10 Online Business Laws You Need to Know for Internet Selling

After you’ve evaluated your online store idea and have a plan for product sourcing, it’s highly recommended that you research any 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.

1. Taxes.

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.

For instance:

• If you are located in New York and want to sell clothing, know that clothing is taxed in your state.
• In Britain, value-added tax (VAT) applies to all non-essential goods.
• In California, items you sell in plastic bottles will carry a $0.11 recycling fee, on top of additional taxes.

To cover all your bases, talk to a tax professional or local tax authorities readily available to you.

These experts will be able to help you understand specific circumstances 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 resale certificates.

Keep in mind, too, that this information — and the regulations around it — are constantly changing.

This is just one of the many reasons why having at 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 a majority of the process.

2. Payment gateways.

There are many payment gateways available for ecommerce businesses.

Don’t feel limited by the fact that many of them 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, as well as whether they are:

• Hosted or non-hosted, 
• Include anti-fraud features, or
• Require transaction fees, termination fees, monthly fees, or setup fees.

Multiple payment gateways, so you have the freedom to choose the ones that are right for your business. Learn more about the most commonly used options:

• Paypay
• Square
• Stripe
• 2 Checkout
• First Data
• Quickbooks
• SecureNet

3. Trademarks, patents, and copyrights.

There tends to be some common misconceptions about what these words actually mean, with must-know laws and regulations around each one. 

You’ll want to be sure to have a clear understanding of each to prevent any unwanted legal complications.

The Trademark is defined 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.

Earlier we talked about how your product will impact shipping costs and options, but at this stage in your small business, it’s time to address shipping restrictions.

Spoiler alert: 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.

Most shipping companies clearly note their restricted items. Typically, restrictions are placed on items like:

• Aerosols
• Air bags
• Alcoholic beverages
• Ammunition
• Animals
• Cigarettes
• Dry ice
• Explosives
• Fresh fruits and vegetables
• Hazardous materials
• Nail polish
• Perfumes
• Perishables
• Poison

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 providers.

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.

5. Inventory.

Maybe you’re thinking of storing the clothing for your online boutique in a spare closet or packing your handmade jewellery in too many storage boxes to count?

While your determination is alive and well, believe it or not, your business may be too large to legally run out of your home.

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. 

You may be surprised to learn that you could benefit from having a brick-and-mortar location or warehouse in the early stages of your business.

If you’re hesitant to open an offline location for your customers to shop and are unable to run your business out of your home, don’t fret — you have more options.

In fact, it may be time to reevaluate your product sourcing plan. Try leveraging a partnership with a shipping and fulfillment company that specializes in dropshipping or 3PLs.

Bonus? By using a dropshipping or 3PL service, you reduce shipping zones, or the distance packages travel, which will typically reduce the cost of shipping and time in transit. A win-win for both your business and your customers.

Having a clear and organized inventory management strategy in advance will help you create a scalable business plan for the future.

6. Age restrictions.

Anytime you launch a website, it’s absolutely required that it comply with the Children’s Online Privacy Protection Act (COPPA) — no exceptions.

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 tailored 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.

For instance, sites selling items like vapes or alcohol need to have age verification tools before checkout in order to be legally sold.

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 insurance 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.

This is especially important if you plan on selling products that are considered high-risk, like CBD.

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 licence to sell it.

This varies based on the country in which you’re located, so contact your local licensing department.

Legal Zoom is a great resource that can not only help with licensing, but with 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 fo 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.”

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 — and why you should too.

Educating your business on PCI compliance is the first step to making sure you’re protected.

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. But, it’s 2020 and this is our new reality.

Being transparent with your business and your customers will eliminate the chance of any upsetting legal conflicts or lost business. 

Trust is something that is earned with your customers, so take the initiative to be well informed and protect your brand by building an online store that meets all legal requirements. Better to be safe than sorry, right?

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.