9 Legal Considerations When Starting an Online Business

Starting an online business can bring you a 24-hour, 7-day-a-week opportunity to operate from anywhere and make money worldwide. It doesn't have the traditional hurdles many brick-and-mortar companies face. 

However, the legal considerations for starting an online business can be daunting when you're unsure where to start. Without proper understanding, you'll face severe legal and financial consequences. 

This guide will show nine essential regulations and rules to run your online business successfully. 

1. Sales Tax Collection

The primary rule for collecting sales tax from online businesses is as follows:

  • If your company has a physical presence in a state, you're almost always required to collect sales taxes from online customers. 

  • If not, you mostly don't have to collect taxes for online sales. But in June 2018, the U.S. Supreme Court ruled that states might collect sales taxes whether you have a physical presence or not.  

A physical presence means you have some business facility in that state, such as an office, a storefront, or a warehouse.

If you're wondering if you need to collect sales tax, first check if your home state has a sales tax. Most states impose taxes, but some - like Oregon and Alaska - do not. 

Some towns and cities even charge an additional sales tax. For instance, California's statewide sales tax rate in 2022 was 7.25%, and local authorities can impose extra sales taxes. As an online seller, you need to know the local tax rates and collect them from your customers. You should talk to local tax authorities or a tax professional to cover all bases. 

2. Customer Privacy

E-commerce websites can gather a massive number of valuable insights to create better customer experiences. However, not all e-commerce data is up for analytics grabs. 

Here are two common customer privacy acts you should consider before collecting customer data:

  • California Consumer Privacy Act (CCPA) - Businesses must disclose any information about the customer. They must present it with a list of third-party providers privy to this information per customers' demand.

  • General Data Protection Regulation (GDPR) - This EU-member statewide act puts down seven must-follow regulations you must abide by when collecting, storing, and using customer data. 

Many online merchants call GDPR the "stingiest customer data privacy" because its violation fines are steep - €20 million or 4 percent of your global annual revenue, whichever is higher. However, it isn't that difficult to stay on the right side of GDPR. If you plan to sell in Europe, navigate to the official GDPR resource website and read its FAQ section and checklist. 

3. Marketing Infringement 

You can seize many opportunities on the Internet to market your products online, but you must follow specific rules. For instance, you can't make false claims about your products/services and must disclose paid endorsements. 

Email marketing is a common way to reach existing and potential customers. You must ensure your email marketing campaigns comply with the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography And Marketing Act). You may get fined due to the following:

  • Your email contains deceptive subject lines, false or misleading headers

  • Your email doesn't disclose that the message is an advertisement

  • Your business doesn't divulge your location to email recipients

  • Your email doesn't show recipients how to opt out of receiving future emails

  • You don't honor opt-out requests within ten business days

If you find it challenging to follow all marketing rules, consider working with an experienced legal marketing company. They'll help you follow these regulations properly while you'll spend time on other essential business operations. 

4. Licenses and Permits

In some states, you may only need a business license once you reach a certain revenue threshold. In other states, you must apply for a permit before selling anything. So, you should confirm with local regulators or consult with an attorney to avoid any future issues. 

Nevertheless, regardless of whether a business license is required, registering your business can bring back many benefits. It allows you to claim tax deductions while giving your business a better appearance of legitimacy, which can be essential to obtain financing and partnerships. 

The requirements for business licenses and permits may differ by state. Visit the SBA (Small Business Administration) to determine what permissions you need to have in your state.  

5. Trademarks, Patents, and Copyrights

Considered business intellectual property, trademarks, patents, and copyrights are protected by respective laws.

  • Trademark - Protects logos, brands, and slogans.

  • Patent - Protects new inventions, scientific creations, or processes.

  • Copyright - Protects original authorship works, such as music, works of art, and writings.

You may be granted legal protections if you take the right actions to preserve your intellectual property. These will prevent other businesses from using it without your permission. Likewise, you can't use others' intellectual property without the appropriate consent. 

For example, obtaining relevant consent is essential to selling T-shirts with Marvel characters to avoid legal issues. 

It isn't strictly necessary for online merchants to obtain a trademark or patent, but it may provide additional protections. But you must ensure you don't infringe on others' intellectual property rights. 

6. Age restrictions 

Your website must comply with the COPPA (Children's Online Privacy Protection Act) with no exceptions. 

With this act, you cannot collect information from a child under 13. Besides, if you sell a product or service specifically to a young audience, you must abide by the COPPA. Otherwise, you risk fines of up to $43,280. 

So remember to check your country's regulations and rules before selling any age-restricted product through an online store.  

7. PCI Compliance

Payment Card Industry Data Security Standard, which stands for PCI DSS, was implemented in the early 2000s to protect customers' payment data. Online merchants accepting credit card payments must comply with PCI when processing, transmitting and storing credit card data.

PCI compliance covers online, POS (Point-of-Sale) transactions, card-over-phone orders, and other card-not-present transactions. So being PCI compliant doesn't simply mean offering an encrypted, secure checkout experience. Pay attention when you store purchasing information via recording (i.e., someone gives you their card number over the phone) or on paper. 

If you plan to use a POS system or third-party payment processor, inquire about their state of PCI compliance. 

8. Payment Gateways

A payment data breach can lead to a severe fine and damage your brand image. Therefore, it's crucial to stay vigilant when selecting a payment processor. Consider choosing solutions with:

  • GDPR compliance (for businesses selling in Europe)

  • PCI-DSS compliance

  • Integrated security and anti-fraud protection 

  • HTTPS connection (SSL certificate) for all payment operations

9. Shipping Restrictions 

Logistics companies have different rates, rules, and restrictions when shipping different product types. Some commonly-restricted products include:

  • Alcoholic beverages 

  • Airbags

  • Aerosols 

  • Animals 

  • Cigarettes 

  • CBD products

  • Explosives

  • Hazardous materials

  • Perishables 

  • Poison 

Some companies may let you ship restricted items, but they'll require extra fees and paperwork. You should research various providers to determine the costs and shipping requirements.  

Knowledge and Diligence Matters

Starting an e-commerce store can help you reach more customers and generate more sales. However, when venturing into the digital business, you must follow fundamental laws and regulations to avoid costly penalties. 

Getting familiar with these nine legal requirements can help you run a successful, safe online store.