e-commerce businesses

5 Legal Must-Haves for E-Commerce Businesses

After an e-commerce business incorporates or forms an LLC, it’s time to review a small business checklist. There are essential items every e-commerce business needs, such as filing for business licenses and an employer identification number (EIN). It’s equally important to consider the nature of how e-commerce businesses conduct business. For example, an e-commerce business must obtain certain types of business insurance and build a website with a clear privacy page.

Unsure of what your business needs? Here are a few must-haves necessary for protecting an e-commerce business.

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Business insurance

An e-commerce business may be run online, but that doesn’t mean the business is immune to risks. Protect the business using various types of insurance plans. Here are a few specific to e-commerce business needs.

  • Data breach insurance. Online businesses run the risk of being hacked, losing the valuable and confidential information of their customer base. Data breach insurance helps pay for any legal fees, fines, lost revenue, or other costs associated with lost or stolen data. This is sometimes referred to as cybersecurity insurance.
  • Product insurance. What if someone is hurt by the physical products or offerings sold by your e-commerce business? Product insurance protects these products or offerings in the event of an accidental flaw or defect. In a similar vein, it’s wise to purchase liability insurance. This type of insurance helps protect business owners, or anyone else involved, if someone is hurt by your products.
  • State unemployment insurance (SUI withholding). This is an employer-funded tax program that provides short-term benefits to workers who suddenly become involuntarily unemployed. If you plan to hire employees, you will need to invest in this insurance plan along with disability insurance and workers’ compensation.
  • Homeowner’s and renter’s insurance. Do you plan to run your e-commerce business from your home? Purchase homeowner’s or renter’s insurance if you do not already have it. This protects properties from physical damages brought on by natural disasters and any personal injuries experienced by the business owner.

Business licenses and permits

The types of business licenses and permits e-commerce businesses require will vary. This depends on their location, including county, city, and state, and industry. It is always best to check with the Secretary of State in your state of incorporation for a full list of necessary licenses and permits. Here are a few basics to file an application for:

  • Business operation license. This is a basic business license that allows e-commerce businesses to legally conduct business in a specific city, county, or state.
  • Seller’s permit. Do you plan to sell products or goods online? You are required to file for a seller’s permit. You can learn more about the filing process by visiting your state’s Licensing Office or Department of Revenue.
  • Sales tax license. An e-commerce business that sells taxable products is required to pay sales tax on the items sold. Sales tax varies in every state, so reach out to your state and its localities to determine you’re meeting all requirements in collecting sales tax.

Pro tip: when filing for a business license or permit, remember to pay the correct filing fee. Ask if any licenses require renewal and renew by these deadlines.

Federal tax ID

A federal tax ID is referred to as an employee identification number (EIN). Once your business incorporates or forms an LLC, the IRS will issue you a nine-digit number. This unique number legally identifies a small business. (Did you incorporate and not receive an EIN? Reach out to the IRS to determine the next steps in obtaining this ID.)

An EIN provides several uses to e-commerce businesses. You may use it to hire employees, open a business bank account, and build business credit. Many e-commerce entrepreneurs will swap out using their Social Security Number (SSN) in favor of using an EIN on government forms and official documents. Doing so helps safeguard your personal identity, as an EIN is much less sensitive to use than an SSN.

Registered agent

Does an e-commerce business need a registered agent? The answer is yes if you have incorporated or formed an LLC.

Registered agents, or RAs, may be appointed individuals or third-party companies. They agree to accept official documents on behalf of the business and act as the point of contact between your company and its state of incorporation. A registered agent will receive time-sensitive paperwork on your behalf and organize the materials. Then, they deliver the documents to you in a timely and confidential manner. Ecommerce entrepreneurs will review the paperwork and take it from there.

It is possible for an e-commerce business owner to act as its own RA. However, being a registered agent means following specific guidelines. You must be available between general business hours to accept documentation. An RA must have a physical street address (P.O. Boxes are not accepted) and be a resident in their state of incorporation. Not every entrepreneur may be able to meet these requirements — and that’s OK! Working alongside a third-party registered agent service will ensure that your business always receives the paperwork it needs and completes it to stay in good standing with the state.

A business website and privacy page

This may seem obvious to an e-commerce business, but the truth is every e-commerce business needs a website that is easy to navigate and accessible across all mobile devices. You may build a website with the help of a professional or use website template builders to do it yourself.

As you design your website, be mindful that an e-commerce site must include a privacy page. These pages allow visitors to better understand how the website collects, uses, and stores their information.

Be clear on your privacy page about the type of information the website collects from visitors and customers. Share information as it relates to protecting this valuable data. Do you use cookies? Make a note about whether you do and why. If the e-commerce company shares any personal information with third parties, explain to readers whom this information is being shared with and its terms. Finally, if a customer terminates their account with the e-commerce business briefly outside what happens to existing stored information and the customer’s account with the business.

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