Legal Essentials for launching an online store

Selecting the right business structure is foundational. This decision will have implications in respect of your liability, taxation, and operational flexibility.

The most common types of business formats are the sole trader, partnership, or limited company. Ultimately, what is best for your circumstances will depend on the nature of your products/ services, your appetite to risk, and the time and budget you have available to set up your business and comply with ongoing regulatory requirements.

Index

Compliance and regulatory issues

Crafting Your Legal Framework

Intellectual Property

A legal advisor can explain the different options available, and help you select a business format which suits your strategic objectives. This is also important to consider during the life of the business – as you grow, it may be appropriate to change the structure of your business to suit your changing objectives.

Compliance and regulatory issues

In terms of risk and liability, prevention is always better than cure, and being proactive rather than reactive about compliance can help to save money, and avoid reputational challenges leading to a lack of trust in the future. It is important to familiarise yourself with your compliance obligations before you start trading. Some examples are set out below.

Consumer Protection Laws

Consumer protection laws set out the rules that businesses must follow when selling products to consumers. They seek to ensure that consumers are treated fairly, and given accurate information. Not only is it a legal requirement to comply with consumer laws, but doing so will establish trust with your customers, which is crucial for any online business. You should familiarise yourself with these laws to ensure that your policies on returns, refunds, and exchanges are compliant and clearly communicated to your customers. Your business can be reported to Trading Standards if you fail to comply with consumer protection laws.

Tax Obligations

Understanding and complying with tax obligations, including  the operation of VAT, and tax on your sales, is critical for online retailers. This may include registering VAT (depending on your turnover), or understanding how to handle taxes in respect of international sales. Tax management is crucial for legal compliance and operational efficiency, and an Accountant can assist you with this aspect of your business.

Data protection and cyber security

Businesses processing personal data – i.e. information that relates to an identifiable individual – are required to comply with data protection laws (including UK GDPR) and can be fined for not doing so. Data protection laws will govern what personal data you may collect, how you can use that data, and how long you can hold onto it. The Information Commissioner’s Office has published useful resources and guidance for businesses seeking to learn about their obligations under the data protection legal framework.

In an age where data breaches are increasingly common, implementing robust data security measures is a legal and ethical necessity. This includes encryption, secure payment processes, and compliance with industry standards. A well prepared response to potential data breaches can significantly reduce the impact of a breach on your business and your customers.

Crafting Your Legal Framework

There are a number of core legal documents which you should have in place on your website when you launch your online business.

Terms of business

Every online business should have a set of clear terms setting out the rights and responsibilities of both the retailer and the customer. This document should cover practical matters such as payment, delivery, returns, and dispute resolution procedures, as well as including legal protections to limit your potential liability as a business in the event of a claim. Your terms of business must also be tailored to comply with all applicable consumer protection laws. For example, there are specific laws in place which allow consumers to have enhanced rights to return products purchased online.

As this document is intended to form a contract between you and your customers, you must ensure that it is brought to the attention of, and accepted by your customers prior to any purchase (for example, by requiring your customer to tick a box to indicate acceptance of your terms of business before making payment).

Privacy Policy

Pursuant to the data protection laws noted above, all businesses which process personal data on their website (such as customer data) must have a UK GDPR compliant privacy policy.

The purpose of a privacy policy is to explain to customers what personal data you collect, why you collect it, and how you use, store, and disclose it. Your privacy policy must also detail the rights of your customers regarding their data, such as in respect of correction or deletion of data, and how to raise complaints.

Cookie Policy

Website cookies enhance user experience but also raise privacy concerns. Website users must give informed consent to cookie usage. A cookie policy is required to inform users about the types of cookies your website uses, their purposes, and how users can control their cookie preferences.

Contracts with third parties

To the extent that you are working with third parties (such as to manufacture, or deliver products sold through your online business, or to host or build your website), it is essential to enter into a contract with those third parties on terms which clearly govern any matters which are relevant to your relationship.

What is relevant will depend on the circumstances, but this could generally include matters such as fees, payment, liability, key milestones, dispute resolution, the handling of personal data, and any specific intellectual property matters. It may be the case that you are required to accept the third party’s standard terms, in which case you should familiarise yourself with, and ensure that you are comfortable doing business on those terms, prior to acceptance.

Intellectual Property

Intellectual property protection is very important to an online retailer. There are many types of intellectual property right which may be relevant to different aspects of your business.

Trade marks and branding

A trade mark is a sign (for example, a word or symbol) that identifies and distinguishes the source of the goods or services of one party from the goods and services of others. Trade marks are extremely important for retailers, as they protect the brand identity of a business. Your trading name, domain name, logo, product names, and any distinctive designs used, will all contribute towards the brand identity underpinning your business, and it is worth giving this some thought in the early stages prior to launch.

As a starting point, it is important to take care not to inadvertently select brand elements which infringe upon another party’s existing branding, including their registered trade marks. It would be an unfortunate waste of resources to invest in materials which are then challenged by another business, potentially forcing you to rebrand. Whilst you can never completely eliminate this risk, carrying out some early research can help to identify any obvious issues before you launch. For example, an important step you can take is to search the UK Intellectual Property Office’s trade marks registry to identify whether your chosen brand might infringe on someone else’s registered trade marks.

Conversely, protecting your brand’s unique elements formally through trade mark registration can help you to safeguard your own position against infringement by others. Having a registered trade mark grants you an exclusive monopoly right to use that trade mark in connection with the goods or services listed in your registration. Instructing a trade mark attorney to file your trade mark application can make the process smoother and ensure that your application is prepared correctly.

For more information about brand protection through trade marks, have a look at our other article ‘Protecting Your Retail Brand: Intellectual Property Law Insights’.

Copyright

Copyright arises in respect of original literary, dramatic, musical and artistic works, sound recordings, films and broadcasts, and the arrangement of published works. Accordingly, some aspects of your store’s content, branding, product designs or packaging may be protected by copyright. Furthermore, there is copyright in the software code in your website. It is copyright infringement to copy, rent, sell or show copyright works without the owner’s permission. For an online retail businesses, this is most likely to be relevant in respect of images, drawings and text used on product packaging, or your website.

It is important to note that copyright arises automatically, and the original author of a copyright work will be the first owner of the copyright (unless they have created the work in the course of their employment, in which case their employer will own the copyright). It is commonly presumed that paying a designer or photographer to produce photos or illustrations for you will result in you owning the copyright in those photos and illustrations. However, this is in fact incorrect – to transfer copyright ownership from one party to another, you must enter into an express, written contractual assignment of those rights. It is also possible to licence copyright (i.e. to retain ownership, but give permission to a party to use a copyright work, or alternatively to be granted a permission to use someone else’s copyright).

Using copyright notices on products, packaging, and marketing materials displaying your copyright work can help deter potential infringers.

Design rights

Design rights protect the appearance of a product, and may be relevant in respect of your products or packaging (for example the shape or colour of a product, or the pattern appearing on a product).

Design rights are registrable and can be registered through the UK Intellectual Property Office relatively cheaply and quickly. To qualify for registered design protection, your design must be new and have individual character, and must not have been disclosed anywhere in the world prior to the registration application (although, you will have a 12 month “grace period” after any disclosure, during which you may still apply for registration). Once a secured, you will have a monopoly right to sell and manufacture products displaying your design, and will be able to challenge infringers who are seeking to do so without your permission. The protection lasts up to 25 years (provided that you renew your registration every 5 years). Displaying your registration number on the products incorporating your designs can help to deter potential infringers.

If you do not register your designs, you may have some unregistered design protection, however the scope of unregistered design rights is far more limited (particularly in terms of duration), and to the extent that they exist, it is generally far more complex to prove.

Patents

If you are selling products which are particularly inventive or innovative, you should consider whether they can be protected through a patent registration. Patents generally protect the functionality (rather than the appearance) or a product. It is also possible to get a patent in respect of an innovative technical process.

To register a patent, the product must be new (i.e. it must not have been made publicly available anywhere in the world) and inventive. It is therefore essential not to share your invention with the public, and to the extent that you need to discuss the invention with a third party, you should do so only after they have signed a confidentiality agreement. Once granted, you will have a monopoly right to make, use, and sell the patented invention for a set period of time (usually up to 20 years, subject to renewal during this period).

Whether or not something is patentable is a very complex question, and you will most likely need to work with a patent attorney to assist you in the process.

Clearly, there are many factors to consider when launching an online retail business. If you need the support of a Solicitor, please feel free to get in touch with Susan Honeyands.