Over the past few months, I've been involved in the development of a couple of new businesses selling products online: a toy retailer and a fashion accessory design/supply business.
As well as hacking together the websites for the businesses (using the wonderful Drupal) I've been responsible for legal compliance.
With the experience fresh in memory, it seems like a good time to write a guide to the legal issues affecting online sales, using the two businesses as case studies. I've previously posted about the disclosure requirements and cancellation right under the distance selling regulations, but for some time I've wanted to do a comprehensive guide for internet sellers. This is part 1 of that guide, a gentle introduction.
A tale of two businesses
The first of the businesses is ToyZio: an online toy retailer I've been working on with my adorable wife, Hagit. The basic idea behind the business is to gamify the toy buying process, although phase one - not yet complete - involves only a basic ecommerce application. The initial stock, a range of soft toys, have been sourced entirely from UK wholesalers, suppliers and manufacturers.
As presently structured, ToyZio is a typical online retail business, selling mass-produced products to consumers. The legal issues faced by ToyZio are similar to those faced by every business of this sort.
The other business is Creel Leather. Creel's business involves the design, manufacture and supply of fashion accessories made from salmon leather: wallets, purses, bags and so on. Salmon leather is a relatively novel material and Creel's products are unique.
From a legal perspective, Creel faces the same issues as ToyZio, but in addition: (i) it sells to businesses as well as consumers; and (ii) in due course it will sell through third party marketplaces (such as Amazon Marketplace) as well as through www.creelonline.com.
The legal issues
In this article, and the three that follow it, I'll take a look at the English/EU legal issues affecting online sales by each business.
If you're in the process of setting-up a business selling online, or if you're already selling but want to double-check that your legal compliance and risk management processes are adequate, then read on.
NB there are plenty of legal questions facing each business – from questions of import duties to shareholder agreements, manufacturing contracts to company constitutions - that don't directly impact the selling process. These are not covered in the articles.
What's the point?
Back to basics. In what ways does the law affect online selling? I think there are three main areas, although they do overlap.
- First, regulatory compliance: the law requires that online sellers do certain things. For example, ToyZio Ltd and Creel Leather Ltd, the two companies running the two sites, must publish certain information to comply with UK companies legislation. Failure to comply with legal requirements could lead to regulatory investigations and penalties, and in some cases private legal action.
- Second, the law creates risks for online sellers by creating rights for others. Examples of rights that might lead to risks for online sellers include consumer rights, intellectual property rights, and data subject rights. These risks cannot be eliminated altogether, but web applications can be structured to minimise the risks. Website legal documentation also plays an important role here.
- Third, the law of contract gives individuals and organisations the freedom to define their legal relationships in any terms they wish, subject to certain safeguards. Creel, for instance, agrees with customers via its returns policy that they may return goods and claim a refund within 30 days following delivery. The law doesn't demand this level of generosity, although it does demand a that online sellers offer consumers a 7-day cancellation right.
In my next few posts, I'll look at each of these areas in turn. I'll try to get them finished by the end of next week.
If there's anything particular legal issues you would like me to cover in the articles, please comment below.