DISCLAIMER: These guides are for informational purposes only and do not constitute professional legal advice. Please consult independent legal advice for information specific to your country and circumstances. Shopify is not liable to you in any way for your use or reliance on these guides.
It’s never been easier to start an online business, thanks to the internet and ecommerce platforms like Shopify that offer tools to quickly launch and grow an ecommerce store. However, selling online comes with some complex legal issues.
Each country and state has different laws, and compliance is crucial to protect your business, customers, and brand reputation. Staying informed about ecommerce laws ensures you operate legally and avoid potential pitfalls.
Learn about the key legal considerations for ecommerce businesses, including consumer protection laws, business registration, and advertising regulations.
Why it’s so important to understand ecommerce laws
Understanding and complying with ecommerce laws is essential for protecting your brand and assets, maintaining customer trust, and avoiding legal disputes and penalties. Ignoring these laws can lead to fines, lawsuits, and even business closure. By staying informed, you can build a legally sound ecommerce business while focusing on growth and success.
Protecting your customers
Ecommerce laws exist to protect customers and businesses alike. They cover personal data privacy, financial security, and ethical business practices.
Keep personal data private and secure
We operate in a data-driven industry, so it’s important to make sure you’re collecting and managing data within legal bounds. Some key areas to keep in mind:
- Website tracking: Some states, like California, enforce strict privacy laws (like the Consumer Privacy Act, or CCPA), requiring businesses to disclose what data is collected from customers, allow customers to delete or opt out of data sharing, and avoid discriminating against users who exercise these rights. Check your state(s) to see which laws apply. If you sell internationally, check out the European Union’s General Data Protection Regulation (GDPR).
- Email marketing: The Federal Trade Commission (FTC) passed the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM) to cut down on unsolicited and spam emails. The law requires businesses to be honest and transparent in their emails, avoid deception, provide the business address, give recipients an option to opt out (and honor those requests), and monitor any email marketing activity provided by third parties.
- Privacy policies: The Federal Communication Commission (FCC) requires online business to publish a privacy policy that explains how data is used. All merchants must abide by the terms set forth in these privacy policies. Most states also have their own additional privacy laws.
Learn more: GDPR Privacy Policy Generator & Free Template
Additionally, the FTC’s Children’s Online Privacy Protection Act (COPPA) prohibits businesses from tracking data from or about children under the age of 13 years. Merchants selling children’s products will want to pay extra attention to this.
E-tailers in the health and wellness industry may also want to get to know the Health Breach Notification Rule. If you have any customer data pertaining to their health, you may be required to alert them if you fall victim to a data breach.
Additionally, the Red Flags Rule states businesses must provide a written Identity Theft Prevention Program to outline the steps to take to identify and handle suspected cases of identity theft.
Securely handle customer financial data
Financial data is just as critical as personal data security. Cybercrime is a real threat, and ecommerce businesses must take preventative measures to protect their customers. A cybersecurity plan can help you prevent potential legal violations, not to mention financial loss and damaged customer trust.
- Payment security: Though not a law, the Payment Card Industry (PCI) Standards set global security standards for payment processors that ecommerce businesses should follow. Choose a payment processor that is PCI compliant, so you know it abides by these regulations. For example, Shopify stores are fully PCI compliant by default, helping protect customer’s payment information and other data.
- E-Sign Act compliance: The Electronic Signatures in Global and National Commerce Act (the E-Sign Act) allows businesses to use e-signatures—but only with consumer consent.
Provide quality products and service
Misleading advertising can damage customer trust and violate consumer protection laws.
- False advertising protections: The FTC Act prohibits deceptive, misleading, and untruthful business and advertising practices. It also requires businesses to pay for any harm or damage caused by their products.
- Review transparency: The FTC’s Consumer Review Fairness Act essentially ensures all customer reviews are honest and that businesses don’t prevent customers from leaving reviews if they choose.
- Order fulfillment regulations: The Mail, Internet, or Telephone Order Merchandise Rule requires merchants that sell via these channels to ship all orders within the advertised time frame, or 30 days if there’s no specified shipping time.
Protecting your business
Just as you protect your customers, you also need safeguards for your business.
Choose the right business structure
While registering your business isn’t necessarily required by law, it’s a good step to take to protect your business. Consult a legal expert to determine which option is best for you:
- Sole proprietorship: If you don’t incorporate, your business will operate as a sole proprietorship by default. It’s a less formal option and requires minimal paperwork, but it also offers no personal liability protection.
- Limited liability company (LLC): Registering as an LLC gives you personal liability protection and tax flexibility.
- Corporation: Large businesses generally register as a corporation. Corporations include shareholder options and offer strong legal protection.
In some cases, you may also need a business license to legally operate. This mainly applies to specific industries, such as alcohol or agriculture. You may also require a special license if you’re starting a reseller business.
Understand tax obligations
Sales tax laws vary by state and country. It’s important to know the relevant laws so you understand when and how you can legally pass taxes on to customers—and when the financial burden is on you. Understanding these laws helps you price products so you still earn a profit on each sale.
You’ll also want to stay apprised of business tax deadlines. Business taxes work differently than personal taxes—many states, for example, require quarterly tax payments from businesses.
Additionally, if you sell internationally, you’ll be required to account for import duties and taxes. The International Trade Administration has an FTA Tariff Tool to help you estimate your obligations.
You’ll also want to stay apprised of business tax deadlines. Business taxes work differently than personal taxes, so you’ll need to understand your obligations. Many states, for example, require quarterly tax payments from businesses.
Protect your brand with trademarks and patents
Consider filing for a trademark or patent for your business, products, and any associated creative property. Trademarks and patents protect your ideas from being copied by competing businesses. It’s a great way to protect your brand identity in a competitive landscape.
Be aware of product restrictions
Some products have strict legal requirements around shipping—particularly when exporting goods. If you’re shipping internationally, pay extra attention to these laws. Alcoholic beverages, nail polish, perfumes, and CBD products are just a few examples of items with specific legal restrictions, both domestically and overseas.
Though not legal requirements, per se, you’ll also want to check with your shipper to see if they have additional restrictions.
Consider business insurance
If you have employees, you’ll likely need to invest in workers’ compensation, unemployment, and disability insurance. These are all meant to protect your staff—and your business—in case of emergencies like on-the-job injuries.
While insurance isn’t always required—especially if you don’t have staff—it’s often a good idea. Many ecommerce businesses purchase insurance policies for property damage and liability claims by choice.
Property damage policies, for example, protect warehouses, physical products, office spaces, and any other physical property owned by your business. This extends to your retail store, if you have one. Liability insurance policies, meanwhile, help with any potential legal fees for any lawsuits your business may face.
Always seek professional ecommerce legal advice
This guide provides general legal information, but every business is unique. As laws change and borders are crossed, it becomes more complex to navigate yourself. That’s why it’s always best to seek guidance from a trained, licensed professional who can help ensure all your bases are covered for your unique situation.
Shopify makes it easy to securely manage payments, customer data, and other important information relating to your business.
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Ecommerce laws FAQ
Do I need to start an LLC for my ecommerce business?
No, you don’t need to start an LLC for your ecommerce business. It’s a good idea to familiarize yourself with the different business types and then file as the one that makes most sense for your unique business.
Which laws and regulations might affect your ecommerce business?
- CAN-SPAM Act
- GDPR
- CCPA
- FTC Act
- COPPA
- Consumer Review Fairness Act
- Sales tax laws
What do ecommerce businesses need to know about consumer protection laws?T
Ecommerce businesses need to know about consumer data privacy laws and regulations around handling customers’ financial information.
Why is privacy important in ecommerce?
Privacy is important in ecommerce to protect consumers and businesses alike from potential fraud, identity theft, and more.
Does my ecommerce store need a privacy policy?
Yes, your ecommerce store needs a privacy policy. Create yours with this free privacy policy template.
What actions should ecommerce managers take to safeguard consumer privacy and security?
Ecommerce managers should understand and follow consumer data privacy laws, as well as use PCI-compliant technology and tools like Shopify.
