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With the growth of e-commerce and online marketplaces, it has become easier than ever for entrepreneurs to sell their products and services without having a brick-and-mortar store. While it is a relatively new way of trading, businesses must follow laws and regulations to operate legally. In today’s guide, we’re sharing a round-up of legal requirements for online businesses. 

What Are Online Business Laws?

These are specific laws put in place to safeguard the interests of customers and businesses who transact online. You must comply with these legal requirements to successfully launch your online business.

Online business laws are country and jurisdiction-specific, so one country’s online business laws would differ from the next. It’s important to be aware of your local laws in order to ensure compliance with them as it applies to your business.

Some of these legal requirements and laws include:

Business Formation

Establishing a legal business entity, such as a corporation or Limited Liability Company, goes beyond annoying paperwork. It is a crucial step in separating personal assets from business assets, ensuring that personal assets are not at risk in the event of business-related legal issues or debts.

Registering your business allows you to open a business bank account, which is essential in managing your business finances.

When you form a business entity, you create a legal separation between you and your business activity, which is helpful in the event of a legal dispute or liability-causing situation.

Business Insurance

Business insurance is essential for protecting businesses and their owners against unexpected risks.

This can include general liability insurance for protection against third-party injury claims, property damage, or personal injury and cyber insurance for protection against data breaches and other cyber threats.

Employer Identification Number (EIN)

The U.S. Employer Identification Number, also called the Federal Explorer Identification Number (FEIN), is a nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating in the United States to identify businesses for tax purposes and is an important component in opening a business bank account.

Obtaining an Employee Identification Number (EIN) is an important step in legitimizing a business entity. It streamlines tax filing, facilitates transactions, and distinguishes a business as a separate entity in the eye of the law.

General Data Protection Regulation (GDPR)

The General Data Protection Regulation (GDPR) is a data privacy regulation that outlines the rights of individuals and sets guidelines for businesses for collecting, processing, and protecting data. While it originates from Europe, the General Data Protection Regulation (GDPR) impacts businesses worldwide, particularly those handling data involving European citizens.

It requires companies to be accountable for their data processing activities. It includes documentation of their data processing activities, conducting data protection assessments, and maintaining records of data processing activities of European citizens. Failure to comply can result in significant fines.

Social Security Numbers

A Social Security Number (SSN) is a numerical identifier assigned to United States citizens to track income and determine benefits. Protecting Social Security Number (SSN) is important to prevent identity theft.

Online businesses that collect social security numbers from customers or employees must ensure this information is securely stored and prevent unauthorized access to this information.

Sales Tax

A sales tax in the United States is a tax placed on the sale of certain goods and services. Most states require online businesses to collect sales tax on sales made to customers within the state.

Accounting and online transaction software can help business owners manage this aspect of their business; you can also consult with your accountant as it relates to collecting sales tax.

Customer Data

With the occurrence of data breaches, safeguarding customer information is important. Businesses are required to implement security measures to protect customer information.

These measures include encrypting sensitive data, secure password policies, and regular upgrades in security protocols.

Products And Service Laws

Businesses need to ensure their products and services comply with relevant consumer protection laws. This includes proper labeling, safety standards, and regulations governing the advertisement of your product or service.

Federal Trade Commission (FTC)

The Federal Trade Commission (FTC) enforces federal consumer protection laws that prevent fraud, deception, and unfair business practices. The FTC enforces the relevant laws that regulate advertising, marketing, and consumer protection.

Online businesses must comply with the FTC requirements, such as the requirement to disclose material connections, provide clear and truthful advertising, and protect consumer privacy.

Children Online Privacy Protection Act (COPPA)

The Children Online Privacy Protection Act (COPPA) primarily aims to protect the privacy of children under the age of 13 by requesting parental consent for the collection or use of any user’s personal information.

If your business targets an audience around the age of 13 or younger, you must comply with the Children Online Privacy Protection Act (COPPA).

Licenses And Permits

Businesses may need to acquire the licenses and permits required by the state or industry. This includes business licenses, professional licenses, and permits for specific operations and activities.

Crisis Management And Legal Contingency Planning

Preparing for legal crises and emergencies is a proactive approach to risk management for businesses. Developing a comprehensive crisis management plan that outlines protocols for handling data breaches, customer complaints, or regulatory investigations is crucial.

Swift response to legal issues helps mitigate financial loss and reputation damage. It involves identifying potential risks and establishing a response procedure to combat these risks.

International Trade Regulations

Compliance with import and export laws, customs duties, tariffs, and trade sanctions is important for businesses looking to sell to international customers. Understanding the laws guiding international trade is important for businesses to ensure seamless transactions.

What Are Online Business Legal Requirements in the United States?

Setting up a business in the United States involves a lot of legal requirements that vary depending on the nature of the business. These requirements are enforced by the different business laws mentioned earlier.

10 Legal Requirements For Online Businesses

These are ten legal requirements online businesses in the U.S. must comply with to operate legally:

1. Payment Gateways

Implementing secure payment processing systems that comply with regulations such as the Payment Card Industry Data Security Standard (PCI DSS) is important.

The PCI DSS is a set of security standards designed to ensure the secure handling of credit card information. This includes implementing encryption, software updates, and secure passwords.

2. Trademarks, Patents, And Copyrights

Registering trademarks, copyrights, and patents is crucial for protecting intellectual property rights. Trademarks protect brand names and logos, patents protect inventions, and copyrights protect original works of authorship (your content, including photos, video, music, and written works.).

Registering these IP assets serves as a protection against unauthorized use or infringement of intellectual property rights.

3. Taxes

All businesses are required to ensure compliance with sales tax collection and reporting in the states where they operate.

This includes registering for sales tax permits, collecting and remitting sales tax, and maintaining accurate documentation of sales tax transactions. Sales tax is a tax added to the purchase price of goods and services.

4. Inventory

This is for those who may be selling physical products: It is important to maintain accurate records and comply with inventory management regulations.

This involves setting up a system for tracking inventory levels, implementing inventory management software, and establishing procedures for ordering and restocking products.

5. Employment Laws

If you have workers, you must comply with various employment laws, such as minimum wage, overtime pay, discrimination laws, workplace safety regulations, and record keeping.

6. Accessibility

This involves making websites and content usable for individuals with disabilities. The Americans with Disability Act (AWDA) requires that businesses provide equal access to their goods and services, including those offered online.

To meet these standards, businesses need to implement features such as adjustable text size, alternative text for images, etc. 

7. Email Marketing Compliance Law

Online Businesses engaging in email marketing must adhere to regulations such as the CAN-SPAM Act in the United States. This sets guidelines for commercial email messages requiring businesses to send accurate sender information, provide an opt-out mechanism, and use truthful subject lines.

Ensuring that email recipients have the option to opt out of communication is an important part of CAN-SPAM compliance.

8. Employment Laws

If you have workers, you must comply with various employment laws, such as minimum wage, overtime pay, discrimination laws, workplace safety regulations, and record keeping.

9. Accessibility

This involves making websites and content usable for individuals with disabilities. The Americans with Disability Act (AWDA) requires that businesses provide equal access to their goods and services, including those offered online. To meet these standards, businesses need to implement features such as adjustable text size, alternative text for images, etc. 

10. Email Marketing Compliance Law

Online Businesses engaging in email marketing must adhere to regulations such as the CAN-SPAM Act in the United States. This sets guidelines for commercial email messages requiring businesses to send accurate sender information, provide an opt-out mechanism, and use truthful subject lines. Ensuring that email recipients have the option to opt out of communication is an important part of CAN-SPAM compliance.

Federal Trade Laws for Online Businesses

These are laws that specifically protect consumers of online businesses. They are as follows: 

Data Breach Notification Law:

Many states in the United States have enacted data breach notification laws. This requires businesses to notify individuals affected by breaches involving their personal information.

These laws require businesses to notify affected individuals, government agencies, and credit reporting agencies in the event of a data breach. 

Health Insurance Portability And Accountability Act (HIPAA):

For online businesses operating in the healthcare industry or handling protected health information, it is important to understand and comply with the Health Insurance Portability And Accountability Act (HIPAA).

HIPAA sets standards for the privacy and security of protected health information, requiring businesses to protect sensitive patient information.

Digital Millennium Copyright Act (DMCA):

The Digital Millennium Copyright Act (DMCA) provides legal protection for online service providers against copyright infringement. Compliance with the act involves implementing mechanisms for responding to copyright infringement notices, such as designating an agent for receiving and processing.

Electronic Communication Privacy Act:

These are rules for interception of electronic communication and access to stored communications. Businesses are required to obtain consent when accessing or intercepting electronic communication and take measures to protect customers’ privacy.

Gramm – Leach – Bliley Act (GLBA):

The Gramm Leach Bliley Act (GLBA) regulates the financial industry’s handling of consumers’ personal financial information. It applies to banks, insurance companies, and other financial institutions.

The GLBA requires business entities to protect the confidentiality and security of customer information. Businesses operating in the industry should ensure the security of customer information through encryption, access controls, security audits, etc.

Telemarketing Sales Rules (TSR):

The Telemarketing Sales Rules (TSR) require telemarketers to disclose material information about the goods or services being offered, obtain consent from consumers before charging them, and maintain a record of sales transactions for some time.

Final Thoughts

Launching an online business is totally doable, as evidenced by the millions currently pursuing entrepreneurship online around the world.

However, you must comply with the necessary legal requirements in order to avoid heavy fines or sanctions that could significantly affect your business and its reputation in the long run.

With the information shared above, you can start the process of successfully launching your business and maintaining compliance with laws and regulations in your jurisdiction.


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*The information presented in this blog post is for educational & informational purposes only. This should not be a substitute for customized legal advice from a licensed professional in a private setting. If you need legal advice, please consult with an attorney. This is not a law firm.

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