The Legal Pitfalls of Becoming an Online Business

Over the years, more and more people have started spending time online. In response, most businesses began to explore their digital options to expand their operations and consumer base. The advent of Covid-19 has fast-tracked this shift. Data from the US Commerce Department estimated that last year’s e-commerce sales in America reached $209.5 billion for the third quarter, marking a 37.1% year-on-year increase. As such, even brick-and-mortar businesses in America, especially those struggling due to the coronavirus, must focus on their digital platforms to survive.

The good news is that numerous online resources discuss website building. But before you do that, there are some steps you need to take to ensure you’re operating legally:


Create your website’s legal statements.

Anyone who has ever browsed the internet will recognize these legal pop-ups. Nobody reads them, but everyone ticks the “I Agree” checkbox anyway. But these legal statements, though often ignored, are critical in protecting website owners from being sued. Here’s why:


Privacy policy

Due to the nature of technology, nearly every online footprint we make is recorded. Any website that uses cookies or data analytics tracks private information, whether the owner knows it. The same applies to online businesses requiring customers to input sensitive data, such as credit card numbers when purchasing online.

Consequently, websites must explicitly post and adhere to a privacy policy by the laws of America's Federal Trade Commission. This outlines what information is recorded from a user and how that material is transmitted and used when visiting your page. If you don’t do this, legal action can quickly be taken against you.


Terms of Service

A website’s Terms of Service (ToS) statement lays down the general rules and regulations of your website and the relationship between the website owner and visitor. Once a user lands on your page, they automatically agree to these terms. In the case of online businesses, however, it’s highly recommended to force visitors to manually agree to the terms and conditions (see above) – usually via a pop-up message – to ensure you’ve got yourself legally covered.

Various Terms of Service templates can be found online, depending on the type of business you have. Still, hiring a legal professional to tailor your ToS agreement to your preferences is ideally best.



A disclaimer’s purpose is to erase any accountability and liability attached to you in case someone suffers general harm following a piece of information you published. This also applies to online shops selling products like health supplements making unsupported claims. As with the ToS, drafting a disclaimer depends entirely on your niche, so consult a lawyer to account for potential legal risks.


Register as a business.

One of the best ways to keep your website legally compliant is to register it as a business with the local government. This assures customers that you’ve exercised due diligence to control everything – from permits and licensing requirements down to your business name – above board.

Luckily, this process is easy! Most states have recognized the growth of online businesses and made the process as simple as possible. Registering a company here in California can be done mostly online, and the Secretary of State's website has plenty of information available.

Similarly, to file for an LLC in Montana, which has the highest number of startups per capita, you need to consult state resources, allowing you to file your Articles of Organization online. The state government has even prepared e-commerce resources to help anyone who wants to start an online business in Montana. Although each state is different, most don’t require much effort to register.


Beware of libel and copyright infringement and libel

Blogging is a common strategy through which you can market your products. When creating content for your site, the sky’s the limit as long as you can connect the article’s subject to your services. But the more your audience grows, the more you must be careful about what you say. Defamation cases are rare but still a possibility.

Another thing to watch out for is copyright infringement. If you need to use an image for your website but aren’t sure where it came from, err on the side of caution instead. Please don’t use it to avoid potentially getting flagged and fined.

Setting up an online business is exciting; you can let loose your creativity and play around with the features offered by a digital marketplace. But before you do so, ensure you’ve covered all your legal bases.