How To Set Up Your Ecommerce Business As A Legal Entity

Distance selling through online stores has long-since changed the retail industry irrevocably. For the most part, it’s more convenient for buyers — order at any time from a huge selection, then have the order shipped at a suitable time, or even sent to a suitable collection point.

It’s also easier in many ways for sellers. It’s obviously faster to hand over a product at a brick-and-mortar store than it is to ship it, but that’s the end of a long process (renting space, arranging the layout, scheduling regular supply, etc.). When you run an ecommerce store, the organization is immensely simpler. You don’t need physical premises, or even your own supply, to sell products online. That makes it perfect for entrepreneurs with limited resources.

But what about legal regulations? Anyone who has set up a traditional store knows the onerous process of setting up the business entity and meeting the necessary standards, but online selling ostensibly offers a worry-free experience. Just set up your store and start selling, no need for concern — but it isn’t that simple.

Regardless of the scenario, if you’re going to be running an online selling business, you need to have it set up as a legal entity. (There is a personal allowance, of course, but if you have any success then you’re going to far exceed it.) Here’s how to do it:

Choose the most suitable business structure

There are three viable business structures for an online seller, but you can only choose one initially, so go with whichever best suits your circumstances. They are as follows:

● Sole Trader. If you’re happy to sell as yourself (with the business intrinsically linked to you personally), thus taking on all the liability, then working as a sole trader is the fastest and easiest option. Since the retail world is flush with small stores built quickly to save money, it’s the best choice for the average merchant.

● Partnership. If you don’t want to start a full company, but you do want to split the workload, you can form a partnership. One of the partners (the nominated partner) must register the partnership, with the other partners registering after. Be careful about this approach: it can get messy when partners fall out, so try to reach a protective legal agreement beforehand.

● Limited Company. If you’re committed to not only sustaining but also growing your ecommerce business, it’s best to register it as a company. This will protect you from liabilities, which inevitably become more threatening as a business gets bigger. That way, if someone pursues legal action against your store for inaccurately listing a product, you won’t have any personal financial obligations.

If you don’t have much experience with ecommerce, I suggest registering as a sole trader. You can always register your business as a company down the line — just be aware that the legal protections provided by incorporation won’t protect you from any liabilities accrued while operating as a sole trader.

Around this time, you should also carefully consider which trademarks are worth registering. As your business grows, your trademarks will protect you from having your brand and/or product hallmarks copied. It may seem like an unnecessary cost at this point, but since the registration process can take around four months even when unchallenged, it’s worth making it a priority now.

Register with HMRC

Regardless of your chosen arrangement, your next step will be to register with HMRC. If you’re a sole trader, register as self-employed. If you’re in a partnership, choose that option. If you’re running a company, then you’re not technically considered self-employed — you’re viewed as both the owner and an employee of your company. This is because the company is a distinct entity, meaning that you’re not a necessary component.

Incorporate (if warranted)

If you’ve decided to register a company, then it’s time to go through the process of incorporation. Once you’ve set out your plans for HMRC, go to the Companies House and follow the clear instructions for setting up a private limited company. Check the listings first, though: while there’s no reason your business can’t have roughly the same name as another, it isn’t good for branding. It’s best to find a name that can stand o

You’ll need to provide the company name, a registered address (if you’re operating purely online, then you’ll need to use your home address), the director (you), any shareholders (you, and anyone else investing in it), a memorandum of association, and articles of association (the rules that your company needs to follow).

The online incorporation process currently costs £12, and typically goes through within 12 hours. That said, it does require company names to include the word ‘limited’ — if you’d rather go without it, you’ll need to pay £40 for a postal application. It normally takes eight to ten days, but you can get it done within a day if you pay £100 and go directly to the Companies House.

Adhere to broader sales laws

As we’ve seen, the process of registering an ecommerce business isn’t much different from setting up any other type of business — however, anyone selling online needs to be aware of the regulations protecting consumers and internet users in general.

Firstly, you need to ensure that your products are described accurately, with clear pricing and return options. Everything from the Sales of Goods Act to the Consumer Contracts Regulations has an impact upon distance selling, and it isn’t worth risking your business by getting casual.

Secondly, you need to protect your customers’ information. Particularly in a post-GDPR world, there’s a lot of risk in storing user data, and your activities need to be justified. This is true both legally and practically — if word gets out that you’re using customer data for mysterious purposes, your brand reputation will be hugely tarnished.

Whether you’re just looking to run a side business or trying to make online retail your main concern, getting fully registered is advisable. The sooner you do it, the less you’ll need to worry about legal repercussions, so why not get started now?

While every care has been taken to ensure the accuracy of this blog, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers.

Written by Rodney Laws

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