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The Legal Risks of Selling Online

If your company has a product or service that appeals to Internet users and a Web master who can draw eyeballs to your site, you may want to give online sales a try.

But, is there a down side? Yes. Every business owner has  to rein in enthusiasm for online 

sales ventures while checking out pitfalls. Liability is one of the main obstacles.

For example, let’s say you own a sports memorabilia business. You set up your own website, “Simply Sports,” with ordering and shipping details in place. One of your first customers orders a bunch of Roger Maris cards and pays by check. You cash the check and ship the cards as promised.

But the box never arrives and you have one angry, dissatisfied customer. With any luck, you can smooth the buyer’s feelings by locating the cards and sending them again. 

The point is, it’s critical to have systems in place to handle shipping and other glitches. But to protect your company legally, you must include certain “terms of use” or “conditions of use” on your site or order forms.

Users agree to read and honor the terms as a condition of doing business with you. Acceptance — typically shown by clicking an “I agree” box — is a contract.

Consult with your attorney to ensure that user agreements, terms of use, and contracts arising from sales can be enforced and that your interests are protected.

Typically these terms include the following items:

  • Details of buying,
  • Exclusion of warranties or guarantees on products,
  • Privacy conditions and who is eligible to use the site,
  • An advisory that sales or income tax may be due.
  • Control issues, such as when the seller can refuse to sell or ship, and
  • Glitch provisions, such as what happens when the buyer doesn’t pay or receive an order.

Some terms are short and simple, just setting out privacy and confidentiality issues (for example, “we don’t sell your e-mail or home address “). Others are much more elaborate, discussing such topics as copyright protection.

But whether your terms are simple or complex, each side knows what the other will and won’t do, which helps eliminate misunderstandings and unwelcome surprises later on.

Customize for Your Business

Review websites for products similar to yours and consult with your attorney for the proper wording. Customize terms and conditions to your fit your business.

Clearly and completely setting out the conditions under which you conduct business protects you legally and helps attract more eager customers.

 

Reducing Liability by Incorporating

The classic strategy to avoid personal liability, whether your business is in cyberspace or on the corner, is to incorporate or form a limited liability company (LLC).

Consult with your PDR tax advisor about the best way to shield yourself from personal liability. In an LLC, for example, only business assets and capital paid into the business are at stake — not your house or your child’s college fund.

In most states, an LLC can be formed with just one person. Other options available include C and S corporations, which also offer limited liability protection to shareholders (owners). 

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