doing so, it can legally protect your e-commerce site from being held liable for liability issues relating but not limited to: 

  • Warranty 
  • Product Misrepresentation 
  • Personal Injury 
  • Loss of Profits 
  • Product Malfunctions
  • Quality/Safety 

 

This means that if the customer continues to use your site, purchase your products and is aware of the terms of conditions, they are assumed to agree to your limited liabilities stated. In return, limiting your liabilities can protect your e-commerce business from spending thousands of dollars on legal fees in the long run. 

 

To find a free Terms of Use Document Template for your website, click here

 

 

  • Delivery/Shipping Policy 

If your e-commerce site delivers goods to customers, you should have a Delivery/Shipping policy. A delivery policy states all important information relating to shipping after an online order is placed. This includes details on delivery methods, delivery times, shipping costs and warranties provided. 

 

By having one, online businesses will take precautions for any shipping issues that are likely to occur, especially if there are difficult circumstances such as lost packages and damaged products. 

 

Most e-commerce businesses will also offer international shipping. If they do, they need to state in their shipping policy, who is responsible for international taxes, charges and additional fees related to delivering to different countries. 

 

  • Returns/Refunds Policy

If you offer returns or refunds as a part of your business model, you should have a return or refund policy to detail when customers are eligible. Furthermore, it should clearly describe the returns process in detail. 

 

Even if you do not offer refunds/returns, you should have a no refund policy to inform your customers that all sales are final. This will clarify the choice that your customer has before making an order from your online business. Thus, resolves any misunderstandings they may have on returns eligibility. 

 

  • Copyright Notice 

Since your e-commerce site will most likely contain your business logo, content, company-specific designs and branding materials created by your e-commerce business, you will want to protect this content from visiting customers. 

 

You can do this by having a copyright notice, which states that the content on your website is your property that is protected by copyright and trademark laws. This informs the customers that the contents on your website legally belong to you and thus, they are not allowed to take or copy anything from your site without permission. 

 

A common feature of an e-commerce website that is copyrighted, is the website design. Usually, online stores will have unique designs that fit their specific brands. A copyright notice at the footer of the website will prevent people from stealing their web design. 

 

Since it has become easier to copy content in the digital era, it is more important to have copyright notices to protect your content from being stolen and used elsewhere. 

 

For more information on the policies and legal templates you need for your e-commerce store, click here

 

 

Data Privacy and Privacy Protection

 

While accessing e-commerce websites and placing an order online seems simple and straightforward, the customer information used to place an order is passed through different security channels. Hence, consumer privacy and data protection is a major concern. 

 

E-commerce businesses are under a legal obligation to protect consumer privacy and respect their privacy rights. This means that online businesses need to regulate the collection and use of consumer personal data. 

 

For online businesses, personal data is usually collected to fulfil orders, but any other use of their data requires explicit consent. 

 

Thus, you should have a privacy policy on your website to explain to the visitor that their personal data is being collected and used. Online businesses will need to state their purpose of collecting personal data, and where that data is transferred. Moreover, the customer has to be informed on whether they are obligated to supply their data to online businesses. 

 

If your website collects cookies, you will need a Cookie Policy to notify customers that their cookies are being collected and to specify what personal data is stored in them. If cookie collection is a requirement to access your online store, that should also be clearly stated. 

 

You can easily create a Cookie Policy using our free template here

 

Credit Card Data 

 

If you accept payment online, the personal data collected also needs to be protected and secured. As an SME, you are less likely to directly collect and process payments yourself. Instead, most e-commerce businesses will use or license third party payment getaways that will help the online business collect data and process payment. E-commerce sites should use reputable payment gateways such as PayPal, to ensure that they are compliant with different local data protection standards as non-compliance could lead to legal issues. 

 

 

Trademarks 

 

The scope for copyright issues are wide in e-commerce, and thus, alongside a copyright notice, online businesses should consider registering for trademarks for extra protection. 

 

A trademark will legally protect your business content from being used. This is extremely important for maintaining your brand and stopping visitors from stealing your content or design. So, it will become illegal for anyone to use your trademarked content without authorisation, and the trademark owner can seek damages if necessary. 

 

Online businesses will usually trademark distinctive areas of their business to protect their brand, reputation and to gain the most commercial benefits from their content. 

 

Content that E-commerce businesses may want to trademark:

  • Pictures, shapes, elements 
  • Packaging design or shape 
  • Words, phrases 
  • Logos 
  • Domain name 
  • Unique products 

 

Key Takeaways

  • Many Ecommerce businesses neglect the legal requirements of running an online business, which could lead to future legal disputes 
  • Online businesses should incorporate their business to give themselves more protection against possible issues related to their eCommerce store 
  • There should be legal policies and terms of use page on your e-commerce site to legally protect your business and your customers. This includes having a privacy policy, cookies policy, disclaimers and copyright notices 

 

Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may be different, you may wish to consult your lawyer.

 

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DocPro Legal

DocPro Legal is a team of legal professionals with a passion for making quality documents and legal contract templates widely available to the public through cutting edge technology. Our lawyers are qualified in numerous common law jurisdictions including the United Kingdom, Australia, New Zealand, India, Singapore and Hong Kong. We have experience in major law firms and international banks with expertise in business, commercial, finance, banking, litigation, family, succession and company laws.

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