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Since 2005, Etsy has given handmade business owners a platform to increase their reach. But over the last (almost) twenty years, both Etsy and the handmade business community have changed.

For the most part, this has been a symbolic relationship. Yes, Etsy always has had to answer to its investors.

However, Etsy’s goals were mostly in alignment with the needs of the handmade community.

However, more and more handmade sellers feel like Etsy’s goals do not align with their businesses. They are tired of playing the algorithm games or changing their business policies for every new Etsy experiment.

And many handmade business owners are starting to wonder if they are ready to leave Etsy and launch their online shop.

Launching an online shop is an intimidating prospect. You are not only responsible for delivering your handmade products to your customers but are also in charge of:

• Driving traffic to your online shop
• Building a user-friendly online shop that converts traffic to buyers
• Ensuring your online shop complies with the laws
• And dozens of other things!

But you shouldn’t let this stop you. Launching your own online shop not only allows you to curate a direct relationship with your customers but also gives you the ability to build your business on your values and goals, not the platform’s values and goals.

(Now this isn’t to say that you can’t keep your Etsy shop open, but if you have your own shop it can be one revenue stream, not your only revenue stream.)

If you’ve been feeling like you’re ready to leave Etsy, you probably are getting close! 

To help you decide, today I’m sharing five legal requirements for your online shop.

This way you can focus on growing your online shop – without worrying about some of the legal logistics that go along with running one!

(And if you’re not ready yet, you’ll know what you need to do!)

Let’s dig in.

5 legal requirements for an online shop

Only you can say for sure whether you have the bandwidth and desire to open your own online shop. (Because like most things in business, it’s a bit of work and isn’t a one-and-done thing!)

But if you’ve been debating doing it, then it’s important to understand what you are in for (and you just might learn that the legal requirements aren’t as intimidating as you thought they would be!)

To help you decide, here are five legal requirements of an online shop.

Legal Requirement #1: Permits and licenses

Pretty much every business is required to have at least one permit or license from their City or County.

It doesn’t matter if your business is online-only.

It doesn’t matter if clients or customers never visit your home.

It’s required just for the privilege of owning your own business.

That permit is a business license for the city or county where you do the majority of your work.

You also might need a doing business as, a fictitious business name, an assumed name, or a trade name statement. These all do the same thing, even though they go by different names. All four names describe the same concept. And that concept is that you can do business as something other than your legal name. It’s creating a legal nickname for your business.

There are three times when you’re going to need to get a DBA for your creative business:

• when you’re a sole proprietorship and your name isn’t the same as your business name
• when your LLC name isn’t the same as your business name (usually because you have multiple brands or businesses in the same LLC)
• when you’re in a partnership and you imply that there are multiple business owners

Other common permits and licenses you might need include:

• home occupancy permit
• fire permit
• seller’s permit, sales tax certificate, reseller’s certificate, reseller’s license, or tax-exempt certificate

Legal Requirement #2: You are collecting and remitting sales tax where required

Before 2018, figuring out if you did or didn’t have to collect sales tax on an online order was straightforward. You collected sales tax on an online order if you answered yes to any of these questions:

• Was the product being shipped to someone in your state?
• Was the product being shipped to someone in the state where your warehouse/drop shipper was located?
• Was the product being shipped to someone in the state where your employee was located?
• Was the product being shipped to someone in the state where your affiliate was located?

These questions are all aimed at deciding if you have a “physical” presence in a state.

And since most creative business owners only had a physical presence in the state they were based in, they only needed to collect sales tax for a single state. (And occasionally for the out-of-state shows they participated in.)

However, this all changed when the Supreme Court handed down its decision in South Dakota v. Wayfair.

This decision said that states could require online sellers to remit sales tax if they had a physical presence in the state OR significant economic ties.

Since this ruling, every state has passed laws outlining what significant economic ties mean. And when these thresholds are met, online sellers are required to collect (and remit) sales tax for all sales made in that state.

While these thresholds vary, in many states, you’ll meet them if you either:

• Sell more than $100,000 within that state
• Have more than 200 transactions within that state

This means there now is a crazy matrix of laws that you have to consider to decide if you need to collect sales tax on an online order. (You can see all the current economic nexus laws here.)

So if you have an online shop, you need to have a process to track sales to each state so you know when you’ve met the thresholds and must start collecting and remitting sales tax to that state.

For most handmade sellers, knowing when to collect, how much to collect, and submitting the various reports and payments is the most challenging (and frustrating) part of running an online shop.

However, some tools and resources make this easier.

When you are just starting, you might keep track of everything on a spreadsheet and use the built-in tools of your platform to calculate sales tax where needed. Our friend Janet of Paper + Spark makes seller’s spreadsheets that help you keep track of each state you make sales to for all the major platforms, including Shopify, Squarespace, Amazon, and Etsy. Grab your Seller Spreadsheet here.*

Once you grow a little bit, you might want this done automatically. Many of my clients use services like TaxJar that automatically track, collect, report, and remit sales tax for each purchase and take the burden off the shop owner to do the heavy lifting.

Legal Requirement #3: You have a privacy policy and terms of service

Your online shop should have two policies:

• Privacy policy
• Terms of service

Create a privacy policy

A privacy policy is a simple way to build trust and transparency with online visitors. And don’t worry it doesn’t have to be that legal jargon-stuffed, terrible, long thing that you might be picturing in your head.

Here in the United States, there isn’t a nationwide privacy law, instead, you’ll have to comply with the privacy laws of several states. Additionally, your online shop might need to comply with the stricter privacy laws of other countries.

This means if you plan on shipping your products to a country (or accept another country’s currency) then you’ll also need to comply with the privacy laws of that country.

Here are the nine questions your privacy policy should answer:

1. Who is collecting the data? (You and what third-party partners?)
2. What information is collected based on the actions I take? (For example, purchase information or email list signup.)
3. What information is collected automatically? (For example, analytics or advertising information.)
4. How do you share the information collected? (And the answer isn’t, “You never share the information with anyone.”)
5. How do you use the information collected?
6. How do you protect your visitors and customers’ information?
7. How does collecting this information help your visitors and customers?
8. How can I learn what information you have about me?
9. How can I opt out?

You can answer these questions to create a simple privacy policy (or you can grab my Mad Libs template here.)

Create a terms of service

Now you’ll turn to handling the second website policy that you might want, and that’s the terms of service.

Terms of service are just a fancy name for a contract. It’s a contract that we have with our website visitors, with our website purchasers, that says these are the ground rules of what our relationship looks like. That’s all we do with the terms of service.

And the reason terms of service are great is that it can help us when we’re dealing with somebody who’s maybe a little unreasonable and we want to have enforceable policies that we can use to say, “Unfortunately, based on the contract, based on our terms of service, you can’t have what you want but this is what I can offer in return.” So terms of service are there to be our backup, to be our little stick, if and when we’re dealing with an unreasonable customer.

Why can’t you just have shop policies?

Shop policies are great, but shop policies are just policies. And to make your shop policies enforceable, you have to turn them into a contract.

The short version of why shop policies aren’t an enforceable contract is that you can’t prove that your website visitor agreed to your terms.

This is why every time you sign up for a new service, they make you check that “I agree to your terms” checkbox. That little checkbox turns shop policies into an enforceable contract.

So what you’re going to do is go ahead and create your policies and then you’re going to institute a process where they check that little box during checkout. And then all of a sudden you’ve got enforceable terms of service that you can use against that unreasonable customer.

Unlike your privacy policy, you probably have a lot of your terms of service already written.

Because you are just going to pull from your existing policies. This might be your:

• e-commerce shop policies
• wholesale policies
• custom work policies
• returns and exchange policies

All of those policies that go along with purchasing your product or service. And policies (or rules) you want to make enforceable, you’ll put in your terms of service.

If you don’t have policies, one way to create them is to sit down and think about the process from start to finish. What’s the step-by-step process from someone landing on your website to becoming a repeat purchaser? What common kinks or snafus happen and how do you deal with them?

And then you’ll write out those rules and post them on your website and make sure that your buyers have to agree to them by ticking the box at checkout or when creating an account.

Legal Requirement #4: You have a plan for legally collecting email addresses

What surprises many creative business owners is that when it comes to email marketing laws, where your business is based doesn’t matter.

That’s right, where you sit to create your emails means zip. What matters is where your email subscriber is from.

But having a random email subscriber from Cuba doesn’t automatically mean you need to comply with Cuban law.

What matters is if you are targeting and hoping to attract email subscribers from Cuba. And if you are, then you need to comply with Cuban email marketing laws.

For example,

• If I wrote an article about Cuban copyright law and had an opt-in form on that article, then I’d need to comply.
• If I shipped products to Cuba, then I’d need to comply.
• If I accepted payment in the Cuban peso, I’d need to comply.
• If I wrote articles in Spanish, then I might need to comply.

This means if you accept the local currency and will ship to a country, then you’ll need to care about the email marketing laws of that country.

And you need to have a process to make sure that you are following the email marketing laws of that country. This might require:

• A double-opt-in so you have proof that they consented to your marketing messages.
• Including an unsubscribe link in every email.
• Including your postal address in every email.
• Be careful about how you offer your discount code to those who don’t want to sign up for your email list.

Legal Requirement #5: You have a process to legally use reviews and testimonials

Typically, there are two kinds of feedback that businesses use as proof that they have a product or service worth buying: reviews and testimonials.

What’s the difference between the two?

Reviews express the experiences of both satisfied and unsatisfied customers. To be true reviews, customers are in charge of the content and businesses shouldn’t delete bad reviews, only respond to them.

You, on the other hand, are in charge of the content with testimonials. They are hand-picked nuggets of goodness from your very best, most satisfied customers. 

Because reviews and testimonials are generally short, copyright isn’t the primary issue you should be concerned about when it comes to using them.

Instead, you need to be concerned about a little-known law called Right of Publicity.

Right of Publicity says that we as individuals have the right to control how our name, likeness, photograph, or the like is used to sell someone else’s products or services.

Where this right of publicity thing gets a little bit complicated, is that it is controlled on a state-by-state basis.

Not every state says that it exists. And every state that does say it exists, interprets it just a little bit differently.

To add a layer of complexity, it’s not about where your business is based. But about where the person who said it lives.

So the easiest way to avoid all of this is to get permission. And the easiest way to get permission to add reviews and testimonials to your website (and then use them in your marketing materials), is via your terms of service. All you need to do is include how else you want to use these reviews in your terms of service and have them agree to it as part of the process of leaving the review or testimonial. 

That’s a wrap!

I hope this post has helped clarify what’s legally required to launch your online shop.

If you’re feeling overwhelmed, then you aren’t alone! One thing I like to do when I’m feeling overwhelmed is to stand up and look at my feet. And then think about what is the one teeny, tiny, baby step I can take that will get me inches towards my goal. And then I do that.

Once I’ve taken that teeny, tiny action I repeat the process. And I do this over and over until I feel a little less overwhelmed.