Having an 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 six 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;
- 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 that 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.
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.
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 that you will end up in a dispute with another business, meaning you can avoid the costly rebranding process.
3. 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:
- terms and conditions.
Terms and Conditions
Your terms and conditions (T&Cs) will set out the sales terms upon which you will be providing goods and services to your customers or to other businesses. Your T&Cs will cover important clauses including:
- a description of the goods and services;
- your customer’s rights to refunds and exchanges; and
- dispute resolution.
- financial information; and
- billing details.
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.
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.
6. 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 Australian Consumer Law (ACL)).
Finally, your policies should be clear and explicit in your terms and conditions, so that you minimise the risk of ambiguity and a dispute.
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 would like to discuss what you need to launch your e-commerce store, call LegalVision’s e-commerce lawyers today on 1300 544 755 or fill out the form on this page.
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