6 online selling rules and regulations

Key takeaways:

• Establish an LLC instead of operating as a sole proprietor to create legal separation between your personal and business assets and protect yourself from liability as your e-commerce business grows.

• Register for sales tax permits in all states where you meet economic nexus thresholds, as every state with sales tax now requires remote sellers to collect and remit taxes based on sales volume or transaction counts following the 2018 South Dakota v. Wayfair Supreme Court decision.

• Implement PCI-compliant payment processing by using trusted third-party services like PayPal and Stripe to handle compliance automatically, or meet Payment Card Industry standards directly if processing payments yourself, as non-compliance leads to significant financial penalties and legal risks.

• Create comprehensive terms of service and privacy policies that comply with applicable data protection regulations like GDPR and CCPA, and maintain automated digital records of when customers accepted your agreements to provide legal proof of compliance if challenged in court.

Setting up an online business is easier than it’s ever been. You can have a storefront live in minutes, start processing payments immediately, and reach customers across the globe. But here’s what most new online sellers don’t realize: the legal requirements that come with running your own e-commerce operation are vastly different from selling through marketplaces.

Online selling laws are the legal requirements and regulations that govern e-commerce businesses operating their own websites or platforms. These regulations cover everything from business licensing and tax compliance to data protection and consumer rights. While marketplace platforms like Amazon and eBay handle many legal requirements for their sellers—for instance, the INFORM Consumers Act requires them to verify the identity of high-volume sellers—businesses running independent online stores must navigate these regulations themselves to avoid costly penalties and legal issues.

Understanding online selling laws protects your business from fines, lawsuits, and operational disruptions. Non-compliance can result in penalties ranging from hundreds to thousands of dollars, depending on the violation and jurisdiction. In fact, organizations lose an average of 8.6% of total spending a year to cost leakage in contracts, according to The 2025 Legal Operations Field Guide, illustrating the broader financial impact of poor compliance management.

Here are six essential legal requirements every online seller must address before launching their business. Each requirement includes specific steps you can take to ensure compliance and protect your growing e-commerce operation.

Business licensing and registration requirements

Before you make your first sale, you need to get your business structure in order. This isn’t just about looking professional—it’s about protecting yourself legally. You’ll likely need a business license from your city or state to operate legally, and according to the U.S. Small Business Administration, most small businesses need a combination of licenses and permits from federal and state agencies. The requirements vary, so check with your local government’s website.

You also need to decide on a business structure. Many online sellers start as sole proprietors because it’s the simplest path, but it leaves your personal assets at risk if the business runs into trouble. Forming an LLC (Limited Liability Company) is a common next step. It creates a legal separation between you and your business, which is a smart move as you grow. It’s not required to start, but it’s something to seriously consider for liability protection and credibility.

When selling online, you need a terms of service

A terms of service is a legally binding agreement that outlines the rules, responsibilities, and expectations between your business and customers. This document protects your business by defining acceptable use, payment terms, refund policies, and dispute resolution procedures.

Your terms of service must clearly disclose all customer interactions and obligations. This includes subscription details, email communications, pricing changes, and any ongoing services customers receive after purchase. Likewise, best practices in online selling regulations state that customers must be notified if pricing increases for goods or services purchased through a subscription model.

Having notifications about the contents and updates of your terms of service is an easy way to build trust and transparency with your customers. Luckily, we’ve made it easy for you to make your e-commerce agreements count.

Sales tax compliance for online businesses

Sales tax is one of those things that can get complicated fast. The rules depend on where you’re located and where you’re selling to. Thanks to the 2018 Supreme Court decision in South Dakota v. Wayfair, you might have to collect sales tax in states where you don’t have a physical presence. In fact, following the decision, every state with a sales tax has established economic nexus requirements for remote sellers who meet certain sales or transaction thresholds. This is called “economic nexus.”

Here’s the thing: you can’t just ignore it. You need to figure out which states you have nexus in, register for a sales tax permit there, and then collect and remit the tax. It sounds like a headache, and it can be, but many e-commerce platforms have tools to help automate this. The key is to get it right from the start to avoid penalties down the road.

Protect all your data

Data protection for online sellers involves securing customer payment information, personal data, and transaction records according to industry standards and legal requirements. Payment Card Industry (PCI) compliance is mandatory for any business processing credit card payments directly, and it’s important to keep up with evolving requirements, as older standards like the Payment Application Data Security Standard (PA-DSS) have been superseded by the Secure Software Standard and Secure Software Lifecycle Standard.

Secure payment processing requires either using trusted third-party services like PayPal and Stripe, or implementing PCI-compliant systems if processing payments directly. Third-party payment processors handle most compliance requirements automatically, while direct payment processing requires additional security measures and regular compliance audits. The stakes here are high—non-compliance can result in significant financial penalties and put your business at serious legal risk. Personal data, credit card data, and customer identity information all must be properly protected throughout the purchasing process. Make sure to become PCI compliant, understand the steps you need to take to encrypt credit card data for your checkout flow, and secure all other purchasing data.

Marketing and advertising compliance

How you talk about your products matters. The Federal Trade Commission (FTC) has rules to make sure advertising is truthful and not deceptive, including the new Rule on Unfair or Deceptive Fees, which prohibits tactics like bait-and-switch pricing. This applies to everything from your product descriptions to your social media posts and email campaigns. You need to be able to back up any claims you make.

If you’re sending marketing emails, you also need to comply with the CAN-SPAM Act. This means you have to include your physical address, provide a clear way for people to unsubscribe, and honor those opt-out requests promptly. It’s not just good practice; it’s the law.

Protect your products online

Product protection involves establishing clear policies and procedures that safeguard both your business interests and customer rights throughout the sales process. These protections reduce disputes, chargebacks, and potential legal issues.

Essential protection policies include delivery and shipping insurance for physical products, clear refund and exchange procedures, and cancellation terms for services. Digital products require specific licensing terms and usage restrictions. Service-based businesses need detailed scope of work documentation and performance guarantees. The key thing to do is outline all your protections in your online agreements.

Beyond the formal policies, clear communication with your customers is crucial for making these protections work. When customers understand what to expect and how issues get resolved, you’ll see fewer disputes and chargebacks. Treat customer relationships like you would any other business relationship—with trust and accountability. When everyone understands their responsibilities in this two-sided relationship, there’s less room for legal problems down the line.

Protecting your intellectual property: trademark, patent, and copyright

Intellectual property protection secures your business name, products, content, and unique processes from unauthorized use by competitors or infringers. This protection includes trademarks for business names and logos, copyrights for original content, and patents for unique products or processes.

Before launching your online business, conduct thorough searches to ensure your chosen business name, product names, and core offerings don’t infringe on existing intellectual property rights. Taking someone else’s intellectual property without permission opens you up to serious legal consequences, and you probably wouldn’t want competitors doing the same to your ideas. Take the necessary steps to research your product or service thoroughly, and make it legally official. Intellectual property law is an important regulation that ultimately protects your business.

Keep good records of online transactions from the outset

Digital record keeping for online businesses involves maintaining detailed, accessible documentation of all customer interactions, transactions, and legal compliance activities. These records serve as legal protection and are required for tax reporting, dispute resolution, and regulatory audits.

Essential records include transaction logs with timestamps, customer agreement acceptances, payment processing details, and communication histories. Most e-commerce platforms automatically generate basic transaction records, but additional documentation may be required for complex sales or service agreements. This is for both your and your customers’ protection.

Exceptional digital record keeping for online sellers is too often an afterthought and lands companies in hot water. Telling customers how you are protecting them is not enough. Your company needs to record when and how customers were notified of your online terms in order for any of your legal efforts to be considered legitimate. Also, if a customer ever challenges your terms in court, you will have proof of what they agreed to. With 92% of errors in contract management being human errors, according to the guide, relying on automated tracking is far safer than manual methods.

Have a compliant privacy policy

A privacy policy is a legal document that explains how your business collects, uses, stores, and protects customer data. This document is legally required in most jurisdictions and must be easily accessible on your website before customers provide any personal information.

Privacy policy compliance varies by location and customer base. Businesses serving European Union customers must comply with General Data Protection Regulation (GDPR) requirements, while those serving California residents must follow California Consumer Privacy Act (CCPA) regulations. Additional state privacy laws may apply depending on your customer locations. This means that if you are collecting, storing, or otherwise using the data of customers in the EU, California, and a handful of other states, you need a privacy policy that outlines how you use that data, why you need that data, and what rights your customers have when it comes to controlling that data.

Different regulations have slightly varying stipulations, so be aware of the regulations in the state or states in which you are doing business. However, because of the global nature of business, it makes sense for you to adopt these practices regardless; you never know where your customer is coming from. And if a consumer brings a complaint against you for not complying with these rules, your business can face hefty fines—for example, under the CCPA, penalties can reach up to $7,500 for each intentional violation—which can cause both financial and reputational damage.

Getting started with online selling compliance

Navigating the rules for selling online can feel like a lot, but it boils down to a few key areas: setting up your business correctly, being transparent with customers through your terms and privacy policies, handling data and payments securely, and protecting your own brand. Getting these pieces right isn’t just about avoiding fines—it’s about building a trustworthy business that can scale.

If you’re managing all the agreements that come with this—from your website’s terms of service to vendor contracts—it helps to have a central system. Managing your contracts properly is the foundation of your compliance, particularly when supplier agreements in the retail sector require 80% legal involvement, according to The 2025 Contracting Benchmark Report. If you’re ready to see how a contract lifecycle management (CLM) platform can help you stay organized and compliant as you grow, request a demo today.

Frequently asked questions about online selling laws

Do you need a license to sell products online?

Most of the time, yes. While you might be able to start selling on some platforms without one, operating a legitimate business in the U.S. means you need to follow federal, state, and local laws. This usually includes getting a general business license from your city or county.

Do I need an LLC to sell online?

No, you don’t absolutely need an LLC to sell online. You can operate as a sole proprietor. However, forming an LLC is a good idea because it protects your personal assets if your business gets sued. It separates your business finances from your personal ones, which is a smart move for anyone serious about growing their online store.

What happens if I don’t comply with online selling regulations?

Ignoring the rules can lead to serious problems. You could face hefty fines from government agencies like the FTC, legal action from customers, and damage to your brand’s reputation. It’s much cheaper and easier to get things right from the start than to clean up a mess later.

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Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.