If your business is operating similarly to businesses such as Airbnb, Ebay and Uber, you may be running what’s called an online marketplace.
Whether you’re just starting out or you’re looking to take your existing online marketplace to the next level, it’s important to have the right legals in place. This will set you up for success and protect you from future risk.
In this article, we’ll run through everything you need to know for building a strong online marketplace — the risks you need to be aware of, the key legal contracts you’ll need, how to deal with your sellers, and more.
What Is An Online Marketplace?
An online marketplace is an introductory service. It is a platform that introduces sellers to potential buyers (and vice versa), and helps facilitate transactions (for example, by allowing payment through the marketplace).
A traditional goods-based marketplace like Gumtree allows sellers to list their items online. When a buyer wants to purchase, they will pay on Gumtree. From there, it’s really up to the buyer and seller to communicate how it all works – from negotiating price to arranging delivery.
Some marketplaces, like Airtasker, extend to service-based offerings. This works the same way as your traditional marketplace, but basically connects customers to service providers such as cleaners, tutors or handymen. And newer marketplaces are getting creative with how goods or services are shared on their marketplace.
But no matter how simple or complex your marketplace is, it’s important to understand the legal steps required to set it all up.
What Are The Risks Of Setting Up An Online Marketplace?
Setting up an online marketplace involves connecting multiple parties all in one place. Naturally, this carries some risks. These include:
- Liability: When working between multiple parties, there’s a lot of room for mishaps, so you don’t want to be liable for what happens between the parties connecting on your site.
- Privacy: It’s common to collect personal (and sometimes sensitive) information during the course of your business, so you’ll want to be transparent about how you do that.
- Paying people correctly: In some marketplaces (think Ubereats or Deliveroo), there are issues around treating sellers as contractors or employees. This is important because employees have certain entitlements that aren’t extended to contractors, so you need to make sure you’re meeting employment standards.
What Contracts Do You Need When Running An Online Marketplace?
Now that we know the risks involved in setting up a marketplace, it’s important to understand how to manage them.
From the legal side of things, setting up the right contracts will ensure you limit these risks as much as possible. Below, we’ll run through the key contracts you need to put in place for your online marketplace.
Marketplace Terms and Conditions
Marketplace Terms and Conditions set out the terms that users need to comply with to use your marketplace. This includes describing the buyer-seller relationship, disclaiming information about using the marketplace, and limiting liability for what happens between buyers and sellers.
Since a marketplace involves a relationship between multiple parties, you’ll need terms and conditions that your buyers and sellers agree to. Put simply, you want to make sure that everyone is on the same page.
For example, it’s important that sellers understand:
- The standard of ‘acceptable use’
- How membership or registration works
- How payment works on your platform
- The extent of your liability (this is where disclaimers come in!)
As for the customers on your platform, you should ensure they understand:
- What it means to register an account
- How payment works on your platform
- What happens if they’re not happy with what they receive
- Who is responsible when something goes wrong
Terms and conditions need to be carefully drafted, so it’s crucial you speak to a lawyer to ensure this document addresses your marketplace’s specific set up (we’ve written more about this here).
Website Terms and Conditions
As an online marketplace, you will need Website Terms and Conditions (just like any other business that runs a website). It’s important for any e-commerce store to have these in place, given the large volume of general traffic on websites.
Website T&Cs will limit liability for anything that goes wrong while users are browsing your website. For example, if there is a bug or the website crashes, the last thing you want is to be held responsible for any damage or loss this may cause.
- Collecting sensitive information: If you’re collecting any health or sensitive information, there are additional regulations that may apply to you. For example, if your marketplace connects people to a health professional, and they’ll need to disclose some health information, you’ll need the customer’s consent before collecting it.
- GDPR: If you think you might be collecting any personal information from anyone in the EU, be aware of the General Data Protection Regulation (GDPR). This regulates the way you collect and use people’s information, and how you should let them know you’re collecting it.
Choosing The Right Business Structure For Your Online Marketplace
Another way you can manage the risks associated with running an online marketplace is by adopting the right business structure. Let’s walk through some common business structures you may select for your online marketplace.
If you’re just starting out, it probably makes the most sense to operate under a sole trader or partnership structure. This means that you’ll be running the business under your own name.
This is a great way to keep costs low and tasks simple. But you need to keep in mind that, under this structure, you’re personally liable for any business debts.
A company might sound more daunting, complex and expensive to run. But it’s actually the safer option when setting up a marketplace.
A company structure means your marketplace is separate from you, so you won’t be personally liable for any business debts.
Figuring Out The Best Payment Structure For Your Online Marketplace
Once you’ve decided on your business structure, you need to think about how you’ll be receiving money. This will be your payment structure.
The 3 main payment structures are:
- Commission-based: You get a percentage of the seller’s earnings
- Subscription-based: Customers can make recurring payments to use your marketplace
- Listing fees: Sellers make a one-off payment for listing items
Each payment structure is different and needs to complement your marketplace, so it’s important to understand which one is suited for your business.
Determining Whether Your Sellers Are Employees Or Contractors
As we mentioned earlier, it’s important to know if your sellers are employees or contractors so you can ensure you’re paying them correctly. Employees have certain entitlements, but contractors don’t. Here are some of the main differences:
- Are entitled to sick leave, annual leave, minimum wage, etc.
- Are covered by the business’ insurance
- Are controlled by the business (in terms of things like work and wages)
- Are their own ‘boss’ (they control their own work and how much to charge)
- Typically need their own insurance
- Invoice for their services and file their own taxes
So, are your marketplace sellers contractors or employees?
In marketplaces, sellers are generally considered contractors because their work is not controlled by the marketplace. They sort out their own prices and negotiate with the customers themselves.
This might get tricky where your sellers provide services on an ongoing basis, which is similar to an employment relationship.
Uber Eats drivers, for example, are independent contractors but claimed in a recent case that they were employees because of the nature of their work. However, it was decided that they were not employees because they were not obligated to perform work at Uber’s request.
Need Help Setting Up A Marketplace?
Setting up a marketplace can be a long process with lots of legal considerations. With the right help, your marketplace can easily take off!
Whether you need help with your terms and conditions or business structure — or if you just don’t quite know where to start — Sprintlaw has a team of experienced lawyers who are ready to help.
Feel free to reach out to us at [email protected] to arrange a free, no-obligations chat about setting up your online marketplace.
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