An online business is a great way to reach a larger customer base with less physical limitations.
Starting an online business can prove to be a profitable venture, however, it’s extremely important to get all the legal aspects right. Most common legal issues can usually be avoided with some careful planning!
In this article, we’ll look at some key legal requirements for starting an online business, including:
- The best legal structure for an online business
- Important legal documents such as website policies, internationally enforceable contracts and supply agreements
- Employer obligations
- Potential legal issues such as data breaches, fake reviews, incorrect pricing and misrepresentation
- Cybersecurity systems
- Work from home laws
- Accepting cryptocurrency
What Is The Best Legal Structure For My Online Business?
Choosing the right legal structure for your business is an important decision as it will form the very foundations of your business. Therefore, it’s important to choose a structure that not only fits your business’s current needs, but also aligns with the future goals you’ve set.
The most common types of business structures are:
- Sole trader – this is where one person runs the business
- Partnership – two or more people are responsible for the business
- Company – a company is a legal entity on its own and must be compliant with laws
All three of these structures have their own pros and cons involving liability, set up costs, taxes and structural differences. The type of structure you choose will depend entirely on your business, and the nature of your business activities.
If you need help deciding on a business structure that is right for you, contact us today to talk through your options.
What Legal Documents Do I Need For My Online Business?
Legal agreements and documents legitimise your business operations. Securing the right ones can help protect your business by mitigating risks and making sure things run smoothly.
Online agreements set out how people are able to use your website, what their obligations are, what your duties are towards them and any policies, limitations or liabilities the customer needs to be aware of. We’ve covered a few important terms and conditions in this article.
Website Terms And Conditions
A Website Terms & Conditions is essentially a document that governs how users are able to use your website. In other words, people who visit your website need to accept the terms you’ve set out before they can continue to engage with your site.
It’s likely that you have come across a terms and conditions agreement on most websites you have visited. This is because a lot of businesses choose to get one to protect themselves and limit their liability online.
In addition to this, a website’s terms and conditions can allow businesses to have more control over their website, such as deleting or banning users who have breached their conditions.
You may wish to consider including your payment terms in your website terms and conditions. Business owners have the right to make their own payment terms. However, these should be clear to the customer.
Payment terms can include paying in full immediately, choosing a payment plan or adding discounts to the amount. Regardless of which payment terms you offer to your customers, it’s the legal right of every business to be paid within 30 days of the purchase (unless you have agreed to a later date) or you can serve a statutory demand.
Learn more about your rights and customer obligations for payments here.
Elena is a massage therapist operating her own business as a sole trader. In order to reach more clients and make booking appointments easier, she created a website for her business.
Prior to customers signing up for Elena’s services, they must accept her website’s terms and conditions. The agreement details how her website must be used, payment methods, booking information and any other relevant details.
If a dispute arises with a customer regarding Elena’s bookings, she simply refers to the website terms and conditions to clear matters up.
In addition to this, it is the responsibility of businesses to carefully protect both private and sensitive information. Consumers have a right to:
- Accept or decline the private information being used
- Know what their information is being used for
- Be informed of how their data is being used and stored
- Request access to their data or have it erased.
Cookies are often used to remember user preferences. According to the Privacy and Electronic Communications Regulations (PECR), businesses are required to be transparent if they are using cookies.
Contact us today if you would like to know more about website privacy and cookie policies.
A Supply Agreement is a contract between you and the party providing the products and materials your businesses will be using or selling. For example, if your business sells clothing online that another company manufactures, the manufacturer that makes it will be considered your supplier.
A Supply Agreement is the understanding between both businesses regarding matters such as:
- The items to be supplied
- Contract termination
Often, a Supply Agreement will also include details regarding inventory. Managing inventory refers to keeping track of the supply, availability and shipping of all the tangible goods. If you choose to keep an inventory, your supply agreement can be catered to reflect each party’s responsibilities regarding the inventory.
Internationally Enforceable Contracts
Starting an online business means that you have the option to operate outside of the UK. This is great for expanding your customer base, however, it’s vital to ensure that your contracts can be enforced outside of the UK.
This is where internationally enforceable contracts come in handy.
Contracts that are considered internationally enforceable have a clause that allows them to operate in jurisdictions other than the one it was created in.
In the absence of such a clause, you may choose to discuss jurisdiction and governing law.
Securing your Intellectual Property (IP) is an essential part of running an online business. After all, your IP plays a huge role in marketing your business and creating an identifiable brand. Therefore, you want to make sure you legally own all your IP in case someone else tries to infringe on it.
Intellectual property is anything that is not tangible, created originally from the mind. We commonly see trademarks, patents and copyright materials as forms of IP.
You may have designed a logo, composed a musical piece for your website or created designs for a product you plan on selling. Any of these things can be legally protected by doing an application with the Intellectual Property Office.
IP applications can be a complicated process, it’s always good to have the advice of an IP legal expert handy- contact us if you need help.
What Are My Employer Obligations?
If your business hires employees, you will need to pay attention to your obligations under employment laws. The Employment Rights Act 1996, National Minimum Wage Act and the Health and Safety at Work etc. Act 1974 all set a particular degree of care that should be met by all employers. We’ve summarised some key considerations below .
It’s exciting to be expanding your team, however, it’s important to have good employment contracts in place so the relationship between you and your employees can start off strong.
You want to ensure employer and employee obligations are clear from the outset. This mutual understanding can help you avoid any headaches later.
Employment contracts should include:
- The roles and responsibilities of the employee
- Employer obligations
- Pay rates and methods of payment
- Working days and hours
- Leave and entitlements
- The length of the contract and termination rights
- Dispute resolution
Workplace Health and Safety
Workplace health and safety refers to the requirement of all employers to provide a safe environment for their employees.
It is the primary duty of employers to establish workplace health and safety and to ensure employees follow safe practices.
Workplace health and safety will depend on the individual business. For example, if your business deals with medical equipment, your workplace health and safety regulations will look different to a business that sells clothing.
Managing workplace health and safety can look like:
- Conducting training to inform all employees of workplace safety rules
- Employing a separate staff member to oversee workplace health and safety
- Providing any necessary equipment to keep employees safe
- Having a process that allows employees to communicate any safety concerns
What Are My Consumer Obligations?
Every business has a legal duty to consumers. Consumer obligations means following the relevant legislative practices to give consumers a fair go by ensuring transparency. In the UK, consumer rights are protected primarily by the Consumer Rights Act 2015.
Consumers have particular rights when it comes to the sale of goods and services. The main reason for this is to ensure fair competition in the market and to protect consumers when placed in a vulnerable position.
Abiding by consumer obligations can look like:
- Ensuring all items are of good quality before selling them
- Providing adequate warning and instructions for products that could potentially cause harm
- Having a return, refund and exchange policy in place
- Providing warranties and addressing liabilities
- Making sure there are no hidden costs associated with purchases
What Taxes Do I Pay?
As an online business, there are a number of taxes you will need to be prepared to pay. The exact taxes will depend on your business practices, however, the most common is Value-Added Tax (VAT), customs fees (for shipping orders) and income tax for revenue generated from your business.
Currently, the digital services tax only impacts large corporations. However, they could begin to affect smaller online businesses in the future, so it’s best to keep an eye out for any potential changes.
What Legal Issues Might Arise For My Online Business?
Businesses are constantly exposed to a number of potential legal issues – this is simply the nature of business. However, it’s nothing to stress about!
Being aware and prepared for any legal issues is the best way to combat them before they arise.
As an online business, you will be collecting and storing the information of consumers as a natural part of your practice. It’s important to keep this information secure.
However, it’s equally important to be prepared for when a security breach occurs and the data you have stored is no longer safe. A data breach occurs when a party that should not have access to the data has been granted unauthorised access.
A Data Breach Response Plan is a system for when this occurs. It should set out the process for informing affected individuals, how to contain the breach, if any passwords need to be changed and other things.
Instead of panicking, it’s best to have a pre-existing plan in place so the matter can be dealt with in the most efficient way possible.
Fake reviews that are misleading can be damaging to a business’ reputation, leading to a loss of customers. If someone leaves a fake review on your business’ webpage, then you have a number of options.
First, you can seek to report the review if the page allows it (such as Google Reviews). However, this does not always mean it will be removed.
Secondly, if the reviews are persistent and are causing significant economic loss, you have the option to seek legal action.
Incorrect Price Display
Consumers have a right to know the correct price. Incorrect displays of price can lead to confusion and disputes.
Alternatively, it’s important to be clear about the price of a product and stay away from ticks that can result in hidden fees.
If consumers feel they have been misled, they have grounds to make a formal complaint. Display the correct price on your website clearly for customers to see.
Misrepresentation occurs when words or conduct lead a customer to believe something about a product that is not true. This is strictly illegal.
Therefore, if a customer has been misrepresented about an item which has led them to purchase it, they are entitled to make a complaint and have the situation rectified.
In order to avoid this, make sure all employees that communicate with customers are well trained and informed about the products your business sells so they can provide the right information.
In addition to this, it’s always good to ensure your website describes the products clearly, concisely and free from ambiguous language to avoid instances where a product has been misrepresented.
Do I Need A Cyber Security System?
There is no legal requirement to have a cyber security system, however, it is highly recommended to take precautions in order to protect yourself online. After all, the online space carries a number of risks, so you want to take the necessary steps to protect your business’ IP and other inside information.
The National Cyber Security Centre (NCSC) suggests a five step process to protect your data online. After all,you don’t want your hard work jeopardised by a virus or malware.
The five steps are:
- Backing up any data
- Installing virus and malware protection
- Keeping all electronic devices safe
- Using strong passwords
- Staying away from phishing scams
You can read more about the NCSC’s recommendations here.
What Are Working From Home Laws?
Running a business online can mean that some or all of your staff operate from remote locations. In fact, staff have the right to request flexible work arrangements (which includes working from home) and employers have a duty to respond reasonably.
If your employees are working from home, your duties towards them do not change. As an employer, you are still responsible for matters such as:
- Making sure employees have a safe working environment
- Providing employees with the correct equipment to do their jobs
- Keeping up communication with employees to avoid isolation
- Ensuring all channels of communication between staff are regulated with professional practice
Overall, work from home laws means as an employer, it’s still crucial to make sure all employees are working in a safe and healthy environment.
This could include requiring them to show their work from home setup through Zoom meetings, or completing a survey to report their work from home environment.
Accepting Cryptocurrency In Your Online Business
It’s not yet a widespread practice to accept cryptocurrency as a form of payment. However, it is a growing market.
If you are comfortable and willing to accept cryptocurrency as a form of payment for your business, then you are free to do so. It’s important to make sure your business terms and conditions address cryptocurrency payments along with important matters regarding refunds and disputes, as this will differ somewhat from ordinary payment methods.
It may be worth chatting to a legal professional to ensure you’ve covered all legal grounds in your policies and terms and conditions.
Starting an online business is an exciting opportunity. However, it’s important to take care of all the legal aspects first to give your business the best chance at success.
There can be an overwhelming amount of factors to consider, but don’t worry! Our team of legal professionals can aid and guide you through the process.
Sprintlaw’s Digital Starter Pack can provide you with what you need to get started.
To summarise what we’ve discussed:
- Picking the right structure for you online business is crucial as it will form the base of everything that happens next
- Website privacy policies can aid in protecting your business
- It’s important to stay on top of all legal agreements such as Supply Agreements, Employment Contracts and making sure relevant contracts can be enforced internationally
- As an employer, be mindful of all your legal obligations towards your employees and consumers
- Apply for relevant taxes
- Be prepared for any potential legal issues, such as a data breach or bad reviews
- Consider having a cyber security system in place and allowing customers to pay with cryptocurrency
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