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Starting a Startup: 5 Legal Tips for an E-Commerce Business

18.10.2018
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people starting an online store

At the risk of of sounding like your uncle who once did a business law course at varsity, a big part of a successful business is ensuring that your legal “ducks” are all in a row. They say “good fences make good neighbours”, and ”have everything in writing” – and unfortunately, they’re right. Without a solid legal foundation underpinning your business, you open up yourself up to massive risk and may scare away investors for lack of certainty. These truths are painfully more acute for online businesses. However, rest assured that you do not have to reinvent the wheel when it comes to making sure that your online business compliant and secure.

Over the years, Legalese has engaged with hundreds of SMEs who operate businesses online, subsequently analysing and solving their legal woes. We’ve garnered this experience and want to impart some of it to you, in the hope that our experience will direct you towards legal certainty and the minimisation of risk for your online operations.

Your online business needs to be backed by a real company IRL

  • Your online business must actually be managed by a legitimate, registered company, in South Africa or somewhere else. This is to ensure that your customers have recourse to a real entity, should something go right/wrong with your ethereal online entity. Ensure that you choose the right company structure to suit your methods and needs.
  • Just like a brick-and-mortar business, always ensure that all of your work relationships, whether internal or external, are founded upon comprehensive agreements detailing core provisions and every foreseeable contingency. Without these, disputes can become drawn-out and expensive, whilst investors cannot rely on your operations for predictability.
  • Finally, ensure that your online operations adhere to all applicable local and foreign laws. To figure out what law applies to your business, start by asking yourself:
    • to whom am I supplying my services?
    • where am I operating?
    • what am I doing?
    • when do I do it?
    • how do I do it?
  • These questions will guide you in discovering the legal regimes applicable to your operations. If you do not follow the law, not only will authorities possibly shut you down or penalise you, but your customers may not trust you, and competitors will be tempted to report you.

Know what constitutes your intellectual property, and then protect it

  • Your online company’s intellectual property is probably its biggest asset. Unfortunately, South Africa’s current intellectual property (“IP”) laws in SA are somewhat outdated, and in worst cases, specifically exclude any protections for online operations (for instance, copiers of your UX interface can avoid liability under the Copyright Act by simply adjusting the background colour of your page).
  • To avoid IP issues, understand exactly what your IP is (for instance, underlying software, UX interface, or page design). The, strategize the best legal way to protect it both within formal IP protection mechanisam, and through the less formal mechanisms, such as the use of a comprehensive IP policy in your website’s Terms & Conditions, or watermarks or dummy code.

Have comprehensive Terms and Conditions of Use and Service

  • Think of your website as a bar – anyone can come in and enjoy themselves. If you do not have rules at the entrance to your bar, entrants can do whatever nefarious things they want, without you being able to do anything about it. As such, your website must have comprehensive Terms & Conditions on its landing page, and easily available at any time the user needs to make an informed choice about using your website.
  • These Terms & Conditions need to be clear and user-friendly, in order to explain the balance between the user’s rights and your rights. If they’re clear, they will allay 99% of user or regulator fears, limiting the chances that your operations will be subject to investigation or future problems.
  • Keep in mind that whatever you advance as your policies in your allay, must actually be manifested in real life. What you say, you must actually do.

Understand and apply the laws around personal information/data protection: POPI and GDPR

  • With the introduction of the EU’s General Data Protection Regulation (“GDPR”) in May 2018, and to a lesser extent, South Africa’s Protection of Personal Information Act (“POPI”), the control of user data is back in the hands of the user.
  • As a online business, you have to ensure that your business’ interests and needs relating to a website user’s data are fairly balanced against the user’s rights relating to privacy and data ownership.
  • You strike this balance by adhering to the “Mandatory Information” and “Mandatory Actions” elements of GDPR or POPI, by essentially, having a comprehensive Data Protection Policy on your site, followed by manifesting the range of rights which online users now have under GDPR and POPI.
  • Remember, GDPR applies IN FULL to your business if you process the personal information of even a single EU citizen, regardless of where they or you are, in the world.

Get a good lawyer and legal advice

  • Preventing legal issues is far cheaper and easier than curing them when the litigation starts.
  • Having your “legal ducks in row” at all times communicates reliability to your customers, compliance to the authorities, and excellent potential for your investors.
  • Modern legal advisors are usually cheaper and more flexible than traditional, monolithic firms, and usually understand your online operations far better.
  • Start your legal compliance as early as possible, as it will be cheaper to design your endeavour lawfully from the get-go, rather than having to re-engineer all of your operations, relationships and rules to comply once everything is already set-up and running for years.

 

Keeping the above in mind when initiating and running your e-commerce business will enable you to sleep better at night, knowing that there is always a planned path to available solutions, which are tailored to you, cheaper than curing issues, and ready for you whenever you need them.

If you’re involved in an e-commerce business and need legal guidance in any regards, get hold of Legalese via info@legalese.co.za.

Words by Thomas Reisenberger

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