California has a vibrant online business community and culture. If you are considering starting an e-commerce business in California, there are a few things you need to contemplate from a practical and legal perspective.
Is e-commerce a good niche to pursue online? Absolutely. The world is slowly, but surely, converting to buying products and services online. I’m a perfect example. I used to spend hours browsing in bookstores. Now? I buy books online and haven’t been to a bookstore in I don’t know how many years. Since it is so convenient to order online, the prospects for e-commerce sites moving forward are excellent.
The bright future of e-commerce doesn’t mean you can just throw up a site selling any old thing. Not everything sells online. As with a traditional book-and-mortar company, take the time to develop a business plan.
Key issues to consider 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 you deal with shipping and customs if necessary?
- How will you handle purchase transactions?
- How will you track inventory, issue refunds and deal with customer service?
If you can’t answer each of these questions off the top of your head, you need to slow down and further develop the business plan.
Should you form a business entity? It is a good idea with e-commerce 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 e-commerce sites. The primary area of concern is the backend of the website. The backend 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 approach puts you at their mercy. If the backend proves to be less than satisfactory, you are stuck with it. You can try to move to a new system, but it is often a nightmare.
Alternatively, you can pay a programmer to develop a custom backend for the proposed site. 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 particular 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.
E-commerce sites must have detailed legal documents. These documents define your relationship with the customer. eCommrece terms and conditions are critical in this regard. The terms act as a contract between you and the customer. Costs, shipping, handling, refunds, fraudulent charges, disputes over products, the location of litigation [part of the country] are just a few issues you need to cover in the document.
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 e-commerce site. California has over 200,000 active lawyers. Many of them put food on the table by suing companies, 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.