Starting an online business may seem like it will be an easier undertaking than setting up a brick-and-mortar business, but that might not necessarily be the case for some entrepreneurs. There are several considerations that individuals opening an online business need to address in order to be as successful as possible.
One of the initial things that aspiring business owners should consider is what licenses are necessary for their new business. For example, a state license to operate a business may be required. Having an employer identification number may also be necessary for online companies that have employees. The following concerns also deserve attention when an individual hopes to open an online business.
Compliance with regulations
Online businesses are subjected to a host of regulations. Many of them are set by the federal government. State laws and regulations may also apply, depending on the type of online business that’s being opened. For example, all online businesses must comply with the Children’s Online Privacy Protection Act (COPPA), which governs how businesses collect, store and process personal data of children under 13 years old.
Tax obligations
Online business owners must understand tax obligations. All businesses must report profits, expenses and income to the Internal Revenue Service (IRS). It’s also possible that state and local taxes may apply to certain transactions. Thorough financial records and accurate tax reporting are critical for all online businesses. One consideration when determining how to handle this is the business structure of the online business. Each structure type, such as sole proprietorships, limited liability companies and corporations, all have specific tax considerations.
E-commerce regulations
E-commerce business owners must ensure they comply with various regulations that govern online transactions. The Federal Trade Commission (FTC) enforces rules related to advertising, marketing and sales practices to prevent deceptive and unfair practices. This includes providing accurate descriptions of products or services, as well as clear terms of sale. Business owners should review and adhere to the FTC’s guidelines on advertising and sales. This involves transparent pricing, clear return and refund policies and truthful representations of products and services.
Because opening an online business is such a complex task, it may behoove entrepreneurs to work with a legal professional who can assist with legal compliance matters. These professionals can also help with writing and enforcing contracts, and other legally-related company needs, depending on the ins and outs of a business’s operations.