Setting up an E-Commerce Site: Basic Considerations

Setting up an E-Commerce Site: Basic Considerations

Selling products online opens your business up to a world of potential customers – but it can also create a number of potential legal issues. In a moment we'll look at some of the basic issues faced by companies engaging in e-commerce, but first we'll take a look at the subject of sales tax.

Will your customers have to pay state sales tax? The answer: It depends on where they live.

In general, if you have a physical presence in a certain state – like a business office, a warehouse, or especially a retail store – then you must collect sales tax from customers in your state if they buy online. (In other words, if you operate a retail store in Virginia and you also sell products via the Internet, you must collect state sales tax from Virginia residents who buy products from your website.)

If you do not have a physical presence in a certain state, then you are not required to collect state sales tax. (In the example above, if a resident of California purchases a product from your website, you do not have to collect Virginia sales tax.)

That is why some large retailers set up different companies for "bricks and mortar" operations and for e-commerce sales: if a company has retail outlets in a number of states, setting up a separate e-commerce entity allows it to avoid collecting sales tax from customers in those states who buy products from its website.

See your attorney for specific advice about your situation.

Now let's look at other e-commerce considerations:

  • Intellectual property. If you are just starting a business, you don't have to worry about other companies infringing upon your company name, logo, slogans, etc. But you will have to worry about infringing upon the copyrights and trademarks of others. If, for example, the name you wish to use for your business is already trademarked, you could be forced to change your name – at considerable expense and at the risk of confusing or losing customers. One area often overlooked is the use of photographs: Unauthorized use of photographs on the Internet violates copyright laws and can make you liable for significant penalties. On the flip side, other businesses might use your intellectual property – you may need legal assistance to get them to stop.
  • Electronic contracts. An electronic contract is an agreement created without using pen and paper. In e-commerce terms, having the user click a "Click to Agree to Terms and Conditions" button creates an enforceable legal contract. (That's why software updates tend to include the "Click to Agree" button before the update is installed.) The "Click to Agree" button can also be used to ensure customers have a chance to review and agree to your terms and conditions for sale.
  • Payment options. Accepting credit cards, debit cards, and using online payment services like PayPal is convenient but can also raise legal issues in the event of charge-backs or refunds. Banking laws are sometimes complicated; an experienced attorney can help you determine which type of payment systems to use (and what to watch out for).
  • Advertising. Consumers are protected from fraudulent or misleading advertisements. Your slogans or advertising messages could be in violation of consumer protection laws – even if you in no way intended to mislead.
  • Employment. Operating an e-commerce site makes it possible for employees to perform work on your behalf from a range of locations: At work, at home, on the road, etc. As a result, your employment practices could violate overtime laws, safety guidelines, etc. Make sure your employment agreements and job descriptions cover any new duties (and work methods) created by e-commerce.
  • Disclaimers. The extent and nature of your responsibilities and potential liability should be clearly defined on your website, especially regarding the accuracy of information, any warranties offered or implied, and your responsibility in the event of errors. Failure to do so could open your business up to potential lawsuits or liability.
  • Security. Protecting the confidentiality of customer data and financial transactions is your responsibility. The confidentiality of business communications can also be an issue; for example, your employees should know that their e-commerce communication is not confidential and is in no way private. Ensuring the security of financial transactions is critical – so is being aware of your rights and responsibilities if that security is in some way breached or compromised.
  • Terms. Policies and practices should be clearly defined. For example, what is your return policy? What can customers expect? What is your responsibility if a product is defective? What warranties or guarantees do you offer? Language used must be clear and specific in order to fully protect your interests. You should also include disclaimers that limit your liability. For example, what you will or will not do if an item a customer is returning becomes damaged during shipping.

One other consideration: If you maintain a forum or a discussion board on your site you may be liable for comments posted. To limit the possibility of legal ramifications, make sure you:

  • Regularly monitor postings. Immediately delete any posts that are offensive or could be considered libelous. (Even though you or your employees may not have created the post, your business could still be liable since the post appears on your site.)
  • Remove posts upon request. If someone asks you to remove a post, take the safe route and do so even if you do not consider it to be offensive or libelous. The key is to be safe rather than sorry.
  • Set clear expectations and limits. Highlight the fact your company is not responsible for the accuracy or reliability of third-party statements or posts. Make sure users of your forum understand that their posts can be deleted at any time for any reason.
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