The Legal Risks of Selling Online

Smartphone with a online shopping cart image on its screen

Even years after the dot-bomb explosion, new Web sites spring up offering products and services from second-hand motorcycles to personal dating services. And why not? Compared with the cost of writing and paying for an ad, sticking it in a newspaper and waiting for results, selling on the Web is pretty irresistible.

If your company has a product or service that appeals to Internet users and a Web master who can draw eyeballs to your site, you may want to give online sales a try — if you haven't already.

Is there a down side? Yes. Every business owner has to rein in enthusiasm for online sales ventures while checking out pitfalls. Liability is one of the main obstacles.

For example, let's say you own a sports memorabilia business. You set up your own website, "Simply Sports," with ordering and shipping details in place. One of your first customers orders a bunch of Roger Maris cards and pays by check. You cash the check and ship the cards as promised. Only the box never arrives and you have one mad customer.

With any luck, you can smooth the buyer's feelings by locating the cards or resending them. It's critical to have systems in place to handle shipping and other glitches. But to protect your company legally, you must include certain terms on your site or order forms.

These "rules of play" apply to your company and its customers. They are generally called "terms of use" or "conditions of use." Users agree to read and honor the terms as a condition of doing business with you. Acceptance — typically shown by clicking an "I agree" box — is a contract.

Consult with your attorney to ensure that user agreements, terms of use, and contracts arising from sales can be enforced and that your interests are protected.

Here are some subjects you typically find in user agreements:

  • Details of buying
  • Exclusion of warranties or guarantees on products
  • Privacy conditions and who is eligible to use the site
  • An advisory that sales or income tax may be due
  • "Control" issues, such as when the seller can refuse to sell or ship
  • "Glitch" provisions, such as what happens when the buyer doesn't pay or receive an order

Some Web terms are short and simple, just setting out privacy and confidentiality issues (for example, "we don't sell your e-mail or home address ..."). Others, depending on the site, business size and need for clarification, are much more elaborate, discussing such topics as copyright protection.

But whether your terms are simple or complex, one thing they accomplish is communication with your customers. Each side knows what the other will and won't do, which helps eliminate misunderstandings and unwelcome surprises later on.

Review websites for products similar to yours and consult with your attorney for the proper wording. Customize terms and conditions to your fit your business.

Clearly and completely setting out the conditions under which you conduct business protects you legally and helps attract more eager customers.

Reducing Liability by Incorporating

The classic strategy to avoid personal liability, whether your business is in cyberspace or on the corner, is to incorporate or form a Limited Liability Company.

Consult with your tax advisor about the best way to shield yourself from personal liability. In an LLC, for example, only business assets and capital paid into the business are at stake — not your house or your child's college fund.

In most states, an LLC can be formed with just one person. Other options available include C and S corporations, named for sections of the Internal Revenue Code.

We Help You Get to Your Next Level™

Get in touch today and find out how we can help you meet your objectives.

Call Us