CEA Legal | How to start an e-commerce business while complying with legal regulation

The already increasing number of E-commerce economic activities skyrocketed in the wake of the recent pandemic. More than ever, a savvy entrepreneur should be aware of the legal implications and issues of an e-commerce venture.

Legal Entity

When the e-commerce business is started as secondary or simply subsequent to one operated from physical premises, it might be time and cost-effective to operate the e-commerce with the existing legal entity; however, in order to ensure more legal protection and accurate bookkeeping, it is advisable to set up a new company;

Website Compliance Issues

When building the website, a few matters should be considered immediately:

• Work for hire agreement: clarifying in writing that the contents developed by the web designers and/or other consultants are owned by the hiring company;
• License agreement: securing permission in writing to use on the new website contents owned by others;
• Put users on notice that the materials published on the website are protected by copyright and trademark;
• American with Disabilities Act (ADA): website must be accessible to persons with disabilities (screen readers for blind persons and audio descriptions/conversation transcripts of visual contents, among other requirements).

Terms of Use, Privacy Policy, Terms of Sale

This section is quintessential, as it set forth the legal agreements with the users of the company’s website and purchasers of the company’s goods or services. Here are the most important terms:

• Making users aware that by browsing the company’s website, they are accepting its terms of use;
• If users are permitted to upload contents on the website, the company should obtain a license to use such contents and indemnifications from users in the event of any damages caused to third parties;
• Disclaimers to limit the company’s liability should users get a virus/malware while browsing its website;
• Listing the information that users are required to provide and that is automatically collected (e.g. IP address, cookies);
• Describing how the information collected is going to be used (e.g. for accounting purposes, purchase order executions);
• Detailing the rights of the user/purchaser to obtain a refund, to cancel the order, and/or to return the goods;
• Showing conspicuously the shipping fees;
• Formulating warranty policies:
• Deadline for a full warranty coverage;
• Disclaimer regarding implied warranties;
• Procedures to obtain coverage.

Sales Tax

The Sales Tax is the tax paid to a State for the sale of certain goods or services in that State. Sellers that have a physical presence in a state are required to collect the Sales Tax from consumers at the time of each purchase.

E-commerce sellers, however, do sales in several states where they do not have a presence. Therefore, US States have been trying to widen the concept of “physical presence” through a number of nexus, the most important is the so-called “economic nexus”, introduced by a South Dakota law in 2016, pursuant to which an out-of-state Seller is considered to have a physical presence in South Dakota if either the annual threshold of $100,000 in sales or 200 transactions is exceeded.

The “economic nexus” has been validated by the U.S. Supreme Court (South Dakota v. Wayfair Inc., 2018) and is now adopted by several states (California and New York have different sales thresholds, respectively $500,000 and $300,000).

Marketing and Advertising

Best practices to follow:

• With respect to marketing emails, the sender/seller should state that the purpose of the email is promotional and give an “opt-out” option to recipients;
• Making users aware of strategies online behavioral advertising, which consists of tracking the online activities of the users for marketing purposes;
• Endorsements of bloggers and influencers should not be deceitful: make users aware of the products or services are endorsed for advertising.

Contact:

• Email: info@cealegal.com, Phone: (646) 512-5740