1. Key Factors in Starting an E-Commerce Business
2. Other Considerations for Starting an E-Commerce Business
3. Do E-Commerce Businesses Need A Business License?
4. What You Need for a Business License

Updated November 6, 2020:

Starting an e-commerce business in California means opening an online business in the state. It is relatively easy to do, but there some things you need to consider from a legal and practical perspective. E-commerce is growing as people are converting to purchasing services and products online. However, you have to do your research. You can't just set up an online site and sell any random thing you want if you want to be successful. Not everything sells well online. Just as you would with a physical store location, you need to take time to develop a business plan.

Key Factors in Starting an E-Commerce Business

Some of the main issues to consider when contemplating an e-commerce business are:

  • What are the existing problems your target market has?
  • What solutions does your business offer?
  • How and where will you get the products needed?
  • Can you afford the financial terms necessary to secure your inventory?
  • How will you handle shipping? Will you ship internationally and who will handle customs?
  • How are purchase transactions handled?
  • What will you use to track inventory, grant refunds, and ensure you have good customer service?

Before moving ahead with starting your e-commerce business, you need to ensure you can answer all these questions.

Other Considerations for Starting an E-Commerce Business

Once you can answer all the aforementioned questions, there are some other factors to consider before moving forward. One of these is whether you should form a business entity or not. With e-commerce sites, it is usually important because products fall under product liability statutes. This means that anyone involved in the commerce chain could be jointly liable if there is a problem with a product.

This means that even if the problem lies with the manufacturer, you could still be sued and held liable as well. Forming a business entity could provide some personal liability protection as well, depending on the type you choose. You should also consider purchasing liability insurance to cover any legal costs, claims, and litigation awards that could arise from a legal dispute.

Website design Is an important factor with e-commerce sites, especially the backend. This is where you load products, track your sales, and keep a database of clients. E-commerce sites also need legal documents prominently displayed. For example, terms and conditions define your relationship with the customer. If your e-commerce business is located in California, you are required to include a privacy policy that complies with the California Online Privacy Protection Act of 2003.

Do E-Commerce Businesses Need A Business License?

Yes, all companies are required to obtain a California business license, no matter whether they have a physical storefront or just sell online. All businesses are required to get a business license as it helps the government keep track of active businesses in the area and ensure taxes are being filed and paid. If you take the risk to operate without a license, you could be subject to heavy fines. The city may even force you to stop operations until the paperwork is filed. Once you file, you typically renew on an annual basis.

Obtaining a business license may vary by state, so it's best to look at the Small Business Administration's website to verify you are following the rules for the state you plan to do business in.

What You Need for a Business License

To apply for a business license, you typically need to:

  • Determine your legal structure (sole proprietorship, partnership, LLC, etc.)
  • Provide a detailed statement on business activities
  • Show your sales tax license, which can be obtained from your state agency
  • Have all necessary inspections done (if applicable)

Before your business license will be issued, some agencies conduct a zoning review of your location. This means e-commerce business owners may need to ensure they can operate their company out of their home.

Most areas have fairly relaxed zoning laws when it comes to home-based businesses, but there are some things you must keep in mind. Zoning laws may restrict:

  • How many visitors or employees you can have
  • Physical changes made to the home's physical appearance, like adding a sign
  • How much noise you make, or any odors your business emits

If you need help with starting an e-commerce business in California, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.