DISCLAIMER: This chapter is for informational purposes only, and doesn’t constitute professional legal advice. Oberlo is not liable to you in any way for your use or reliance on this article.
Now that we’ve established a detailed wholesale definition – and you understand the different options available to you – let’s talk about the legal side of the matter.
As a new ecommerce entrepreneur, it’s easy to overlook these crucial legal steps and wind up in hot water, so let’s get familiar with your legal, accounting, and tax responsibilities.
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2.1 The Most Common Ecommerce Business Legal Requirements
When you’re first getting started with your online store, working out how to set everything up in a legal and safe way can be confusing and overwhelming. Below you’ll find a quick summary of the main requirements, what they mean, and why they matter.
Instead of getting into specifics, we’ll look at the main legal requirements for starting your ecommerce business, alongside some insider tips.
- Company formation
- Business licence
- EIN number
- Sales ID tax number
- Reseller’s permit
- Liability insurance
Depending on which country or state you reside in, there are some things you’ll need to do to make your ecommerce business official, while others won’t apply to you. Make sure you read the small print.
2.2 What Type of Ecommerce Business Set Up Do I Need?
This depends on how your business is structured and where you operate from. Below you can checkout the four main types of business structure most commonly used by ecommerce business owners.
In my experience, when just starting out most new ecommerce business owners usually set up a Limited Liability Corporation, LLC.
[highlight]Expert Tip: The U.S. Small Business Administration is a great source of useful information for entrepreneurs. [/highlight]
Related Content: How To Open a Company In The US
2.3 What is a Sales Tax ID?
A taxpayer identification number, also known as a TIN, is an official number issued by your country of residence by the Internal Revenue Service. Your Social Security administration may also be able to issue your sales tax id.
If you’re based in the U.S. or sell to the U.S., determining the state(s) you need to pay tax in can be tricky, as your liability is decided on where your main base of operations (your ‘nexus’) is run from.
And this can get even trickier if you dropship, or store and ship inventory from another state using a service like fulfilment service like FBA (Fulfilment By Amazon).
Sales taxes do differ from state to state, but you can find your states sales tax rate in this post.
[highlight]Expert Tip: Don’t forget that, in some states, you also need to collect sales tax on shipping and handling.[/highlight]
Related Content: State and Federal Online Business Registration
2.4 What is a Business License?
Your business license is a permit which allows sole traders or companies to operate a business legally within a specific geographical jurisdiction.
If you’re based in the U.S., check out this state-by-state guide to business permits.
Related Content: How To Register Your Business In The U.S.
2.5 What is a Reseller Permit?
Depending on where you’re located this permit may be referred to as a reseller’s license, reseller’s certificate, sales tax permit, or sales tax ID.
Your reseller permit allows you to bulk buy products for resale without paying additional sales tax. This permit is supplied by your state tax agency, and is the document most legitimate wholesalers will ask for before opening your wholesale account.
Expert Tip: Wholesalers are legally obliged to check whether you’re able to collect sales tax, which is why a reputable wholesale business will insist on you having a resale licence.
Related Content: How To Get A Resellers Permit
2.6 What is Limited Liability Insurance?
Liability insurance is a policy that covers any business or individual in the event you’re sued for something such as personal injury or malpractice. Never fun.
As a general rule, if you’re selling products to the public, it’s a smart idea to invest in a general liability policy. This is ultimately a lot cheaper than paying out thousands if you get sued.
Think of it like buying travel insurance when travelling overseas. Nothing’s likely to happen, but it’s always good to have it in case you need it.
Related Content: Finding The Best LLC insurance
2.7 What is a EIN Number?
An EIN, employer identification number, is a number given to you by the Internal Revenue Service. This number is used to identify taxpayers who need to file business tax returns. Your EIN is issued by the federal government not your state, and is used to file your business taxes.
Related Content: How to Get An EIN Number
2. 8 What’s a Licensing Agreement?
If you plan to sell trademarked products, then you need to get a license that will allow you to do so without infringing on intellectual property rights.
Seriously, selling trademarked merchandise without a valid licensing agreement is just asking for trouble. Don’t do it.
[highlight]Expert Tip: Check out your local Chamber Of Commerce, SBA, or S.C.O.R.E. office for information and guidance on how to contact the appropriate offices for your state and county.[/highlight]
Related Content: How To Apply For licenses and Permits
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2.9 What is GDPR and How Does it Affect Ecommerce Business Owners?
This is a new law sending shockwaves through the business world, especially as few people seem to really understand exactly how it works.
The General Data Protection Regulation is an EU law designed to protect the data and privacy of European citizens, and there are strong consequences for those who don’t comply.
In this detailed guide, we discuss GDPR compliance for ecommerce shops, and what you need to do as an ecommerce business owner.