It has happened before. What once seemed impossible becomes commonplace. Once that transpires, it is taken for granted.
Take the way we do business in the 21st century, for instance. Once upon a time, no one could have imagined being able to buy and sell things on a computer through a global network called the Internet. Today, we don’t think twice about it.
While consumers enjoy the ease and convenience of shopping online, running an ecommerce business poses certain challenges. In this article, the Los Angeles business lawyers from the Law Office of Parag L. Amin (LawPLA) will share some of the top legal concerns for California ecommerce businesses.
What is ecommerce?
So just what is ecommerce, or electronic commerce, anyhow? Basically, it is a type of trade in which individuals and businesses make goods and services available online in exchange for payment.
At first, ecommerce was solely conducted on computers. That changed with the advent of smartphones, tablets and similar devices. With more ways to access goods and services online, ecommerce has been booming.
According to one estimate, more than 2 billion people purchased goods or services online in 2020. That year, Internet retail sales topped more than $4.2 trillion USD globally. On another interesting note, the vast majority of all retail website visits globally in 2021 were attributed to people using smartphones.
Experts say the future looks bright, too. This is because year-over-year growth of the ecommerce industry is roughly 23 percent. Given that, some experts predict that ecommerce will account for 95 percent of all purchases by 2040.
Starting an ecommerce business in California
Clearly, there is an opportunity for entrepreneurs to get into the ecommerce industry. But opportunity often comes with risk. You can mitigate it by doing your due diligence before starting your business.
Much of the preparation for starting a Los Angeles ecommerce business is the same as it would be for traditional businesses. That includes identifying your target audience or market, creating a business plan and brand, securing a business location, establishing a website, and so on.
Of course you’ll also have to choose a business structure. Will your ecommerce business operate as a sole proprietorship, an LLC, a partnership or a corporation? If you’re not sure, the experienced ecommerce business lawyers at LawPLA can help you figure out which one is best for your depending on your specific circumstances, including potential exposure to liability. We can also walk you through how to form the business structure that best fits your situation.
Once you have identified the most appropriate business structure and formally created it, you must get a California business license. This requirement applies to all businesses in the state, even those that only do business online. The state mandates thisso it can keep tabs on active companies, tax filings and payments. There are repercussions for doing business without a license, including stiff fines or injunctions halting business activity until you obtain a license. California business licenses are generally renewed annually.
While the process for getting a California business license may vary, this generally means that you must do the following in addition to creating a business structure:
- Provide your business plan or statement of business activities
- Provide your sales tax license
- Arrange any applicable inspections of your business location
Legal pitfalls to avoid for established LA ecommerce businesses
As knowledgeable LA ecommerce attorneys, we are well aware that there are legal pitfalls for new and established owners of ecommerce businesses. The best way to avoid them is to be aware of relevant rules and regulations.
For example, one of the oldest state laws pertaining to ecommerce mandates that online businesses make certain disclosures to consumers. Specifically, Internet businesses must make the following known to consumers “on screen or in writing:”
- Information pertaining to refunds and returns
- The formal, legal name of the business
- Where the business is located (address) and contact information
Another longstanding California law addresses data privacy. Known as the California Online Privacy Protection Act (CalOPPA), it mandates that all businesses with commercial websites have a link to a Privacy Policy on the site. This Privacy Policy must inform users about:
- What type of personal information is collected
- How they can ask for changes to data collected
- How the business responds to “do not track” requests
- Whether any of the data collected is sold or otherwise provided to third-parties
- The date that the Privacy Policy went into effect
- How they will be notified about any changes to the Privacy Policy
Last but not least, ecommerce business owners can easily find themselves in hot water if they don’t obey state and federal laws pertaining to Internet sales tax. In accordance with the latter, businesses must collect sales tax for certain online transactions. In particular, they must do so if the transaction involves the sale of certain goods to customers where the business has a physical presence (emphasis added).
Conversely, California law mandates that some e-commerce sellers to collect sales tax in California even if they do not have a presence here. In accordance with this so-called “Amazon Law, “ a retailer from another state must collect sales tax from California customers if:
- It has a so-called “click-through arrangement” in place with one or more persons in California.
- Its total cumulative sales to California buyers were more than $10,000 during the past 12 months.
- It also has total cumulative sales to California buyers exceeding $1 million.
Due to the complexity of Internet sales tax requirements, we recommend that you contact us with any questions or concerns.
Our Los Angeles ecommerce business attorneys are here to help
If you are thinking about starting an ecommerce business or your ecommerce business is well established, we are equipped to tackle any relevant legal matters.
The process begins when you contact us to schedule a free initial consultation. Our highly skilled ecommerce attorneys assess your situation to see if we can help. If so, we will give you all of the information you need to make an informed decision about the legal option that is best for you.
You can reach LawPLA by using the contact form on our website or by calling one of our Los Angeles offices. We look forward to hearing from you soon.
