The Legal Side of Doing E-Commerce Business

With the opportunity that online business brings, it also comes with a whole lot of complex legal issues. When starting a new business endeavor it is in your best interest to get a handle of all laws, regulations and potential requirements. That is why we decided to put together an informational guide with all the things you may need to get you started.

Disclaimer: This guide is for informational purposes only, and does not constitute legal advice. Please consult independent legal advice for information specific to your country and circumstance. CustomCat is not liable to you in any way for your use or reliance on these guides.

Use Google and check against the state business name registry to make sure there is no other business using the same name that you intend to use. A small fee may be required, this varies by state. 

2. Register your Business

Registering a name is a smart move. Not only you comply with all the laws but you are ensuring that no one else can do business under the same name. There are two ways of doing so. 

Doing Business As (DBA)

If the selected ecommerce name is different from the business name as an owner, which in many cases is, you must fill out a fictitious name statement, also known as Doing Business As (DBA). This statement is filled locally (state or county clerk’s office). 

Trademark Registration

If you plan to sell internationally, registering your trademark is a VERY GOOD IDEA. It sets your business apart from your competitors. You can register your trademark with The United States Patent and Trademark Office (USPTO).

3. Get all necessary Licenses & Permits

An ecommerce business can be subject to permits and business licenses. State licenses vary by state. Generally, you aren’t required to apply until you reach a specific revenue threshold but in some instances, you have to obtain a license before you start selling. Here’s a link to apply for licenses and permits.

4. Apply for Employer Identification Number

According to Wikipedia, “The Employer Identification Number (EIN), also known as the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States for the purposes of identification.”

To keep things organized for when April rolls around, you should open a separate bank account to use strictly for business purposes. In order to do so, you’ll need an Employer Identification Number (EIN) to open your business bank account. Here’s a link to where you can apply. 

Getting EIN is a requirement for every business entity in the U.S., so if you register your business as a partnership, LLC or corporation – anything but a sole proprietorship – it’s not a step you can skip.

 

5. Decide on a Business Structure

You can choose from a variety of options – Sole Proprietor, Partnership, LLC, Corporation. If you don’t specify your business structure, you will automatically be considered a sole proprietor. With a sole proprietorship, your personal assets are at risk in case you get sued. Choose what works best for you and your needs. One more thing, with LLC your business is considered to be separate from personal assets. 

Our Recommendations below:

Disclaimer: This guide is for informational purposes only, and does not constitute legal advice. Please consult independent legal advice for information specific to your country and circumstance. CustomCat is not liable to you in any way for your use or reliance on these guides.

Use LLC if the following apply to you:

  • Don’t have ton of money or significant assets in your personal accounts 
  • Expect to earn under $80k in your ecommerce business

Do not use LLC if the following applies to you:

  • Significant equity, or have other major assets that you don’t want to risk
  • No tolerance for risk

6. How to Collect Taxes

When a business doesn’t have a physical presence in a state, collecting tax on purchases is not required.

For ecommerce site owners, the one thing you will have to research is how your state classifies a physical presence. In legal terms, this is called a nexus, and each state defines nexus differently. 

Tax laws can be complicated. It is in your best interest to reach out to your state’s revenue agency or a professional to make sure you are basing your taxes off correct information. They should be able to explain any specific situations and tax exemptions that you may encounter as a seller. 

Tax laws are constantly changing. If you are serious about your business you should consider investing in a tax professional.

7. How to Stay Compliant with Email Marketing

Email marketing is one of the top ways to make money online, with that comes a whole lot of rules. You should obey the rules that are set by the CAN-SPAM Act. 

According to the Federal Trade Commission (FTC), 

Monitor what others are doing on your behalf.

The law makes clear that even if you hire another company to handle your email marketing, you can’t contract away your legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be held legally responsible.

Don’t use false or misleading header information. 

Your “From,” “To,” “Reply-To,” and routing information – including the originating domain name and email address – must be accurate and identify the person or business who initiated the message.

Don’t use deceptive subject lines. 

The subject line must accurately reflect the content of the message.

Identify the message as an ad. 

The law gives you a lot of leeway in how to do this, but you must disclose clearly and conspicuously that your message is an advertisement.

Tell recipients where you’re located.

Your message must include your valid physical postal address. This can be your current street address, a post office box you’ve registered with the U.S. Postal Service, or a private mailbox you’ve registered with a commercial mail receiving agency established under Postal Service regulations.

Tell recipients how to opt-out of receiving future email from you. 

Your message must include a clear and conspicuous explanation of how the recipient can opt-out of getting an email from you in the future. 

Honor opt-out requests promptly. 

Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. 

You must honor a recipient’s opt-out request within 10 business days.

You can’t charge a fee, require the recipient to give you any personally identifying information beyond an email address, or make the recipient take any step other than sending a reply email or visiting a single page on an Internet website as a condition for honoring an opt-out request.

Once people have told you they don’t want to receive more messages from you, you can’t sell or transfer their email addresses, even in the form of a mailing list.

The only exception is that you may transfer the addresses to a company you’ve hired to help you comply with the CAN-SPAM Act.

8. Stay Compliant

It’s important to stay on top of your game. There are a few things you should put down on your list. 

Annual Report Filing – it details a company’s activities throughout the year

What this does is it gives governing authorities overview by whom and where the corporation or LLC is operated. This report is filed with your Secretary of State. 

If your business is considered LLC, LLP, S-Corp, or C-Cop, you are required to file the annual report. Sole proprietors and partnerships are exempt from doing so unless stated otherwise. 

How to file: You can do so online through the state’s website. In order to file, you must pay a fee. The fees vary by state. 

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