In Short
- Launching an e-commerce store requires careful planning, including choosing the right platform and understanding legal obligations.
- Ensure compliance with consumer protection laws, including returns and refunds policies.
- Protect intellectual property and customer data through appropriate security measures and privacy policies.
Tips for Businesses
When launching an e-commerce store, select a platform that aligns with your business goals and capacity. Prioritise compliance with consumer protection laws and safeguard customer data with robust privacy and security practices. Clearly outline your returns and refunds policies to build trust and enhance customer satisfaction.
Having an online business or online store has become an increasingly popular way to sell products or services. For e-commerce store owners, there is a larger potential customer reach. If you are thinking of opening an e-commerce store, there are a number of legal issues to consider. This article will set out seven basic steps to help you achieve your goals.
1. Business Structure
The first step to creating a strong foundation for your e-commerce store is to decide on your business structure. Your business structure will:
- impact your ability to grow and scale;
- determine your personal liability for debts and legal action; and
- influence your tax obligations.
The most common structures are:
- sole trader;
- partnership;
- company limited by shares; or
- discretionary trust.
Sole Trader or Partnership
A sole trader is a simple structure to set up and is cost effective to maintain. You will need an ABN but you will also be personally responsible for the business’ losses and liabilities. This is a good option if you are a small shop with little risk of liability.
Alternatively, you may have a business partner who will co-own the business with you. A partnership can be made with a verbal agreement, but the best practice is to get a partnership agreement in writing that will set out:
- how you will work together;
- the framework of the business;
- the investment;
- liability and profit share of each partner; and
- how the partnership will be dissolved.
A partnership is relatively easy to set up. It also allows partners to bring in more capital. However, each partner is liable to each other and personally liable for the debts and responsibilities of the business.
Company
A company is more expensive to set up. You can register a company through the Australian Securities and Investments Commission (ASIC). It involves ongoing reporting obligations to ASIC, but the company will be liable, meaning you limit your personal liability. A company structure is also more attractive to investors and may have tax advantages. However, companies are heavily regulated.
This type of structure is suitable for businesses that want to grow and scale. Having a dual company structure will add protection to your business. You would need to have a holding company that houses your intellectual property and that wholly owns a subsidiary company. The subsidiary company operates the business and manages clients, employees and suppliers.
Discretionary Trust
A discretionary trust holds shares in a company, which in turn runs the business. You can choose an individual or corporate trustee. This creates layers that limit your personal liability.
The trust structure is more costly to set up. It is also highly regulated. However, it does provide strong asset protection from creditors.
2. Business Name
Choose a unique business name that is not already in use. It is prudent to do a thorough search online and across the trade mark register. You should also search in countries to which you are likely to sell. This will ensure you are not using a similar or identical name to one which is a registered trade mark.
It will minimise the risk of a dispute with another business, meaning you can avoid the costly rebranding process.
Continue reading this article below the form3. Website Protection
Once you have set up your business structure, you will need to choose the platform you will use for your e-commerce store. You may decide to sell on Facebook, Amazon, Shopify, or on your own website or mobile application. Depending on the platform you choose, you will need to ensure that you have:
- website terms of use;
- privacy policy; and
- terms and conditions.
Website Terms of Use
Some platforms have their own online documents that you will need to use as an e-commerce merchant. A website terms of use will set out the terms under which your users can use your website.
Terms and Conditions
Your terms and conditions (T&Cs) will set out the sales terms upon which you will provide goods and services to your customers or other businesses. Your T&Cs will cover important clauses including:
- a description of the goods and services;
- payment;
- delivery;
- your customer’s rights to refunds and exchanges; and
- dispute resolution.
Privacy Policies
A privacy policy will set out how your business will store, collect and deal with your users’ personal information. Personal information is information that identifies an individual or makes it easy to work out the identity of a person, including:
- name;
- address;
- financial information; and
- billing details.
You must have a privacy policy if your business’s annual turnover is more than $3 million and in certain other circumstances. The Office of the Australian Information Commissioner’s checklist will help you decide if your small business needs to comply with the Australian Privacy Principles (APPs).
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This How to Start an Online Business Manual covers all the essential topics you need to know about starting your online business.
The publication also includes eight case studies featuring leading Australian businesses and online influencers.
4. Protect Your Intellectual Property (IP)
IP is a form of property and can be a valuable, if not the most valuable, asset of a business. It is therefore critical, if you have developed goodwill or invested heavily in your IP, that you protect it adequately. There is IP in tangible material, product names and a product’s appearance.
In Australia, some forms of IP need to be registered, such as trade marks, patents or designs. However, other forms are automatically protected, such as copyright. Alternatively, they may be protected by contracts.
Many e-commerce platforms require a new business to show proof of IP ownership before a business can take action against another business for copying their branding. Make sure you register your trade mark in the countries to which you will be selling.
5. Advertising and Marketing Compliance
When launching an e-commerce store, of course, advertising and marketing will be a crucial element of gaining sales. Clever, creative advertising is a tried and tested method to attract attention to your products. However, it is crucial that all advertising and marketing materials you use in your business comply with the relevant laws and regulations. The Australian Consumer Law (ACL) sets out key requirements to prevent misleading and deceptive conduct in advertising.
To avoid breaching these provisions, you should:
- use accurate and clear language to describe your products or services;
- avoid using absolute statements unless the statements are based on recent data or facts;
- i.e., instead of “Our cleaning product kills 100% of all germs on any surface”, use more appropriate wording such as, “Our cleaning product is effective against 99.9% of common household germs when used as directed”. This revised statement is more specific and allows for reasonable limitations, making it less likely to be considered misleading or deceptive under advertising regulations;
- include relevant statistics and substantiations to support claims;
- make sure warnings and disclaimers about your products or services are clearly visible and not overshadowed by contradictory images or videos; and
- use appropriate disclaimers to set out key terms, conditions, and exclusions.
When using customer reviews or testimonials, you must ensure they are genuine and not misleading. It is illegal to use fake reviews or edit real reviews to remove negative comments.
For social media marketing, particular care must be taken when engaging influencers. Any sponsored content must be clearly disclosed, typically using hashtags like #Ad or #Sponsored. This applies even if the influencer received free products rather than monetary payment.
6. Spam
In Australia, the Spam Act 2003 prohibits you from sending unsolicited messages and information about your business to customers. ‘Spam’ is defined as unsolicited commercial electronic messaging, including emails and SMS, about offers or promotion of the supply of goods and services, land, business or investment opportunities.
Collecting your customers’ personal information can be a valuable resource, however, you must ensure that you meet the following three criteria before sending commercial messages to your customers:
- express or inferred consent from the receiver;
- clear and accurate information in the messages about you and how customers can contact you; and
- an option to unsubscribe.
7. Doing Business
Now that you have your business and website set up and protected, you will need to consider how you will actually do business in a way that complies with the law. You must be clear about:
- the way you will sell goods and services;
- how you take payment and ensure your customers’ payment security;
- who will pay for postage, loss and damage; and
- whether you offer refunds or exchanges (noting your obligations under the ACL).
Finally, your policies should be clear and explicit in your terms and conditions to minimise the risk of ambiguity and a dispute.
Key Takeaways
There are many considerations when launching an e-commerce store. However, careful planning and appropriate documentation will ensure you get off to a good start and minimise disputes down the track. It is important to be fully aware of your legal obligations and comply with the ACL and privacy laws.
If you need help launching your e-commerce store, our experienced e-commerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Selecting the right business structure, such as a sole trader, partnership, company, or discretionary trust, is crucial as it influences growth potential, personal liability, and tax obligations. Each structure offers different advantages and drawbacks, impacting how you manage liabilities, how your business operates, and how it scales.
To comply with Australian Consumer Law, ensure all advertising is clear, truthful, and not misleading. Use specific language, support claims with evidence, and prominently display disclaimers. When using influencers, disclose sponsored content. You should not alter genuine reviews to mislead consumers about your products.
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