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Critical Legal Considerations When Running an E-commerce Business


— March 10, 2021

Online business and e-commerce owners can naively think that they are immune to the laws that apply to physical businesses.


For business owners and sellers, e-commerce is inevitable. 

Nasdaq claims that by 2040, 95% of all purchases will be run through e-commerce. Also, it has been predicted that as much as $4.9 trillion will be generated in e-commerce sales per year in 2021.

That’s a bog. A huge, unstoppable bog that will slowly, but surely take over the world of buying and selling.

So in light of this knowledge, it is very understandable If businesses are getting caught up in the frenzy of launching e-commerce platforms. 

But as always, there’s a need to pump the brakes and consider the complications that could come with making such maneuvers in any setting, especially legal ones. But you know this, and that’s why you’re here. Good call.

Creating an online store and promoting it is one thing, keeping it under the fringes of the law is quite another. It certainly involves more than just protecting your trademark or auditing your business.

This blog will take you through important legal requirements you need to be aware of when running an e-commerce business. 

One particular e-commerce law you want to get started with and see to right away is the obligation for all online stores to provide smooth, progressive and favorable buying experiences for customers. It is considered “fair practice” for buyers, and that term is what governs a lot of online business laws. It is definitely something you should take into consideration when building your system.

The most popular e-commerce platform that is reliable for a glitch-free store or website experience is Shopify. But there are several Shopify alternatives that you can consider if you want to broaden your options.

What are the Legal Requirements for your Online Store?

Before we get started, I think there are some important things you should note. A blog or site is by no means your legal advisor or confidant. 

You should seek professional legal advice if you really want your business to stay safe and completely abide by the law. There are online legal services that can help you with this if you are not fond of traditional law firms.

Also, the legal obligations for an online store or business usually differ according to country or region. For example, if you’re trying to run a transaction in a member state of the European Union, you must follow the EU’s e-Commerce Directive. 

Likewise, businesses in the US must follow the Federal Trade Commission’s commercial and transaction codes. 

Trying to figure out which rules apply in which country and which do not is just too complicated and will need the input of a legal agent as mentioned earlier. 

Still, there are general legal issues involving e-commerce that you can, and must absolutely take into consideration for your online business:

  1. The Terms and Conditions

This is a phrase I’m sure you’re very familiar with, and one you might have been hoping to see in this article. 

If that’s the case then you must know that while the vast majority of consumers ignore the words “Terms of Service” or “Terms and Conditions”, it is your job as a business to make sure they are critically detailed and comprehensively updated for your customers to choose to ignore or read. 

Technically, you don’t need to create one, but having clear T & Cs will save you a whole lot of legal trouble.

Your terms and conditions page is one of the first things that will be checked for accountability if you ever get involved in a legal dispute with a customer.

It must clearly state that buyers are entering into a contract when they purchase goods from your site or online store. This is for the value of transparency to you, your buyers and all possible parties involved. 

Your T & Cs must contain details about your business’ identity and your site’s terms of use. Importantly, it should specify the legal system and jurisdiction of whichever region you operate. 

There are certain key clauses that must be included in your T & Cs. These could differ according to the type and scope of business but one clause is a must-have for any business that sells products: a limited liability clause. 

This is the clause that says you won’t be held responsible for such and such. It’s a way to avoid being held liable for some types of damages your products might cause to a customer. 

To make sure this clause works, ensure that the terms of use sections for your products are detailed as much as possible. Clearly explain every products’ detail and possible liability and write a warranty for each. If possible, outline this on the product’s packaging.

If a product is from a third-party vendor, be sure to mention that. You could get dragged into an expensive lawsuit over defects of a product your company doesn’t even manufacture.

Ideally, you should have a verification system for any third parties that might want to sell on your site. It’s just the smart thing to do to avoid being implicated by shady third parties. Amazon, the world’s largest online store, has a process prospective sellers must go through before they can be verified.

Other important things that must be clearly defined in your terms and conditions include your return and refund policy, tax regulations that affect your business and products and subsequently your customers, and then your payment and delivery terms. 

Consulting an attorney or legal advisor to help you with drafting your T & Cs to clear up any confusion and ignorance is a smart move you should make.

  1. Return and Refund Policy

You need to specify how your returns and refunds system works. You must of course, have one in place as consumers are entitled by law to return goods for any reason and get refunds for them.

The legal time period that must elapse before they can no longer return goods or ask to be paid back depends on the regulations of your location. 

An ideal thing to do would be to find out the legal returns and refunds rules of your region and use them to determine yours. You can decide to be more generous with your own system as this will build your customers’ trust. Remember, customer satisfaction is key.

Make sure this policy is clearly stated on your T & Cs page and your online platform or website for transparency. 

  1. Delivery and Shipping Terms

The terms of your delivery system should be included in your T & Cs. 

Your e-commerce business needs to have a proper delivery policy that fully explains the what, how and when of product delivery.

Your customers need to know when they can expect their packages and how these will be delivered. They need to know how much it will cost them for deliveries. If you will be offering any shipping discounts or promotions, you have to describe the terms of those in your policy too. 

State your delivery policy clearly in your terms and conditions and on your company’s website or online store so your customers can understand what they’re getting into. This will help you avoid a lot of possible disputes and complaints.

  1. Tax Regulations

Tax is a complicated issue. But it’s one you have to dive into nonetheless. The tax laws governing e-commerce stores differ according to region. 

In the U.S, most states don’t require online platforms to collect tax on purchases but the opposite can be said for several other countries. 

Also, the alternative minimum tax applies in the U.S and some European states but it’s not practiced in quite a number of countries.

Your state’s revenue agency is a good place to find out information on the tax laws governing your region. 

  1. Consumer Privacy and Data Protection

 Consumer privacy laws generally require that you protect and do not disclose to the general public, personal information about your customers that you must have gathered through your site and through purchases.

Data such as their name, location, email address, credit card and financial information are sensitive and protected by state and federal laws. These laws are certainly determined by territory and it’s your duty to find out which ones apply to you. 

You’re required to have and comply with a privacy and website cookie policy that explains to your customers, the type of information you collect from them, how they are collected and what you use them for. 

Keeping your customers’ information private is related to, but not quite the same as protecting them. There are regulatory bodies that govern how sensitive consumer data such as credit card information should be protected. A very important member of such bodies that you must take note of is the Payment Card Industry (PCI)

The PCI has strict standards that e-commerce businesses must follow for receiving payment and financial information from consumers. 

An important PCI mandate to note is the requirement for all e-commerce businesses to have faultless, secure payment systems and to provide complaint free website and check-out experiences for consumers.

Image courtesy of pxfuel.com. CC0

Two of the best e-commerce platforms that can guarantee those services are Shopify and Wix. 

Trying to meet all of PCI’s standards is a very challenging and complicated experience. It can also be pretty time-consuming. A qualified legal party is your best option for getting this done successfully.

  1. Online Advertising Regulations 

Yes, content marketing is great and all but you need to be very mindful about stepping on eggshells as you go about it. Just as you try to keep up with marketing trends, you should stay updated on online marketing laws.

The regulations for email marketing in particular, must be noted because it’s one of the major marketing channels for small e-commerce businesses. For example, all your commercial emails must include an opt-out option, contain your business postal address and clearly indicate that they’re advertisements.

Advertising laws are also defined by region. The United States has the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act) of 2003 that protects consumers from deceitful and aggressive advertising while Australia’s Privacy Amendment Act of 2012 regulates its email marketing practices.

  1. Online Fraud Prevention and Management

Payment fraud and online security breaches are experiences many online stores face and a reality you must accept and prepare for. 

A very popular form of online payment fraud, card-not-present, CNP, has been projected to grow by 14% every year until 2023. This scary fact should be enough to let you know to take preventive measures to protect your e-commerce and payment systems.

One of such measures is using an application performance management software, an APM. This software helps to identify any weaknesses and breachable defenses in your online system.

Internet firewalls, authentication systems and network intrusion detection systems are also security applications you must use. These protective measures are not just for protecting your business but are for your buyers’ sensitive data too. 

Losing consumer data to illegal third parties is a possible gateway to legal disaster.

If this ever happens or you get hacked, you are mandated by law to make this known to the public under a certain period of time. The time limit differs per country and state. 

Some states in the United States require that you report a data breach within 45 days, while the European Union’s General Data Protection Regulation (GDPR) only allows a time period of 2 days. 

Conclusion

Online business and e-commerce owners can naively think that they are immune to the laws that apply to physical businesses. Obviously, this is far from the truth as the legal requirements for online stores are pretty vast and every bit as critical. 

It is your duty to be aware of these requirements so you can avoid a lot of trouble. Remember, a legal counsel is your best bet for doing this properly. Keep your head above the water. 

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