The journey to buying an established business is pretty much the same for a brick and motor store or an ecommerce venture. This is especially so when it comes to the legalities of buying and running an already established business. We were informed that it is important to have an experienced internet business transactional lawyer and an experienced ecommerce financial advisor to help you with the buying process.
To help us get started on our quick guide to legalities of ecommerce business purchases, here are a few issues we would like to highlight.
• Business information
• Business letters - intent to purchase
• Terms of payment and escrow services
• Considerations for state laws and enforcements
• Have everything put in writing
Business information should be clear to understand and easy to authenticate; from financial to ownership records. We found out that a lot of owners run the business as a sole proprietorship and lack the clear division between personal and business assets. Additionally, it is important that as a buyer, we understand from the get go the legal structure of the business we are eyeing. It is important to understand whether the business is operating as a limited liability company or a sole proprietorship.
Letters of intent to purchase are not very common when it comes to established online businesses. However, they form a good first step as they outline the responsibilities of both parties. The intent to purchase also acts as the framework guiding the purchase agreement. We learnt that the letter also helps in blocking out other interested parties while you negotiate.
Payment terms are structured in two ways; lump sum or periodic payments. As a buyer, we could opt for a one-time payment from the get go, or agree on a payment plan. The payment plans can be as per any agreement such as performance benchmarks.
Using an escrow service is important to keep both seller and buyer protected. We learnt that an escrow service is a neutral third party who holds the cash until both parties come to an agreement. In this age of smart and calculating con artists, it is essential to be cautious.
Always be aware of all the laws that can be enforced in case of a disagreement. You do not want to wake up one morning to realize that the laws you though would protect you are useless when it comes to ecommerce transactions. We were advised to enroll the services of an experienced internet business transactional lawyer if we thought we weren’t well versed with ecommerce legalities.
It is very vital to have everything put in writing and notarized. While a handshake deal would seem tempting, it is prudent to have a copy of all negotiations done in writing no matter how tedious it is. This will prove very helpful in case of any disagreement.
When you settle for any established internet ecommerce business for sale, keep in mind that there are laws that are governing its transactions. We learnt that there are endless legalities that govern online businesses. We though it wise to acquaint ourselves with these laws. Here are a few things we learnt that are vital in running a successful, legal online business.
• Licenses and permits
Licenses and permits are needed depending on the product the business deals in. These permits depend on specific regions. As such, it is advisable to contact your local licensing departments
• Copyrights, trademarks and patents
Copyrights, trademarks and patents have differing laws governing each, especially when dealing with competition. Copyright laws protect a creative’s work such as music or writing from piracy. Patent laws protect an invention from duplication. A trademark is any symbol or work that acts as a unique identifier of a business or brand. There are laws that protect against unauthorized use of registered trademarks.
• Safe and secure payment options
Payment gateways are an integral part of an ecommerce business. As a seller, we are obligated to provide a safe, secure payment gateway to customers.
Yes, ecommerce businesses and online retailers are subject to taxes! Different regions are subject to differing tax laws. It is advisable to check your local tax office for guidance on expectations and standards.
• Business insurance
Ecommerce businesses, just like all other ventures, require insurance. The business should be covered against professional, commercial, product and general liability. Commercial liability protects the business against business errors such as negligence, malpractice or errors and omissions.
• Shipping restrictions
These laws mostly apply to physical products. Different regions have varying restrictions when it comes to product shipping. The restrictions may be on the product type, packaging, quality and quantity. Be sure to acquaint yourself with custom laws governing the products the business deals in.
• Storage and warehousing
While we were not particularly interested in running a business that requires warehousing and storage, we learnt that businesses in this field must be compliant. For starters, it is important to verify that the lease, zoning codes and deeds allow you to run the business you intend to run from your preferred location.
• Age restrictions
Different products have age restrictions on them. If the business sells, say alcohol, it is important to comply with the set age restrictions. These differ from one region to another. To be safe, it is best to know the overall legal age for the countries you intent to ship the products to.
Please note that this list is in no way exhaustive of the legalities of running an e-commerce business. We only highlight some issues that can cut across the board. It is advisable to read more on the legalities of the business you intend to buy and run depending on your locations. You can always seek the help of a lawyer to clearly interpret these legalities.
This is a simple guide that is meant to inform you of some of the legal requirements of acquiring and running an ecommerce business. As such, we advise that you seek professional legal and financial guidance from experienced professionals so as to make informed business decisions. Additionally, take your time to understand the industry in which you wish to invest as well as the legal requirements of the regions in which you wish to do business.
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