Starting an e-commerce store involves more than setting up a website, finding manufacturing partners and selling your products. After all, e-commerce stores are businesses, and that means they are subject to a variety of laws and regulations.
Ensuring that your store is in full compliance with these and other relevant business regulations is essential for keeping your store running smoothly and avoiding fines and penalties. Failure to comply with such regulations could even cause your store to get shut down, so this isn’t something to take lightly.
- Taxes
Taxes are a looming concern for many e-commerce businesses, and for good reason. E-commerce businesses are affected by a variety of tax laws. Most states enforce sales tax. In addition, several cities, counties and districts add local sales taxes on top of the state tax requirements. Combined state and local sales tax rates can exceed 9.5% in some states. These amounts must be calculated and collected by the business.
E-commerce businesses may also be subject to import duties and taxes when working with overseas manufacturing partners. Customs duties are generally imposed based on the value threshold of your imports.
- Product Licensing and Permits
Some product categories require special licensing and permits to sell online. Many states and cities require a general business license for any type of online sale (even for something as simple as an Etsy shop).
However, certain product categories are even more closely regulated, such as healthcare supplements and medical devices. Product categories that are more highly regulated typically require additional licensing or permits before they can be sold to ensure that your products are suitable for consumers.
- Formation of a Business Entity
Online store owners should also go through the necessary steps to form a limited liability company (LLC). An LLC is a new business entity that is considered to be legally separate from you, the owner. E-commerce sees frequent ups and downs, and many online stores run into financial trouble.
You don’t want financial trouble for your online store to affect your personal assets. Forming an LLC ensures that any creditors you might have won’t be able to go after your personal assets. They will only be able to claim assets that belong to the LLC itself.
- Trademarks, Copyrights and Patents
Trademarks, copyrights and patents are essential regulations that every online store should be aware of. Trademarks are applicable to the identifying symbols, designs or words that distinguish a product as belonging to your online store. Copyrights protect “works of authorship” like works of art and writing. And patents are property rights related to an invention.
So, if you have a logo that you plan to place on each of your products, you should trademark it so others can’t use it. If you are developing a new product with a truly unique feature, you should file a patent to protect your invention and keep others from using it. Filing with the United States Patent and Trademark Office provides the necessary legal standing if you have disputes with other businesses.
- Shipping Limitations
Many product categories are subjected to shipping limitations. It is worth noting that while some items are prohibited entirely, others vary based on the carrier. Because of this, you should check with the individual carriers you plan to work with to ensure you can ship your product with them.
Commonly restricted product categories include alcoholic beverages, nail polish, perfumes, fruits and vegetables (and other perishables), live plants, ammunition and hazardous products. In some cases, a shipper may deliver these items, but only if you fill out additional paperwork and pay an extra fee.
- The Children’s Online Privacy Protection Act
All websites are required to comply with the Children’s Online Privacy Protection Act (COPPA), which requires parental consent if a website will collect personal information from users under the age of 13. Websites that collect information from children must have detailed privacy policies that describe the type of information they collect, have verifiable methods to obtain parental consent, disclose information that has been collected to parents and limit the collection of personal information in general.
Failure to comply with these and other COPPA requirements can result in significant regulatory fines. This is especially important to keep in mind for online stores that sell products targeted at children, as well as stores that sell age-restricted products.
- PCI Compliance
The PCI (Payment Card Industry) Data Security Standard was introduced in 2006 to ensure a set of standards to securely process both online and offline credit card transactions. PCI compliance involves secure and encrypted checkout and not storing purchasing information in any other form (including paper records or voice recordings).
Though PCI compliance is not technically a legal requirement, e-commerce stores should do their utmost to comply with these standards. If you suffered a data breach that compromised your customers’ payment information, you could be subjected to lawsuits from consumers, as well as fines from the government and payment card issuers. Full compliance with these standards provides much-needed financial protection for you and your customers.
Keep Your Business Compliant
Remaining compliant with these laws affecting e-commerce businesses can sometimes feel like you’re dealing with a lengthy to-do list. But these are more than just optional chores.
They are essential for keeping your e-commerce business in good legal standing so that you can continue to sell to your customers. Ensuring full compliance from the start will provide the proper foundation for consistent growth that won’t be disrupted by compliance challenges.