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Whether you want to turn a hobby into a business or begin a new entrepreneurial venture, starting an online business can be a good revenue source. On top of the usual concerns with setting up a business, there are also legal issues unique to engaging customers in an online space. This article will provide some guidance on this issue, going through the legal considerations of starting an online business in New Zealand.

Starting a Business

As with starting a physical business, you have to decide how you will run your online business. This includes choosing a business structure, whether that be as a:

  • sole trader;
  • partnership; or
  • company.

The nature of your business will determine which structure is most suitable for you. If you are just one person wanting to sell homemade products online, then operating as a sole trader may be ideal for you. If you intend to grow in terms of staff and business reach, setting up as a company may be more suitable.

You need to consider administrative issues, which will vary depending on the business structure you choose. These include:

  • tax obligations;
  • record-keeping requirements;
  • employee obligations;
  • protecting intellectual property;
  • reporting requirements; and
  • industry-specific obligations.

Key Online Legal Documents

When setting up your website for your online business (or using an e-commerce platform), there are three crucial legal documents that you should have. These are your:

Terms and Conditions

This is the contract that customers agree to when they buy things from you.

Website Terms of Use

This dictates how visitors should use your website, outlining prohibited conduct and providing legal disclaimers.

Privacy Policy

This outlines what personal information you collect from customers or visitors to your site, how you do so, and why. 

A legal professional can help you tailor these documents to suit your business.

Contracting Online With Customers

Customers that purchase products or services from your business enter into a contract with you. It is the same as they would if they were to do so in a physical store. To make sure this contract is legally binding, you need:

  • an offer;
  • acceptance;
  • consideration;
  • intent to create legal relations; and
  • certainty.

Operating online can generate some grey areas with these elements, so you need to make sure you draft clear and comprehensive terms and conditions. Make sure that customers click an “I accept” button after reading through terms and conditions in a transaction. That way it is clear that they have accepted your contract. 

Legally Selling Goods Online

If you sell consumer goods or services to customers, then you must abide by consumer law. When selling these goods online, display a note on your website somewhere that you are ‘in trade’ so that customers know they are entitled to their consumer guarantees when contracting with you. 

You are ‘in trade’ when you regularly sell goods or services or buy products for the purpose of selling them on.

If you fail to uphold any of these consumer guarantees, then customers are entitled to a:

  • replacement; 
  • repair; or 
  • refund.

You can outline this in a return or refund policy. 

Fair Trading

On top of upholding consumer guarantees, you have to be honest with your customers about the goods or services you provide. When selling online, customers usually cannot verify your statements themselves, so they rely on the descriptions you give and your advertising. When dealing in this way, the law prohibits:

  • misleading or false statements;
  • unsubstantiated claims;
  • withhold important information; and
  • unfair sales tactics.

If you mislead your customers, then you could face heavy legal penalties.

Protecting Customer Privacy

If your business deals with personal information, such as email addresses or financial details, you must adhere to your privacy law obligations. This means being transparent about handling customers’ personal data and only collecting the information you need.

You will likely collect a lot more personal information from visitors to your site because you are operating online. There is also an increased risk of privacy breaches because of potential cyberattacks and digital threats. Make sure you adequately protect customer personal information, and you have permission to collect this personal data.

For example, if you track visitors to your website with cookies, you should outline this in your privacy policy or have a pop-up cookie consent notice.

Email Marketing

As part of your online business marketing, you may use email newsletters to engage your customers and keep their attention to your business. But, you cannot do so arbitrarily. You generally need an existing relationship with a customer to do this (such as completing a transaction). Additionally, you must provide an unsubscribe option. Otherwise, you could run into legal troubles relating to spam and unsolicited online messages.

Key Takeaways

Starting an online business can be a smart move because of the medium’s versatility and the range of possibilities for growth. However, just like creating a physical business, there are certain legal issues that you need to consider so that you can avoid liability and penalties in the future. If you would like more information or help with starting your online business, contact LegalVision’s New Zealand online business lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Does my business’ website need terms and conditions?

You should have your business’ terms and conditions for transactions with customers on your website. This way, you are clear with customers about the terms of any sales arrangements you make.

What do I need to know about selling online?

When selling online, make sure you are abiding by your consumer law obligations. This means upholding your consumer guarantees, protecting customer privacy, and not misleading your customers.

What does ‘in trade’ mean?

‘In trade’ means that you are in commercial trade. You are in trade when you sell goods regularly to make a profit, or you buy goods with the intent to sell them on.

Does my eCommerce business need a privacy policy?

Your eCommerce business should have a privacy policy if you deal with personal information, such as email addresses or financial details. Under the NZ privacy law, you must be clear with customers about what personal information you collect and why. You outline this in your privacy policy.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

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