5 legal considerations for starting an online business

This ia a guest blog by Craig Pryor, Principal at Warren McKeon Dickson Lawyers. 

Note: The following is not intended to be and should not be interpreted as constituting legal advice.

Online business is quickly becoming the way to do business for both large and small business owners. Many consumers favour online shopping given that it is quick, convenient and often cheaper than a retail shopfront trek. It is no surprise then that many savvy entrepreneurs are trying to get in on the action. However, before you embark on this new online endeavour, you need to consider the legal considerations and responsibilities of running an online business.

Registration

The first thing to remember is that even though you do not have a store front, you are still operating a business.  As such, there are certain legal requirements that you will need to abide by.  In particular, you need to think about:

• the structure of your business – asset protection, taxation issues, income splitting
• registration of your business entity (if any) and business name
• obtaining an ABN and if required, registering for GST
• government regulations  regarding the products or services that you wish to sell
• whether there are any advertising restrictions on the products or services that you wish to sell.

Although these considerations may seem daunting at first, it is important that they are given due consideration. Take for instance the choice of business name. Many would consider this the most important decision in the establishment of an online business. When choosing a name, you need to make sure that it does not infringe upon or is not too similar to an existing business name.

Consumer Law Requirements

Before embarking into the world of e-commerce, it is important to remember there have been major legislative changes to the laws regulating business transactions. In particular, you should take note of the new Australian Consumer Law which seeks to regulate the large majority of consumer affairs and transactions. Provisions which may be relevant to an online business largely concern the issue of misleading and deceptive conduct.

Consider the descriptions that you will be putting up about the products you will be selling and the impact that these may have in the mind of the consumer. If you think that they may create a false assumption then it is best to re-word them and make it clear exactly what the product or service does.

If you are planning on selling products internationally, then you may also need to consider legal requirements of the countries you are proposing to deliver to.

Terms of Trade

Most online businesses do not sufficiently state the terms of their proposed sale to consumers in their contract (i.e. the terms of sale). The description of the goods is usually there, as is the price and a method of delivery… but that’s about it! What if something goes wrong – what other terms would be useful?

Consider these:

• Which legal framework applies to contractual arrangements? E.g. State, Commonwealth
• At whose risk are the goods while in transit and are they insured?
• What warranties or indemnities (if any) are required?
• Can the performance of the contract be delegated to a third party?
• Can liability be limited in the contract?
• What happens if circumstances beyond my control prevent me from fulfilling my contractual obligations?
• Do I need to protect my intellectual property in any goods sold?
• How will any disputes be resolved?

Many, if not all, of these matters can be addressed by having appropriately drafted terms of trade in your contract. If you haven’t brought all of your terms to the customer’s attention before the contract is entered into, they do not form part of the contract.

Security and Privacy Concerns

Online systems are at risk all day and all night from fraud originating from anywhere in the world. When dealing with sensitive information such as personal contact details and credit card information, it is important that you have appropriate security measures in place.  You should aim to:

• Ensure all personal details and credit card information is securely stored (or not stored).
• Take steps to seek to prevent fraud by using appropriate firewalls and software.
• Provide a safe and secure online space.

Remember that by doing these actions you are not only protecting consumers, but also protecting yourself.

Spam

Although you may be keen to let everyone know about your new online business venture, before you begin advertising your business you need to be aware of legal requirements under the Spam Act. Essentially, spam refers to unsolicited emails promoting goods or services. The Act applies to all those undertaking ‘e-marketing activities’ so if you plan on advertising your business by email or in an online medium, then it is applicable.  The key features of the Act are:

• provides a range of civil penalties for business that use spam to advertise
• prohibits the use of electronic address-harvesting software
• requires that messages contain an unsubscribe facility.

ABOUT THE AUTHOR:

Craig Pryor is a principal at Warren McKeon Dickson Lawyers in both the Corporate and Commercial Group and the Commercial Litigation Group. WMD has offices in Sydney, Wollongong, Ulladulla, Batemans Bay, Bega, Merimbula and Eden. For more information visit www.wmdlaw.com.au

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