Starting a new online business is an exciting journey, but navigating the complex legal framework can be nerve-wracking. You may be an expert in your niche, but do you know how to stay compliant with local and international laws that apply to your business?

It is important to note that ignorance is not an excuse for breaking the law. No business, big or small, can afford the penalties associated with breaking online business laws. Penalties can represent a huge chunk of change – enough to sink many businesses, often permanently.

A major aspect of running an online business is the difficulty of collecting sales tax. The exact rules for sales tax vary by state, making it difficult to manage them without using automated software.

Business owners also have to be very careful when marketing their products. Emails are required to adhere to the CAN-SPAM Act, and violation of the act could result in hefty fines levied by the Federal Trade Commission.

This article will look at online business laws and regulations that ecommerce stores should follow at all times.

Online Business Laws for eCommerce Businesses

Ecommerce allows businesses to sell products and services using an online interface. It represents an immense opportunity for businesses to expand their customer base and overcome barriers. However, online shopping is heavily regulated to protect customers, with laws preventing customers from deceptive marketing practices.

These legal rules are in a state of flux – always changing and evolving as new threats emerge and technology evolves. Please note that online laws about how your business should engage vary from state to state. You also have to abide by national and international laws depending on where you are operating.

To be on the safe side, it helps to invest your time to become acquainted with the laws as they relate to:

• Taxation
• Online payment gateways
• Intellectual Property Rights
• Logistical Regulations
• Inventory Management
• Age restrictions
• Mandatory restrictions
• Licenses and permits
• PCI compliance
• Data Privacy Laws
• Refund Policy
• And others…

Taxation

This guide assumes your business is based in the US. In this case, you should consider forming a limited liability company to protect your assets and minimize your liability. There are many vendors who offer LLC formation services for a price. You could form an LLC yourself, but we recommend having an expert do this for you because of the documentation required.

Once you form an LLC (or any other business type of business), you will receive a tax ID also known as your EIN. The EIN is to businesses as Social Security Number (SSN) is to individuals. You need your EIN to pay applicable taxes, create a corporate bank account, apply for permites and licenses, and hire employees.

You may have to pay sales taxes depending on your niche. As mentioned earlier, sales taxes vary by state and local laws. Failure to properly calculate your tax burden and collect the right amount of sales tax can seriously affect your bottom line. Moreover, it can also leave you stressed during the tax season.

So try to learn about your tax obligations at the earliest.

We recommend hiring a tax consultant who is aware of local, state, and international laws as they apply to your business.

Ecotaxes

This is a relatively new area of taxation that was designed to protect the environment. Many states, such as California, are introducing taxes on certain items that may be toxic to the environment. These taxes may require customers to pay an extra fee for the environmental burden that their activities have imposed on the state. For example, the California Redemption Value (CRV) act imposes a recycling fee of $0.05 for beverage containers that are lighter than 24 ounces and $0.10 for beverage containers heavier than 24 ounces.The state is continuing to enact new ecotax laws that will require payments from both businesses and consumers. Local ecotax laws may also be applicable to international business.

Please keep in mind that the above information is no substitute for the advice of a professional. To stay compliant with local laws and minimize your liability, we recommend consulting with a tax expert at the earliest.

Import Duties (for importing products)

Some of your imports may be subject to customs duties if you import products from foreign suppliers (this could be foreign-based wholesalers and dropshipping partners). Other tariffs may also apply if you import products in large batches. You can use the freely available FTA Tariff Tool here to simulate various scenarios.

If you plan on selling your products to an international audience, then you will have to account for your customers having to pay taxes on import and duties. You may choose to settle these on their behalf via pre-paid shipments on duties. Or you could include them into the overall price of the product. For example, shoppers based in Japan and Australia often pay all-inclusive prices that include import duties.

Choosing a Payment Gateway

A payment gateway helps you securely collect payments from customers interested in purchasing your products and services. It serves as the backbone of your business and helps it make a living.

The most important role of a payment gateway is to securely collect customer payments. Regulatory bodies take payment breaches very seriously and could result in major fines. Moreover, a payment breach can permanently affect your brand image and make it impossible to restore your reputation.

Breaches are a major problem in 2022. For example, Global Payments Inc. reported a massive data breach of more than 1.5 million credit and debit card accounts in North America. This is why it is important to tread carefully when choosing a payment processor.

A reputable payment processor complies with major regulations from around the world, including:

• DCI-PSS
• GDPR (helpful for selling in Europe)
• HTTPS to encrypt all payment links
• Auto-fraud protection

Here are a few considerations before you should choose your payment gateway:

• Are they hosted or non-hosted?
• What security features do they use to protect payments?
• What is their business model (is it transactional or monthly)?
• Do they collect any setup fees?
• How do they handle the issue of chargebacks, holdbacks, and payment processing issues?
• Have they had a history of data breaches? If so, how did they resolve them?

Intellectual Property Rights

Intellectual property rights include trademarks, copyrights, and patents. The United States Patent and Trademark Office protects all three with legal ramifications for brands that use them without the owner’s consent.

For example, you cannot sell merchandise with Disney characters on them without obtaining appropriate consent to avoid legal problems. It is a good idea to secure copyright protection for your ecommerce store, especially when it comes to the source code and design.

Here are a few areas of copyright law that you can use to protect your website:

• If you are using a custom ecommerce platform that you developed in-house (this is the source code that no one else can apply without your permission)
• Design elements of your brand, website, and ecommerce stores such as logos, social media posts, content, blog posts, and illustrations. All of these can be protected under the Digital Millennium Copyright Act (DMCA).

Keep in mind that securing intellectual property rights are not mandatory for your ecommerce business. However, you must ensure you are not encroaching on someone else’s intellectual property rights. Make sure to do your research publishing content on your ecommerce website.

Inventory Management

Most small business owners prefer to store inventory in their garage, attic, or even bedroom. However, your operations may be too large to operate out of your home legally. If you are holding too much inventory, you might violate your local zoning codes.

Your local homeowners’ association might have reservations about running home-based business in your area.

Don’t rush to shut down your business if you are too big to legally operate out of your room. You can always rent warehousing space or partner with a third-party logistics (3PL) service to store your inventory. You can outsource your real estate needs to other businesses to regain your space and comply with local laws.

3PL service providers do more than just save space though. These fulfillment experts help you reduce shipping zones and lower shipping expenses as well as time in transit. This is a win-win scenario for you and your customers.

Logistical Regulations

Logistics for ecommerce businesses can be difficult to navigate at times because different companies have their own policies, rates, and restrictions for products. Most shipping providers place a ban on the following items:

• Aerosols
• Animals
• Alcoholic beverages
• Airbags
• Cigarettes
• CBD products
• Explosives
• Fresh produce and other perishable goods
• Nail polish
• Poison

Some shipping partners may allow you to ship restricted goods, but they may require extra fees and paperwork. You will have to take these into consideration as you look into shipping partners.

Not all shipping providers have the same restrictions for different items. Consider doing research on different providers to learn about their policies, requirements, and costs before integrating with them.

Business Insurance

Ecommerce store owners may not be legally required to obtain business insurance. Your personal assets are already protected if you are operating as a protected entity such as LLC. However, you will want to consult with a legal expert to ensure compliance because your local regulations may vary based on where you run your business.

Even if you are not legally required to obtain business insurance, it may be beneficial for you. Insurance policies that you should try to obtain include:

• General liability
• Professional liability
• Commercial liability
• Product liability

Product liability is especially important if you end up selling a defective product. It can protect you from any lawsuits that arise from such a scenario. Insurance is especially important if you are selling high-risk products, like CBD.

It also helps to look into professional liability insurance to protect your business from malpractice, errors, and negligence.

Age Restrictions

All digital assets are required to comply with the Children’s Online Privacy Protection Act (COPPA) without exceptions. This applies to your online website, ecommerce store, social media platforms, and other digital interfaces. The act includes several regulations, but the one that is applicable to your site is the restriction on collecting any personal information from children under the age of 13.

If you are planning to sell a product or service specifically tailored to a young demographic, you will have to abide by COPPA regulations. Otherwise, you risk regulatory fines of over $43,000.

Also, make sure to check with local laws and regulations before you start selling any age-restricted items through your ecommerce store.

Every country has its own demands on how you can run your business. Things can get especially difficult when it comes to selling age-restricted products. Make sure to do your research to keep your ecommerce store compliant with local laws and regulations.

PCI Compliance

PCI Compliance is non-negotiable for ecommerce businesses that want to collect payments online. The Payment Card Industry (PCI) Data Security Standard (DSS) is a regulatory group formed in 2006 by financial services in America. The goal of PCI DSS is to provide a safety standard for processing credit card transactions and ensure that all participants are compliant.

Being PCI-compliant doesn’t just mean providing a safe and secure checkout page. You also need to avoid retaining any information related to the transaction on paper or via phone (for example, if someone gave their card number to you over the phone, you are not allowed to record it).

PCI DSS applies to online and POS transactions, including card over phone orders and other card-not-present transactions.

Most ecommerce platforms and payment processors are compliant with PCI DSS, so this should not be difficult for new businesses. Before you partner with a payment processor, ask them about compliance with PCI DSS.

Licensing and Permits

Some businesses may be required to obtain a license or permit in order to sell certain products or services. Most US states require brick and mortar businesses to use a valid seller’s permit. However, you don’t need a permit to conduct business online – unless you operate in a regulated industry such as healthcare.

As always, make sure to check in with locally applicable laws.

On a separate note, you may want to obtain a reseller license. It is a document that allows you to purchase inventory in bulk without paying local sales taxes. A reseller license can prevent you from having to pay double taxes. You only need to collect sales tax when customers make a purchase.

You should check in with your local authorities if you plan on partnering with wholesale vendors and suppliers. Finally, international sellers may check with local bodies to verify if they need any permits to sell their products or services.

Refunds Policy

Refunds play an important role in establishing trust between customers and businesses. A bad refund policy can negatively affect your revenue because customers don’t normally do business if they don’t have a guarantee in place. It is wise to roll out a refund policy where you must refund purchases within a statutory period – it could be as little as 7 days or as high as 14 days.

It is industry practice to expect customers to pay the cost of shipment for returns. You are entitled to receive your goods in their original packaging. Providing refunds is part of doing business and responding promptly to refund requests will go a long way in establishing your reputation.

It shows that you care and are trustworthy. A refund can be a great way to save face when your product or service does not live up to customer expectations. It can also be grounds for customers to trust you with a larger order.

The refund policy should be prominently advertised on your website. It should occupy a spot within your terms and conditions so that customers can read them before buying a product or service.

The best way to keep refunds low is by using better photos, improving the accuracy of your product descriptions, and making sure that your packages are dispatched right away. Try to increase the value of your product with good customer service so that clients are less inclined to raise a request for a refund.

While it’s true that refunds can hurt your bottom line in the short run, it can protect your reputation in the long run. Just make sure to promptly respond to refund requests and try to contain any fallout from bad customer experiences.

Data Privacy Laws

Ecommerce stores have access to a lot of information about their customers, including their behavioral patterns based on how they use their digital assets. Big data represents big business. But not all types of data can be used for analysis.

Customer privacy laws prevent you from using any personally identifiable information (PII) for analytical reasons. Personally identifiable information includes the following:

• Complete name of customer
• Their home and office addresses
• Social security numbers
• Debit and credit card numbers

Your state or country may also require you to explicitly ask customers to provide their permission before collecting and using their data.

Two of the most important data privacy laws that ecommerce store owners should be familiar with are:

General Data Protection Regulation (GDPR): This is one of the most rigorous security laws in the world drafted by the European Union to protect human rights. Businesses operating or selling in the EU are required to adhere to GDPR regulations at all times.

California Consumer Privacy Act (CCPA): The CCPA requires businesses to disclose all information they have in relation to their customer, as well as vendors and businesses that they share the data with. Customers have the right to sue these businesses for any privacy violations.

GDPR, in particular, is notorious for charging extremely hefty fines at $24.3 million or 4% of global revenue (whichever is higher).

The good news is that complying with either GDPR or CCPA is not hard.

A Word on Privacy Policy and T&C Pages

Importance of a Privacy Policy Page

A privacy policy is an important draft that is useful for all ecommerce websites. It explains which data you collect, how they are processed, how long you plan on storing them, and how you use them. Ecommerce stores without a privacy policy may be seen as suspicious by consumers and be subjected to increased scrutiny by regulators.

A privacy policy also sets expectations with website visitors, often requiring them to provide their specific approval to the policy before using the website and its assets. You can find a template for privacy policy pages for free. However, we recommend reviewing these templates with a legal expert before using them on your website.

A privacy policy may be required by law, especially if you collect personal information from users, such as their first and last names, shipping addresses, and email addresses.

Importance of a T&C Page (Terms and Conditions)

The terms and conditions page outlines the rules that visitors must agree to in order to use the website. It serves as a legally binding contract between you and your users. The T&C page should include all the necessary sections to inform users of the guidelines related to using the website, the consequences of abusing your services, and so on.

T&C pages also include a termination clause. The clause informs users that their accounts will be terminated and banned from using the service if they don’t comply with the T&C page.

Finally, T&C pages are useful because they try to limit the ecommerce store’s liability in case of errors found on the website.

Just like the Privacy Policy page, you can find a template for T&C pages. We recommend reviewing these with a legal expert.

Wrapping Up

So there you have it: important business laws and regulations for ecommerce store owners. Most of these policies are easy to follow and shouldn’t break the bank. At the end of the day, we suggest consulting with an attorney, tax expert, or any other consultants for any questions you have on compliance.