Posted by Regie Anne Gardoce on 11 November 2019
Whenever you’re selling goods online (maybe even on Shopify), you’ll likely have an accompanying eCommerce store.
And, just like any other business, you need to think about the legals when running an eCommerce business.
An eCommerce store requires a number of different legal documents unique to eCommerce businesses, so it’s important to understand what they are, how they work and why they’re important.
Whether you’re new to the eCommerce scene or a veteran in this space, getting your legals right can be a headache.
But don’t stress!
We’ve prepared a checklist of five things to consider when setting up an eCommerce business.
1. Setting up an eCommerce business
In any business, the first thing to think about is your business structure.
There is no ‘one size fits all’ solution for what structure is right for your eCommerce business, as this will depend on your business size, budget, and priorities.
Generally, most eCommerce businesses will end up registering as a proprietary limited (Pty Ltd) company.
A Pty Ltd company becomes a separate legal identity to its business owners.
This means that the owners of a company have a limited liability, and in most cases will not be personally liable for such things as debt.
However, a company structure can be more expensive to set up than some other business structures, and there are various roles and documents you’ll need to sort out when getting started.
Even so, it’s important to get your structure right from the very start and minimise as many issues as possible — this could save you a lot of headaches later down the track!
2. Putting Together eCommerce Terms and Conditions
So, once you’ve got the right structure to keep yourself protected, what’s next?
You’ll need a set of eCommerce Terms and Conditions. These form the contract between you and your customers with rules specific to your business (such as refund policies).
And, since you are running an online store, these terms and conditions will often be divided into two main parts:
- The terms that govern the sale of your goods, and
- The terms that govern the use of your website
Technically speaking, these are referred to as ‘Sale Terms and Conditions’ and ‘Website Terms and Conditions’ respectively.
Within these terms, it’s common to find clauses addressing:
- Payment — covering things like the payment process, using an online payment provider (e.g. PayPal), and your refund policy
- Service Limitations — setting out the level of service you’re promising to a customer (such as promising no data breaches or website bugs
- Delivery/Pick Up — outlining the delivery process, including what customers can expect in terms of delivery and what happens if those expectations aren’t met
- Disclaimers — limiting your liability for things that may happen and are outside of your control (such as customers being hacked as a result of using your website)
These are only some of the general clauses that are usually included in these terms. A good lawyer can help you understand how else you can make the contract work to ensure you’re protected in your specific situation.
For example, if you are selling health products, you might want to include disclaimers on your website to clarify that the supply of your goods does not constitute any medical advice.
And, with new types of eCommerce businesses on the rise – such as those who commit to dropshipping – you’ll need to make sure your liability is limited as much as possible.
The last thing you want is a customer suffering loss as a result of your eCommerce business and holding you liable.
As such, having clear terms and conditions from the outset can save you from these headaches.
3. What About My Suppliers?
A lot of eCommerce businesses sell goods that are already supplied or manufactured by another party.
In this case, it’s really important to make sure you have a clear agreement with your supplier (especially if they’re based overseas).
Even though it might seem like you have a great commercial relationship with your supplier, you want to make sure your agreement is clear and set out in writing.
For this, you’ll need a contract. You could call this a ‘Supply Agreement’ or a ‘Manufacturers Agreement’.
Something you might want to consider including in this contract is a clause to ensure that you receive supplies in time — so that when orders are made on your website, customers receive what they paid for.
In your relationship with your supplier, there’s also a risk with title — i.e., who owns the goods?
It can be difficult to draw the line between who legally owns the goods you’re selling. Often, your business only owns the goods once payment is made.
If your suppliers are based overseas, you may want to make it clear that they are responsible for customs and duties fees.
So, put simply, it’s important to ensure you’re protected as much as possible in case things go wrong with your supplier (no matter how great things might seem to be going).
Plus, there are certain laws under Australian Consumer Law that may affect your arrangement with your supplier and the way you do business.
Speaking to a good lawyer can help you understand your legal rights and obligations, and is a good way of making sure you’re engaging with a supplier appropriately.
eCommerce businesses often collect personal information from customers in the ordinary course of business.
You’d normally collect customers’ personal information when they make purchases on your website, create a personal account on your platform or email you.
Although in most cases privacy policies are not required for businesses making under $3 million a year, it’s still a good idea to have one in place to be transparent with your customers.
This will become increasingly important as your business grows and customers start to ask how their personal information is being dealt with. When it comes to privacy protections, it’s always better to be on the safe side.
What To Take Away…
With more platforms like Shopify and new models like dropshipping surfacing, eCommerce businesses are growing.
They run a little different to traditional businesses, as is an online aspect and external suppliers could be involved.
This model can be tricky — there are many factors and parties involved, and a lot of things can go wrong if terms aren’t clear from the outset.
So, if you’re thinking of running an eCommerce business (or if you already have one), it’s important to make sure you understand your legal rights and obligations.
A good lawyer can help you navigate your next steps and inform you on what you can do to make sure you’re protected.
If you need help with your eCommerce business, we’re here to help!
Every month, we speak to hundreds of online businesses and help them understand their legals.
You can chat to our friendly team on 1800 730 617 or drop a line at email@example.com.