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.
Creating Legal Documents
- The kinds of information gathered (by your website);
- How the information may be shared;
- The process the customer can follow to review and make changes to the information you have on them; and
- The policy's effective date and a description of any changes since then.
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:
- Notice: users should be given notice when their data is being collected.
- Purpose: data should only be used for what you say you will use it for.
- Consent: that data should not be shared without consent.
- Security: collected data should be kept secure
- Disclosure: users should be informed about who is collecting their data.
- Access: users should be allowed to access their data and make corrections to any it.
- Accountability: users should have a method available to them to hold data collectors accountable for not following the above principles.
- What information you are collecting;
- How you will protect it;
- What you will do with it;
- When you will release it;
- How your users can see what information you hold on them;
- How your users can change or update their information;
- Dispute resolution procedures;
- Effective date of the policy;
- Changes to the policy and where notices should be sent.
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.
Creating Terms and Conditions
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.
A Terms and Conditions would usually cover clauses such as:
- Definition of key words;
- Customer rights and responsibilities;
- Proper or expected usage of the website;
- Intellectual property protection;
- Accountability for actions, behavior, and conduct;
- Payment details;
- Disclaimers and warranties;
- Exclusion or Limitation of Liability; and
- User notification upon modification of terms.
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.
Returns and Refunds Policy
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:
- When you will allow returns, or which items are ineligible for returns (i.e. if you have any digital products they will not be returnable);
- How long your customer has to return an item;
- Under what circumstances your customer can return an item;
- Where returned items should be sent to, and who covers the shipping;
- How long your customer has to request a refund; and
- Any extended warranties you offer above and beyond your minimum legal requirements.
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.
How to Create Your Major Legal Documents
Business registration and tax registration requirements
Finally, before you start selling goods on your online store you need to ensure that your business has complied with all business registration and tax registration requirements in your country. This will vary from country to country in the EU and from state to state within the US.
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.
Setting up an LLC
To set up an LLC in the US, you will need to follow your state’s requirements for what documents need to be filled out and what fees need to be paid. For example, in New York you need to fill out Articles of Organization, and pay a filing fee ($200) to the New York Department of State, Division of Corporations. You then need to publish a notice of your LLC’s registration in two newspapers for six consecutive weeks in the county in which your LLC is located. Take a look at the Limited Liability Company Center for the requirements of your state.
Setting up a corporationSetting up a corporation is a little more complicated than setting up an LLC. You need to choose a name and address, choose which state you are incorporating in, determine your company directors and file articles of incorporation much like an LLC. Then you need to create your own corporate by-laws, issue stock, and hold a shareholder meeting, as well as processing all your incorporation paperwork with a registered agent. Most businesses set up as an LLC first, as you can always become a corporation later.
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.
EU requirements for individual countries will vary significantly country-by-country. The general requirements are similar to the US, in that you need to register your business with whatever your local body is. For example in France, that’s a Centre des Formalités des Entreprises (CFE), and in Germany it’s the German Company Register (Unternehmensregister).
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.
All in all, business registration requirements will usually have some similarities between jurisdictions, but you will always need to look up your area’s specific requirements. Enlist the help of lawyers and accountants if you aren’t sure whether you can do it on your own.
It's easy to set up your legal policies, protect your intellectual property, and comply with all business registration requirements, but it can take longer than you think to set everything up thoroughly.
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.
Leah Hamilton is a qualified Solicitor and writer working at TermsFeed, where businesses can create legal agreements in minutes using the Generator. You can connect with TermsFeed on Twitter and Google+.