California has a vibrant online business community and culture. If you are considering starting an ecommerce business in California, there are a few things you need to contemplate from a practical and legal perspective.
Is ecommerce a good market to get into? Absolutely. The world is slowly, but surely, converting to buying goods and services online. I’m a perfect example. I used to spend hours browsing in bookstores. Now? I get them online and haven’t been to a bookstore in I don’t know how many years. There is a certain simplicity and convenience to ordering online, so the prospects for ecommerce sites moving forward are excellent.
This doesn’t mean you can just throw up a site selling any old thing. This is a common misconception with the web. We are still talking about a business, so taking the time to get to know your market and what you can sell to it is a must.
Key issues include:
- What problems does the target market have?
- What solutions can you provide them?
- Where will you get those products?
- What are the financial terms you must agree to for inventory?
- How will shipping and customs, if necessary, be dealt with?
- How will you handle purchase transactions?
- How will you track inventory, issue refunds and deal with customer service?
These are all critical questions you must have objective, credible answers to. If you do not, you need to slow down and keep developing your business idea.
Should you form a business entity? It is definitely a good idea with ecommerce sites. Products are subject to a legal theory known as product liability. This theory says that anyone involved in the chain of commerce is jointly liable should a problem arise with a product. Practically speaking, this means your site can be found liable if a product fails, even if the cause is clearly an error by the manufacturer.
A business entity is going to provide you with a shield between your personal assets [home, investments] and the debts of the company. You should also consider buying liability insurance to pay for any legal costs, settlements and judgments that might arise in a legal dispute as well.
Website design can be a tricky issue with ecommerce sites. The primary area of concern is the backend of the site. This is where you load products, track sales and maintain a database of clients.
Who owns this backend software? If you are not careful, you can end up leasing one from a programmer. This puts you at their mercy. If the backend has a technical problem or is not updated, you are stuck. You can try to move to a new system, but it is often a nightmare.
Alternatively, you can pay to have your own backend developed. This approach also has a major downside in that it is very expensive. It is comparable to the cost of buying a car off a dealer lot versus paying someone to build you a car by hand.
A third option is to buy pre-packaged backend software much like you would buy Windows or some other software. There are plenty of these programs floating around online. Some are great and some are terrible. You need to understand your specific needs and then evaluate the programs in light of those needs. Also, make sure to keep in mind issues like search engine optimization when doing your evaluations.
Ecommerce sites must have strong legal documents. These documents define your relationship with the customer. Terms and conditions are absolutely critical in this regard. The terms act as a contract between you and the customer. Issues to be covered include costs, shipping, handling, refunds, fraudulent charges, disputes over products, where disputes will be heard [part of the country] and other topics relevant to your specific site.
The good news is we are done…for now. Most sites will have additional issues that must be addressed. Whether you hire me or another attorney, I strongly encourage you to consult with an internet business lawyer before launching your ecommerce site. California has over 200,000 active lawyers. Many of them put food on the table by suing businesses, so taking steps to protect yourself now could be the difference between sleeping comfortably or staring at the ceiling all night.
Contact me today for a free consult to discuss your project.
Richard A. Chapo, Esq.