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4 Ways to Legally Protect Your Online Business

Currently, there are 9.1 million online retailers in the world and 2.5 million of them are in the U.S. The number increases daily as the idea of owning your own business and running it from the comfort of your own home becomes not just attractive, but a real possibility.

With the broad reach of the internet, you can open a business with just a computer and some appropriate software. You sell products or services? Create a web page and voilà! You have customers.

Before you open that virtual door to your e-business, you need to be sure you have legal protection for your online business venture. Here are four of the primary ways you can provide your business with legal protection prior to opening your online business and entering the land of e-commerce.

1) Business Registration and Structure

There are different ways you can structure your business. The tax forms you use will depend on the type of structure you use. Whether your personal assets are protected from business debts also depends on the structure of your business. Whichever structure you choose, check your state and municipality rules to determine registration requirements. The three main structures are:

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A. Sole proprietorship

If you do not choose any other business structure, you are considered to be a sole proprietor. Many businesses start out this way, but it is important to know that this business structure provides no protection for your personal assets from your business debts and obligations. If you are unable to pay your business debts from your business income, debtors can come after your personal assets to satisfy your business debt. This means your home, your vehicles, your personal bank accounts, etc., can all be taken to pay a business debt.

B. Partnership

There are two different partnership structures when two or more people want to form a partnership:

  1. Limited partnership (LP) where there is one general partner who has unlimited personal liability for business debts and the others have limited liability. This partner has the most control over business decisions.
  2. Limited liability partnership (LLP) where each member of the partnership has limited personal liability for business debts.

Beyond choosing the partnership structure, other things to consider include partnership agreements, financial aspects, legal requirements, tax information, and profit distribution.

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C. LLC

This business structure is the best way to provide legal protection of your personal assets from your business debts. Even if your business declares bankruptcy, your personal assets cannot be used to pay the business debts.

Each state has its own rules for LLCs, so check your state statutes to be sure you comply with the rules. You do not want to think you have properly followed the steps to forming an LLC only to later discover you missed some of the requirements, so your LLC is not valid and you are personally responsible for the business debts.

D. Other types of corporations

You may hear about “C” or “S” corporations. Ask your business attorney about how these may work for you.

2) Use Legal Disclaimers, Privacy Policy, and Terms & Conditions

You may think your business is of a kind that is immune from the need for a legal disclaimer, privacy policy, or terms and conditions. All these documents are important and may even be legally required depending on where your online business is located. At a minimum, the documents provide you with legal protection and a strong defense should a legal dispute arise between a customer or client of your online business.

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A. Legal disclaimers

Disclaimers are an important part of your online business and protect you against liability for lawsuits arising when users buy your online services or products. Disclaimers are particularly important for law firms and medical professionals. The disclaimer specifically informs the user that the information is provided only as general information and in no way constitutes legal or medical advice.

Disclaimers should be used by other online businesses such as resellers of consumer goods. The disclaimer will specify that you are not responsible for the condition of the goods once the products are shipped by the third party.

B. Privacy Policy

A privacy policy informs your website visitors of how your business collects information from users and what it does with that information. This includes informing users about how you store their information, how it is transmitted, and how it is destroyed.

A privacy policy is not just something that is nice to have, but a legal requirement in many jurisdictions. For example, the Federal Trade Commission (FCC) advises all owners of online businesses to frequently review their privacy policy to ensure they are compliant. Many states have their own laws that must be followed, and the EU General Data Protection Regulation penalizes online business owners who fail to have privacy policies that are not compliant with its regulations, no matter where the business is located.

C. Terms and Conditions (T&C) are the same as Terms of Use

This document informs the user of your online business about what happens if they decide to buy your product or services from you. This is the document you use to inform users of your shipping deadlines, your return policy, the process for users to use their credit card for the purchase, and any other information users need to know that is relevant to their online purchase.

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3) Consider Getting Business Insurance

Having business insurance is a good way to protect your business and personal assets from lawsuits. Read the policy coverage carefully to be certain you are purchasing the coverage that you need and that there are no loopholes. Then, you can rest comfortably knowing that if legal action is taken against your online business, your insurer will pay for your defense and also pay for any loss that a user allegedly has suffered.

Examples of ways insurance can help are:

If you have insurance to cover you if any of these happen, it will be well worth any premiums you paid to know that you do not have to pay for the litigation or loss from your personal or business assets, since the insurance company will be responsible for the loss.

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There are different types of business insurances for you to consider. You may need some or all, depending on the type of online business you have. Examples are:

  • Business owner’s policy for online businesses. This is important if you run your business from a specific physical location or have a location where you store your digital property in a way that subjects it to damage or theft.
  • Data breach insurance. This will help you respond to any breach by covering your costs of providing legally required notices to impacted customers and helping restore your reputation.

There are other types of insurance you may need depending on the type of business you have, whether you have any employees, whether you have a physical location where you store products, and more. Check with an insurance agent to thoroughly determine what types of insurance you need to protect you against any type of liability.

4) Use Contracts

A contract puts in writing the expectations of each party to a transaction. It specifies what products or services are being sold and the terms of the expected payment. Other relevant information is included, such as the date by which the goods or services will be provided and when and how they will be paid for.

Terms of shipping will be included. Also included will be whether there is a warranty on any of the goods and, if so, the terms of the warranty. Any other term relevant to the transaction should be in the contract.

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The main purpose of the contract is so the parties can refer to it if anything seems amiss and determine which party agreed to be responsible for the term at issue.

Before you take the final step of opening your virtual door for doing an online business, review all of your possible legal liabilities and take the steps necessary to protect your assets from loss in the unlikely event a dissatisfied customer decides to file a legal claim against your e-business.

Charles McMillan
Charles McMillan
Charles is a family man, an entrepreneur, and a writer. He is skilled in finding the balance between efficiency, affordability, and high-quality offerings when it comes to business services. He’s on a continuing mission to discover and rediscover the most popular LLC services, while sharing his most accurate assessment and review to help business owners like himself.