California is a hotbed for web businesses, but it also happens to have a number of legal standards it requires such companies to comply with in addition to federal laws. Let’s take a look at online business requirements in California you need to be familiar with before launching a site.
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. While the FTC is just getting around to thinking about issuing regulations for this new fangled thing called an “app”, the California Attorney General is already forcing the likes of Google and Apple to drop to their knees and change their platforms to comply with California privacy laws. Frankly, the FTC should be embarrassed.
Let’s start with the simplest of questions. Are you required to form a business entity to do business online in California? While you are not legally required to do this, you should. There are over 200,000 attorneys in the state [including me!], and the vast majority of them make money by suing other parties with businesses being a primary target. Forming a business entity will create a shield between the debts of the company and your personal assets, which makes getting one a smart move.
Web Design Agreement
If you hire a third party to develop a website for you, a web design agreement is a must. 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 actual design. Under state and federal copyright law, the party creating the work [designer] owns the piece. The transfer of copyright must reduced to writing. Just paying for the design is not enough to evidence the transfer.
California has very strong privacy laws. If you collect any personally identifiable information related to any visitor to your site such as an email address, name, address, payment information and so on, you must comply with very specific privacy requirements. This requirement includes detailing the information collected, who has access to it, how the information is shared and how it is secured.
To this end, California also has very strong data breach laws. If you are hacked and the information for visitors is accessed, California law requires said individuals be notified of the breach. There are specific steps that must be taken to comply with the requirement.
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 site? 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 biggest opponent of such taxes, has thrown in the towel. 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 competent CPA familiar with the subject is a must.
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 certain legal rights that makes defending your content and logos much easier 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 the federal law.
The above represents a skeleton outline of online business requirements in California. There are plenty of other laws as well, which tend to pertain to particular situations. If you are considering starting an online business or already have, feel free to request a consultation with me.
Richard A. Chapo, Esq.