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Setting Up an Online Business

Setting up your business on the Internet can be a lucrative way to attract customers, expand your market and increase sales. For the most part, the steps to starting an online business are the same as starting any business. However, doing business online comes with additional legal and financial considerations, particularly in the areas of privacy, security, copyright and taxation. Rules and regulations for conducting e-commerce apply mainly to online retailers and other businesses that perform consumer transactions by collecting customer data. However, even if you do not sell anything online, laws covering digital rights and online advertising may still apply to you. The Federal Trade Commission (FTC) is the primary federal agency regulating e-commerce activities, including use of commercial emails, online advertising and consumer privacy. FTC's Online Advertising and Marketing provides an overview of e-commerce rules and regulations. The following topics provide further information on how to comply with laws and regulations related to e-commerce.

Protecting Your Customers' Privacy


Learn the necessary steps you should take to protect your customers from identity theft and other misuses of their personal information. Any business that collects personal or financial data either through online sales, credit reports or applications should understand these rules and regulations.

Collecting Sales Tax Over the Internet


If you a run business with a physical storefront, collecting sales tax is pretty straightforward: you charge your customers the sales tax required by the jurisdiction where your business is located. For example, if you operate a retail store in Nashville, Tenn., you collect both state and local sales taxes from customers buying merchandise at your store. But suppose you start selling your products online. Does that mean you charge them the same sales taxes that you do to those coming into your store? It depends. If your business has a physical presence in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes. In legal terms, this physical presence is known as a "nexus." Each state defines nexus differently, but all agree that if you have a store or office of some sort, a nexus exists. If you are uncertain, whether or not your business qualifies as a physical presence, contact your state's revenue agency. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state. This rule is based on a 1992 Supreme Court ruling (Quill v. North Dakota, 504 U.S. 298, (1992)) in which the justices ruled that states cannot require mail-order businesses, and by extension, online retailers to collect sales tax unless they have a physical presence in the state. The Court reasoned that forcing sellers to comply with over 7,500 tax jurisdictions was too complex for sellers to manage, and would put a strain on interstate commerce. Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates. Determining which sales tax to charge can be a challenge. Many online retailers use online shopping cart services to handle their sales transactions. Several of these services are programmed to calculate sales tax rates for you.

Digital Rights/Copyright

Personal data is not the only thing protected on the Internet. Digital works, including text, movies, music and art are copyrighted and protected via the Digital Millenium Copyright Act (DMCA). The DMCA offers a number of protections for information published to the Internet, as well as other forms of electronic information. Among its many provisions, the DMCA:

Limits Internet service providers from copyright infringement liability for simply transmitting information over the Internet. However, service providers, are expected to, upon notification, remove material from its web sites that appear to constitute copyright infringement. Limits liability of nonprofit educational institutions for copyright infringement by faculty members or graduate students. Makes it a crime to circumvent anti-piracy measures built into most commercial software. However, reverse engineering of copyright protection devices is permitted to conduct encryption research, assess product interoperability, and test computer security systems. Provides exemptions from anti-circumvention provisions for nonprofit libraries, archives, and educational institutions solely for the purpose of making a good faith determination as to whether they wish to obtain authorized access to the work. Outlaws the manufacture, sale or distribution of devices used to illegally copy software. Requires that "webcasters" pay licensing fees to record companies.

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Sales Strategy
If your business involves selling a product, you are probably looking for ways to improve sales. A sales strategy will focus your efforts on your most important customer audiences, existing or potential. Here are the most important things to keep in mind when designing a sales strategy.

Create a sales plan. Having a document that outlines your sales goals and strategies will help you to stay on track and assess your progress. As you begin to define your sales plan, keep these things in mind:

Sales goals: These goals should be specific and measurable, not something like selling a million units. Base them on the nature of your product and try to break them down into manageable parts. For example, sell 50 units to end-users in 30 days and sell 100 units to local independent retailers in six months. Sales activities: These are your tactics -- how you plan to make the sale. You may say you'll sell direct-to-consumer through a website or via craft shows, for instance. Or this part of the plan may include activities like developing a sell sheet to send to independent retail stores. Target accounts: Your sales plan should also include the accounts you want to sell to. If it's endusers, for example, plan how you're going to reach them through eBay, classified ads or your website. Timelines: Put dates to all of the above elements so you can define your steps within a realistic timeline. Don't forget that your timelines should be fluid--if you're underachieving, your sales plan can help you figure out why and define the corrective steps you need to take.

Expand to new markets. Once you have established success in your current market, consider expanding to include other markets. This will open doors to bigger buyers.

Get the correct buyer: One of your biggest challenges is finding the right buyer within a large organization, so do your homework. If you're experiencing roadblocks, consider hiring a distributor or manufacturer's rep who already has established relationships in your industry Be prepared: Develop a presentation and have professional-looking sell sheets ready. Your product should also have packaging that's ready to go. Know your target: Understand what products they already carry and how yours will fit in. Don't waste your time pitching to a retailer who's unlikely to carry your product. Take advantage of special programs: Some mass retailers, such as Wal-Mart, have local purchase programs that give managers authority to try local items. And other retailers may have different initiatives, such as minority business programs. Be patient: It can take up to a year or longer before you see your product on store shelves, so don't get frustrated. And if the final answer is no, try to turn it into a learning experience.

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International Online Sales


Selling your products online allows for immediate entry into the global marketplace. However, shipping your product overseas presents a few challenges if you have little experience with taxes, duties, customs laws, and consumer protection issues involved with international commerce. If you are just getting started, the following resources will help you to understand legal and regulatory requirements when shipping overseas:

Export.gov - E-Commerce Toolbox: This site brings together information and resources the U.S. Department of Commerce and other U.S. government agencies offer to U.S. businesses interested in using the Internet to export their products. Electronic Commerce: Selling Internationally - A Guide for Business : As members of the Organization for Economic Cooperation and Development, the United States and 28 other countries have signed on to guidelines that help protect consumer information on the Internet.

eCommerce Resources eCommerce, The Newest Business Frontier: It's Time To Get Connected
If you have not decided whether the fanfare over conducting business online is hype or reality and are holding off developing a Web site for your enterprise, you could be missing out on a powerful business tool. The Internet is proving to be a significant business leveler, allowing small and medium-size companies to compete with the giants on the same global playing field. Whether you are a consumer or a business-to-business resource, some of the most efficient marketing and selling tools are available via the Internet, and the potential of reaching a vast audience is open to you through the World Wide Web. Consider these facts: Forrester Research, Inc. estimates that 47.3 million North American households

have online access and 43.9 percent have browsed online. Of the 43.9 percent, 65 percent have made purchases. By 2014, the research firm estimates that U.S. online retail sales will grow to $250 billion, up from $155 billion in 2009. Time-starved consumers are becoming more comfortable using credit and bank cards to make purchases from security-backed virtual retailers. They comparison shop over the Internet for the best quality and cost and purchase a range of goods from groceries to high-tech products. As the electronic-consumer trade continues to soar, business-to-business eCommerce will be even stronger. Many larger corporations have already mandated the use of online transactions to their downstream vendors. According to the U.S. Small Business Administration (SBA), the introduction of electronic commerce in federal contracting is moving ahead, and small business owners must adopt this new business strategy to remain fully competitive. Until recently, developing an eCommerce Web site meant dealing with multiple companies: one to develop the Web site, one for eCommerce integration, one to host the site, and yet another provider for secure payment processing. Newer technologies, however, are making it easier for business owners to get their online sites up and running.

Learn more about eCommerce


To explore the benefits of eCommerce, and the steps that are involved in this sales strategy and operation, select the resource of interest below.

Advertising and Marketing on the Internet: The Rules of the Road Appliance Labeling Rule Homepage BBB-Online: Code of Online Business Practices Big Print. Little Print. What's the Deal? How to Disclose the Details Businessperson's Guide to the Mail and Telephone Order Merchandise Rule Complying with the Telemarketing Sales Rule Disclosing Energy Efficiency Information: A Guide for Online Sellers of Appliances Frequently Asked Questions About the Children's Online Privacy Protection Rule How to Comply With The Children's Online Privacy Protection Rule You, Your Privacy Policy & COPPA Internet Auctions: A Guide for Buyer and Sellers Selling on the Internet: Prompt Delivery Rules TooLate.Com: The Lowdown on Late Internet Shipments Website Woes: Avoiding Web Service Scams What's Dot and What's Not: Domain Name Registration Scams

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Online Advertising
A well-known cartoon shows two dogs in front of a computer. The caption reads, "On the Internet, nobody knows you're a dog."

While the cartoon is amusing, the reality is not: The inherent anonymity of the Internet has fostered a number of questionable advertising and marketing practices, such as unsolicited email spam. Over the past decade, federal and state governments have passed advertising laws that protect consumer privacy and ensure fair and truthful advertising practices online. If you plan to advertise online -- whether you're buying ads on search engines or direct marketing through email -you'll need to understand some basic rules. Go to these resources to learn more.

Advertising and Marketing on the Internet: Rules of the Road


Discusses the applicability of federal advertising laws to Internet advertising and marketing.

Dot Com Disclosures: Information about Online Advertising


Describes information businesses should consider as they develop online ads to ensure that they comply with the law.

CAN-SPAM Act: Requirements for Businesses


Details the CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act), which establishes requirements for those who send commercial email. It also spells out penalties for spammers and companies whose products are advertised in spam if they violate the law, and gives consumers the right to ask emailers to stop spamming them. Commercial email messages must include: notice that the message is an advertisement or solicitation, an opt-out notice, and a valid postal address of the sender. CAN-SPAM also prohibits falsification of transmission information and deceptive subject headings. The Act creates criminal prohibitions against those who knowingly transmit spam through others' computers without authorization. The Federal Trade Commission may also pursue individuals who knowingly hire others to send deceptive spam.

"Remove Me" Responses and Responsibilities


Explains the truthful requirements for claims that you make in any advertisement for your products or services, including those sent by email. This means that you must honor any promises you make to remove consumers from email mailing lists.

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E-Commerce Guide
Provides a small business guide to regulations governing online businesses.

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