Chapter 5 10 Online Business Laws You Need to Know for Internet Selling [Updated 2018]
After you’ve evaluated your online store idea and have a plan for product sourcing, it’s wise to research the restrictions and regulations that may affect you when opening an ecommerce store.
Understanding these issues before you try to start selling online will help you plan wisely and save you time, energy and money.
In this chapter, we’ll highlight some of the obstacles that may lie ahead for your business.
Many of these issues are just part of the cost of selling products on the internet, but some may come as a surprise.
Knowing about them ahead of time is the key to working through them.
First, know that every state and country has different expectations and standards when it comes to taxes.
That means you have to conduct some research and understand your target market.
For instance, if your store’s demographic is located in the U.S., you’ll likely want to display your prices exclusive of tax. However, if your target market is Australia, where shoppers are accustomed to seeing all-inclusive prices, you’ll want to include tax.
Other issues are related to what you are selling and where you are selling it from.
- If you are located in New York and want to sell clothing, know that clothing is taxed in your state.
- In Britain, VAT tax applies to all non-essential goods.
- In California, items you sell in plastic bottles will carry a $0.11 recycling free, in addition to other taxes.
To cover all your bases, talk to a tax professional or whatever local authority is available to you.
They will be able to help you understand specific instances that may affect your product or business, give you insights on how you need to charge tax for your business’s location and help you apply for necessities like a tax ID, as well as let you know if you qualify for sales tax exemption and reseller certificates.
Keep in mind, too, that this information — and the regulations around it — is constantly changing.
This is just one of the many reasons why having a tax professional on hand or working with your local tax authority will be an important aspect of running a healthy business. Or, you can use an app to automate much of the process.
Have a Business Blueprint from Shipping to Taxes
Make sure that you have a blueprint for your business, even if you do not have a full business plan.
Make sure you have a life cycle written out of how you will market/source/sell and get your product to the customer.
Also when your sales ramp up, invest in an online shipping tool to automate shipping. This cut our cycle time significantly.
Be sure to set up your business bank account to keep everything separate from your personal business. Unless you are extremely good at accounting, find a good bookkeeper to record all of your expenses and hire a CPA that can file your taxes. If your record keeping is timely, it will save you money on your taxes.
All of these steps will set up a framework that will allow your business to grow.
– Laura LeMond, CEO/ Ownerm, Mosaic Weighted Blankets
2. Payment gateways.
There are many payment gateways available for ecommerce businesses.
Don’t feel limited by the fact that many of them will have restrictions on specific products or services you may want to sell.
When you’re vetting payment gateways, just be sure to ask if they have any limitations around certain products, in addition to whether they are hosted or non-hosted, include anti-fraud features, or require transaction fees, termination fees, monthly fees or setup fees.
BigCommerce connects with multiple payment gateways so you can choose which is right for your business. Learn more about the most commonly used:
The Power of Payment Choice
Our most successful growth tactic to date has been the ability to offer multiple channels of markets and utilizing accepted payment programs through integration.
– Marshall Murdough, Manager Ecommerce, Simplay3
3. Trademarks, patents and copyrights.
There tends to be some common misconceptions about what these words actually mean, with must-know legalities and laws around each one.
The United States Patent and Trademark Office defines them as the following:
- Trademark: A word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others.
- Patent: A limited duration property right relating to an invention, granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention.
- Copyright: Protects works of authorship, such as writings, music and works of art that have been tangibly expressed.
Depending on what product you plan to sell, you may or may not want to apply for one of these.
Doing so isn’t strictly necessary, but you should at least check to make sure you’re not infringing on other patents or trademarks with your products or business.
For instance, if you want to sell t-shirts with Star Wars characters on them, you’re going to run into trouble.
Simply make sure to research with the appropriate copyright, patent and trademark organization. They’ll help you start off on the right foot.
4. Shipping restrictions.
Most shipping companies clearly note their restricted items.
Not all shippers restrict the same items, so you should have options — just do a little research to see if there’s a provider that will take on your product.
Typically restrictions are placed on items like:
- Air bags
- Alcoholic beverages
- Dry ice
- Fresh fruits and vegetables
- Hazardous materials
- Nail polish
Also note that some providers may allow you to ship usually-restricted items, but will require some extra paperwork and fees. You’ll want to take this into consideration as you evaluate your provider.
For information on shipping internationally, check out the Federal Trade Commission’s Electronic Commerce: Selling Internationally guide, which will help answer questions about taxes, duties and customs laws.
If you’ll be holding substantial inventory, you should also check your lease, deed or zoning codes to see if there are any prohibitions on running a business like the one you’re contemplating out of your home.
6. Age restrictions.
Anytime you launch a website, it’s essential to comply with the Children’s Online Privacy Protection Act (COPPA).
This act includes quite a few regulations, but the one that will likely apply to your site is the inability to collect any personal information from a child under the age of 13.
If you’re planning on selling a product or service that tailors specifically to a young audience, you’ll need to abide by COPPA regulations.
As far as age verification requirements for ecommerce stores selling age-restricted items, you should look into your country’s specific codes.
Sites selling items like vapes or alcohol, for instance, need to have age verification tools before checkout in order to be legally sold, for instance.
Every country is different as far as their demands on how to run a business, and things get especially tricky when it comes to age restrictions on products.
Do your research and stay on top of legislation to ensure your business is on the up-and-up.
7. Business insurance.
There are multiple types of insurance for small businesses, including general liability, product liability, professional liability, commercial liability and home-based insurance.
Reach out to your local provider to find out which type would be best for your business and location.
During your vetting process, it’s a good idea to at least take a look at product liability insurance. It’s intended for companies that manufacture, wholesale, distribute and retail a product and may be liable for its safety.
Also look into professional liability insurance (also known as errors and omissions insurance), which protects your business against malpractice, error and negligence.
8. Licenses and permits.
Depending on which product you decide to offer, you may need a license to sell it.
This varies based on the country in which you’re located, so contact your local licensing department.
Legal Zoom is also a great resource that can not only help with licensing, but also with some of the other red-tape items in this section.
“If you’re selling special products to a regulated industry (e.g., medical devices or holistic health care supplements), you’ll need to check with your state to see if you need to be licensed to provide those kinds of products or service,” wrote Nina Kauman for Entrepreneur.
“But generally, the sale of digital information, clothing or handcrafted items (made in the USA) doesn’t require a special business license. Rather, the business licensing required for an online retail business is not substantially different than that of a storefront business.”
A Business License At Any Age
At 11, I started selling Bubblicious Bubble Gum to fellow students at school and on the school bus. I would buy a pack of 5 pieces for $0.25, then sold each piece individually for $0.25, grossing $1.25 a pack.
I built it up to a consistent $40 a day in gum sales before the school shut me down. They said I “needed a business license.”
More likely it was because I was creating too big of a distraction for”learning. It was an awesome learning experience for me though!
I was 26 when I started me first real business –– this time with a license.
– David Skeen, Owner, Matboard Plus
9. PCI compliance.
PCI compliance is a necessary protection for online sellers, and nearly all SaaS ecommerce platforms have it baked in to some degree.
Online businesses tend to be prime targets for data theft, which is why ecommerce providers take it so seriously.
However, make sure to educate yourself.
Being PCI compliant doesn’t just mean providing a secure, encrypted checkout experience — you’ll also need to avoid storing any purchasing information on paper or via recording (e.g., if someone were to give you their card number over the phone).
10. What you didn’t know you needed to know.
There are also individual platform requirements that you may need to be aware of before starting your business.
For instance, when you download Facebook Messenger (which you can now use to transfer payments!), you are agreeing to have Facebook listen to you and serve ads based on what you say.
No, you were not imagining ads popping up after having a conversation with your spouse in the kitchen earlier that night.
Understanding the implications of all these laws is essential for the health of your business — and the protection of consumers who become your customers.
Continue on to the next chapter to learn how to conduct market research to ensure that your product idea is not only feasible, but profitable, too.
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