6 Legal Dangers For E-Commerce Businesses To Watch Out For
By Sarah Shaker, Last updated: 2023-01-18 (originally published on 2019-10-08)
Jumping into the e-commerce game can be exciting and nerve-wracking at the same time. Besides the big players like Amazon, Google, and other big names, there are plenty of smaller e-commerce sites out there who will also be your competitors. But you’ll also need to watch out for the legal dangers that can arise with online business.
When starting an e-commerce site, there are many important factors to consider such as name, marketing, products, money management, delivery and more. One of the more important, and most overlooked, aspects is the legal side.
Many e-commerce sites do not own the products they are shipping and instead are acting as the middle man for any transactions. It’s important to take all legal considerations into account.
If you’re thinking about opening up an e-commerce store, here are six potential ramifications for not doing your legal homework ahead of time.
Being Penalised for Taxes
If you’re in the United States, you know that each state has a different level of income taxes. Branching out internationally, you shouldn’t be too surprised to learn that each country has its own standards and laws when it comes to taxes.
Just look at this graph from the OECD in tracking multiple countries VAT (value after tax).
So depending on where your intended market is could alter how you display taxes, how you add taxes, and how you report taxes at the end of the year. Not following the guidelines could result in a loss of consumers, tax penalties, or both.
That’s why you need to make sure you know as much as you can about your target country’s tax codes and laws. The best way is to hire a tax professional so you know you’re not missing anything.
Shipping Something You Shouldn’t
Shipping is a huge part of the e-commerce market. Not only do consumers decide how fast they want their product at their front door, but it’s also an area where many consumers look for discounts and deals.
For any international travellers, you’ll recall those customs cards you have to fill out letting custom agents know if you’ve brought in certain goods. While bringing a toy souvenir for your baby nephew is fine, bringing 10 pounds of Spanish ham is not. Those same restrictions apply to international shipping. There are some restrictions and limitations on some obvious items like alcohol, poison, animals, and explosives. There are also some restrictions and limitations on not-so-obvious items like nail polish, perfumes, and airbags.
A great tool to use is the Federal Trade Commission’s guide that gives you all the “do’s and don’ts”. This way you won’t get penalised for shipping an item on a banned list.
Not Protecting Your Brand
You, and the rest of the planet, might remember that every child in every country was suddenly obsessed with fidget spinners. The background to fidget spinners is a bit of a sad story. The woman who invented them wasn’t able to patent or distribute her product and they were replicated rapidly.
While it depends on what product you intend to sell, you might need to secure a trademark, patent, or copyright. You need to make sure your products are protected in case there are some lurking eyes out there.
On the flip side, it’s important to be aware of other rights issues. Unfortunately, you can’t just sell whatever you want. That means if you’re deciding to sell Stranger Things backpacks without going through the appropriate channels, you could land yourself in hot water.
Going it Without Insurance
There’s insurance for just about everything. While some –like volcano explosion insurance for Kansas citizens– may be useless, business insurance is an essential one for any business owner.
Business insurance has a wide range of coverage in specific areas. These include general liability, product liability, professional liability, commercial liability, as well as home-based insurance if needed.
When it comes to e-commerce, you’re going to want to comb over the product liability fine print. And see what it says about the retail, wholesaler, distributor and any parts in between. E-commerce is a business where unforeseen issues will arise, so don’t get caught with your feet in the mud.
Not Protecting Privacy and Data
Even though it may seem like we’re being watched all the time and nothing is secret anymore, consumers still want to know their data is protected. Everything from credit card information to their home address, consumers are trusting e-commerce businesses with this information.
Think about all the negative press and attention big name companies like Target and Equifax received and how much data breaches damaged their reputations. Equifax got hammered with a giant lawsuit and Target settled last year.
If you’re a small business, a data breach could not only bring legal ramifications to your business, but it could shut you down for good.
When purchasing anything online, from pizza to 100 kayaks, all transactions must go through what’s called a payment gateway. There are plenty available and vary depending on the country or region.
It’s worth noting that not all systems are created equal. Meaning that you should look up any restrictions they have on certain products and what kind of features they offer. Choosing one randomly could cause issues for you, the consumer, and the gateway itself. If you choose one with limited anti-fraud features and then a consumer’s payment information is stolen, how do you resolve the issue? You may be up a river without a paddle at that point.
Sarah Saker is a freelance writer and small business coach living in Hattiesburg, Mississippi. She loves small businesses and helping them setup processes for customer support and growth, and working on creative marketing messaging. She has always loved to write. Now combines her passion for entrepreneurship with her love of writing to teach others how to be successful!
This article does not constitute legal advice
The opinions expressed in the column above represent the author’s own.