California is a hotbed for web businesses. The state also happens to employ a number of legal standards it requires such companies to comply with in addition to federal laws. Let’s take a look at the online business requirements for California.
In general, the federal government is about 15 years behind the times when it comes to technological developments on the web. Sadly, California is not. The FTC is just getting around to thinking about issuing regulations for apps. The California Attorney General is already forcing the likes of Google and Apple to change their platforms to comply with California privacy laws.
Let’s start with the simplest of questions. Are you required to form a business entity to launch an online business in California? No, but you should. There are over 200,000 attorneys in the state. The vast majority make money by suing companies large and small. Forming a business entity will create a shield between the debts of the company and your personal assets. Yes, a smart move
Web Design Agreement
A web design agreement is a must if you hire a third-party designer. Not only will it detail the terms of the project, but it should include milestones to move the project along and a transfer of copyright, so you end up owning the original design. Under state and federal copyright law, the party creating the work [designer] owns the design. You must obtain the copyright transfer in writing. Just paying for the design is not enough to evidence the assignment. Make sure your agreement includes the assignment.
California has robust privacy laws. This is one area where online business requirements for California differ from other states. You must comply when collecting any personally identifiable information related to any visitor to your site. Personal information includes data such as an email address, name, address, and so on. his requirement includes detailing the data collected, who has access to it, how the information is shared and how it is secured. The California Consumer Privacy Act is coming in 2020 and is not all that different than the brutal GDPR we see in the EU. As a result, California will have some of the harshest privacy laws in the world in 2020.
If your business is targeting kids under 13, such as a game site, you must comply with the Children’s Online Privacy Protect Act of 1998. Allow people to post content on your website? The Digital Millennium Copyright Act should be front and center in your mind. These are both federal laws, but laws you need to comply with nonetheless.
The wars over the collection and payment of internet sales tax are coming to an end. Unfortunately, the states are winning as Amazon.com, the most prominent opponent of such taxes, has thrown in the towel even on the tax on digital goods. An online business in California needs to collect and pay state income sales tax on sales to individuals in the state. Soon, this will apply to sales to people in most other states as well. Taxing online sales is a relatively new and muddled area, so the use of a qualified CPA familiar with the subject is a must. ** Please note, the Supreme Court has settled the Internet sales tax issue in a ruling in 2018.
One should also consider filing for trademark and copyright protection. While California offers filing possibilities in this area, doing a federal filing is much smarter since the filing covers the entire nation instead of just California. Regardless, filing can provide you with specific legal rights that make defending your content and logos much more manageable and profitable.
Does California have a law related to sending out unsolicited commercial emails? Yes, but it has been trumped by federal law in the form of the CAN-SPAM Act. Compliance efforts should focus on federal law.
The above represents a skeleton outline of online business requirements for California. There are plenty of other laws as well, which tend to pertain to particular situations. You can find more tips here. If you are considering starting an online business or already have, feel free to request a consultation with me.
Richard A. Chapo, Esq.
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