Are you considering expanding your physical business or starting a home-based business? Selling your products online is a great way to reach a larger customer base. That being said, before you begin to sell products online, there are several legal issues you should be aware of to ensure your business is right with the law and that you are protected. It is vital for you and your business to get the so-called “boring” stuff checked off and lined up so your business can succeed.
Business Entity:
If you are starting a new business to pursue online sales, it is important to carefully consider the pros and cons of different business structures. A sole proprietorship is uncomplicated and inexpensive, as no separate business entity is formed. In a sole proprietorship, there is no distinction between your business and personal assets, so you are personally responsible for all the business’s debts and liabilities. A partnership is a similarly simple business structure used when two or more people co-own a business. Like a sole proprietorship, you will be personally liable for all the business’s obligations—including those incurred by your partner. A limited liability company (LLC) is a separate business entity that can be formed by a single business owner or multiple owners. It involves the payment of certain fees to the state and a few formalities, such as an annual meeting and, in some states, an annual report. An LLC, however, provides limited liability, meaning if someone is injured by one of your products, they can only sue the business, and your personal assets will be protected. Other business structures are available as well—these are just some of the most common structures used by small businesses. We can always help you evaluate which business structure is best to achieve your specific goals.
Trademarks:
A trademark is a word, name, symbol, device, or a combination of them used to identify and distinguish the goods and services of a seller or provider, and to indicate the source of a good or service. One of the most recognizable examples of a trademark is McDonald’s “I’m Lovin’ It.” slogan. That being said, a trademark is one of your business’s most valuable assets, and if you engage in e-commerce transactions beyond your state’s borders, it is important to register your trademark with the United States Patent and Trademark Office, which enforces your rights as a trademark holder across the entire country, not just the state in which your business is located.
Taxes:
Most states have a sales tax, and if your online business sells products in other states, you must collect and pay sales tax to each state in which your business has a “tax nexus,” or a sufficient connection to that state (e.g., a certain volume of sales). Some smaller online businesses may be exempt from collecting and paying sales tax under the laws of many states, for example, if they have less than $100,000 in sales or fewer than 200 annual transactions. Always check with your local laws, as this is just an example.
Restrictions on Home Business:
Many people run online businesses from their homes. If you plan to store a large inventory of your products in your home, it is important to make sure that you will not be violating any restrictions in your lease, deed, homeowner’s association, or zoning ordinances.
Licenses and Permits:
Many types of businesses do not require a special business license to sell products. However, for certain products, such as medical devices, food, and animal products, a special local, state, or federal business license must be obtained before they can be sold. Home-based online businesses may also need to obtain a home occupation permit or conditional-use permit to operate legally.
Data Protection and Privacy:
For online businesses, reasonable data security measures and a strong privacy policy are essential because online purchases require the exchange of personal customer information. Customers may be unwilling to buy from your business if these protections are not in place. In addition, you could be liable under data privacy laws if third parties obtain your customers’ information because you failed to take the steps required by state law or steps reasonable under certain circumstances to protect your customers’ personal information.
Business Insurance:
Like all businesses, it is important to consider obtaining general liability, product liability, or commercial liability insurance policies to protect your online business in the event of lawsuits. In addition, if your online business will be delivering goods to customers, consider purchasing delivery insurance.
Koukol Johnson & Schmit Can Help Set Up Your Online Business for Success:
These are only some of the issues you need to consider before you form an online business. We can help guide you through every step in the process of starting your business, from choosing your business structure to ensuring you are compliant with state and federal law. Call us at (402) 934-9499 or click here to schedule a consultation with our Business and Employment Attorney Angela Schmit.
