Today's post is from Leah Hamilton at TermsFeed! This information is meant for general guidance— if you need specific legal advice, we recommend consulting directly with a professional.
When you’re starting an online business, there’s a lot to think about—everything from the packaging for your amazing products to the design of your product pages. Do you also have the legal aspects sorted out? Making sure you check all the boxes and have all the right forms might not seem as fun, but it’s an essential part of running a business, and keeping your customers happy.
If you are based in the US it is highly likely that you have Californian users, so it pays to comply with the Californian state law.
The UK and Europe follow what is called the EU Data Protection Directive 1995. This Directive sets out seven principles of data collection:
You can see that the sections are written in simple language that is not shrouded in legalese. Sections drafted like this are suitable for both US and EU online stores.
A Terms and Conditions is a legal document that sets out what your customers must do or not do if they want to use your service. Your store, for your customers, is a service.
A Terms and Conditions document can simply outline appropriate customer behaviour for the use of your website, or it can be much broader and can include disclaimers and limitations of liability, warranties, privacy, refunds, and intellectual property information.
In my view your Terms and Conditions should cover everything you want your customers to be aware of, in relation to any part of the sale and purchase of your goods. It’s better to err on the side of covering something rather than leaving it out.
Let’s look at a couple of visual examples for these terms, namely payment details and a limitation of liability clause. Here’s an example of what your payment details clause could look like:
You can see here that each clause is clearly laid out, and is not in overly legal language.
You can see that Bass Pro has written this term in capital letters—this is to ensure that this clause is especially highlighted to their users.
Last but not least, you need to set up a Returns and Refunds policy. A Returns and Refunds policy can include your warranties, or they can be separate documents. Usually the warranty sets out what is covered, while the Returns and Refunds policy only defines how you will deal with customer returns and refunds.
Your Returns Policy will need to cover time limits on returning a product, the amount that you are willing to refund (e.g. full purchase price), the types of refunds you offer (such as direct refund, store credit or replacement), and who covers the cost of delivery if an item is returned.
In the US, under federal law you are only required to accept a return if the goods are defective or don’t match the description of sale. The law also differs state-by-state in the US for more detailed requirements on returns or refunds. For example, California law requires that you must clearly display your policies unless you offer a full cash refund, exchange or store credit within 7 days of the purchase. If you don’t display your policy, customers are allowed to return the goods for a full refund within 30 days, no matter what your policy says. Likewise in Florida, you must clearly display your Returns and Refunds Policy if it does not allow refunds; if you don’t do this, customers are legally allowed to return any goods for a full refund within 20 days of purchase.
To meet these types of state requirements (to cover situations where you may have customers from all over), ensure that your return and refund policy is displayed prominently in all cases.
Under EU law, your customers have the right to a minimum two-year guarantee period at no cost. If an item purchased by your customer turns out to be faulty, you must repair or replace it for free, or give a refund or price reduction. Depending on what country you are in, your customers may need to inform you within 2 months of discovering the fault, otherwise they lose their right to the guarantee. Check out the European Consumer Centre in your country to find out what local laws may apply to you.
For online purchases, EU law also allows customers to return goods they bought online (or any other method that was not in-store) within 14 days for any reason. It is not enough for the customer to simply send the goods back - they must notify you either with a written statement accompanying the goods, or via email.
UK law sets out that you must offer a full refund if an item is faulty, or if it doesn’t do what it’s supposed to. Customers have up to 6 years to make a claim for an item they’ve purchased. However, the likelihood of the customer being able to get that type of refund reduces significantly after 6 months has passed since they purchased the item: after the initial 6 months, the buyer must prove that an item was faulty at time of purchase. A customer has the same right to free repairs or a replacement whether they have a warranty or guarantee, or not. So you may still have to repair or replace goods even if you didn’t give a warranty.
Regardless of whether you are in the US or the UK/EU, your return policy should cover:
Here’s another example from Apple of their Standard Return Policy:
You can see that they similarly allow 14 days in which to return an item, but they exclude certain digital products from being able to be returned. Consider those types of unique factors that may apply in your situation before you move on to drafting your policy.
The first thing to think about in either jurisdiction is what legal form you want your business to take. Whether that’s a corporation, a sole trader set up (if it’s just you), a limited liability partnership, or a limited liability company. You’ll need to look in depth at the benefits and drawbacks of each of these models, as what is right for your business will depend on numerous factors.
If you decide to work as a sole trader, you won’t need to register your business unless you use a name other than your own name. If your business is a partnership your legal name will be the one outlined in your Partnership Agreement, or you may use the last names of all of the partners (e.g. Clooney, Pitt, Eastwood, and Redford). If you decide to go with an LLC or corporation, your business’s name is whatever you registered with the state government.
Next in the US you’ll need to acquire your federal tax ID. This is also known as your Employer Identification Number (EIN), and you get it from the U.S. Internal Revenue Service. You’ll also need to register with your state’s revenue agency, and obtain a Sales Tax Permit or Vendor’s License for selling products. Once you’ve obtained your tax IDs, don’t forget to pay your employment taxes and income taxes for your business.
Finally, you’ll also need a business licence. The Small Business Administration can give you information on your State’s requirements.
Similarly to the US, you need to be aware of paying your business taxes. Using France and Germany as examples again, in France you need to pay company or corporation tax (impôt sur la société/IS), and taxe professionelle. If your business earnings are above a certain threshold, you also need to pay the contribution sociale de solidarité; if you employ staff, you must also pay taxe d’apprentissage and a contribution to formation professionnelle. However, you pay no personal income tax. The French tax system is extremely complicated, and it’s recommended that you hire an accountant.
In Germany, you need to be aware of the municipal trade tax (Gewerbesteuer) and the value added tax (Mehrwertsteuer), as well as the income tax, solidarity surcharge and church tax for your employees. You may also need to pay Corporate Tax (Körperschaftsteuer) if your business is incorporated.
You can also register your business as a European company through the European Union.
To make things easier and quicker, make use of resources online. You can also use Terms and Policy generators such as TermsFeed, and government resources usually have excellent guides and information to help you through.
Reading up on processes and planning can help make sure that you are aware of the issues before you begin, and will protect you from any pitfalls later.