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Creating an Online Business: Legal Considerations

It has never been easier to start a business. You just plug in a computer, go online and you are good to go, right? Not exactly. While starting an online business may be cheaper than forming a brick and mortar, many of the concerns of starting a business still apply. There are also important differences. This article examines some key areas that are of special concern to an online entrepreneur.

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Special Considerations for Starting an Online Business

An online business has the potential to become a nationwide or even an international company overnight. With such reach, the laws and regulations that a small brick and mortar business in a single location does not have to be concerned with suddenly apply. Below are ten important considerations that are unique to starting an online business.

1. Your Online Business Still Needs a Business License

Just because you do not have a physical location, does not mean you do not need a business license. The type of business licenses and permits that you may need are dependent upon state and local laws. Most businesses will need some sort of general business license, but there are specially regulated business activities that require special licenses and permits.

2. You May Have to Collect Sales Tax Nationwide

Prior to the U.S. Supreme Court decision of South Dakota v Wayfair, online retailers did not need to collect sales tax in locations where they did not have a physical presence. Now, you may need to collect sales tax for the states where you sell your products. There is not one single sales tax system. You will need to research each state to determine their special sales tax laws.

3. You'll Need Seller's Permits to Collect Sales Tax

You cannot collect sales tax unless you have a seller's permit in each jurisdiction (location with legal authority) where you need to collect it. Collecting sales tax can be a nightmare, as each state has its own rules and regulations. There may be a sales tax rate for the entire state and then additional rates for cities and counties. Further, not all items that are sold are taxed by all states, so it is important to understand the sales tax rules for each state you do business in.

4. Fictitious Business Names Can Cause Problems

You may not want to use your own name for your business. If so, you need to consider the laws for using a fictitious business name (FBN) name. Using an FBN may be problematic for your online company as some state laws require registering the assumed name in every location where you do business. The problem can be solved by incorporating your business and using the name that it is incorporated under.

5. Your Online Business Needs a Website

It is practically imperative for all businesses to have a website these days. It is even more so for an online business because the website is your physical location. In order to have a website, you will first need a domain name. These are unique identifiers for your site that will allow people to find you.

6. Avoid Trademark Infringement When Forming Your Business

You may not be ready to register a trademark for some time, but you do want to make sure that you are not using someone else's trademark name. As you select your business name and domain name, search the United States Patent and Trademark Office database to determine if the name has been taken.

7. Avoid Defamation on Your Website

When you are trying to sell a product, sometimes there is a tendency to tell consumers that your product is better than a competitor's product. Most of the time such puffery is acceptable, but it is possible to cross the line and to falsely disparage a competitor or their product. When false statements are made on your website and a competitor loses business as a result, you could open yourself up to a defamation lawsuit. To guard against defamation, make sure your statements on your website are true and don't directly attack anyone.

8. You Will Need to Create a Refund and Return Policy

Federal and state consumer protection laws require businesses to have stated refund and return policies. Merchants are not necessarily required to accept returns or refund money, but there are state laws that require the disclosure of such policies.

9. Learn About Shipping Restrictions

Certain items require special shipping considerations. For instance, the U.S. Post Office provides lists of items that cannot be shipped domestically or internationally.

Hazardous goods and materials can be shipped, but special handling is required. Further, there are prohibitions about shipping certain items to certain countries.

10. Data Privacy Concerns Could Affect Your Business

When starting your online business, you may want to capture and retain personal data from your customers. If you collect personal information, you are required to have a privacy policy posted on your website.

Data privacy has become a huge concern and both federal and state governments have passed laws to protect consumers. Of special concern is the privacy of children. If your online business markets to children, you need to be aware of the Children's Online Privacy Protection Act.

Even if you do not sell goods or services internationally, it is possible that your business could be subject to the data collection rules of the GDPR. The GDPR prohibits the collection and retention of personal data without consent. Such data collection can occur automatically through the use of cookies. You may need to have a disclaimer on your website about the use of cookies if there is a chance that your website could collect data from a citizen protected by the GDPR.

Get Help Starting Your Online Business

You have a product or a service that you think would be perfect for an online business. It can be set up easily enough, but there are legal considerations and hurdles that must be addressed to keep you out of trouble. To get help starting your online business, use our simple business formation service or contact a local business and commercial attorney for advice and guidance.

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