The Risks of Selling Online
Q: I'm building a Web site that will allow university students to buy and sell textbooks. In a sense, I'm acting like eBay since I will be the middle man. Should I incorporate myself for liability's sake? The Web site will be free and won't cost me anything to start because I have my own Web server and Internet connection. I want to be covered if someone pays for a book but never receives it. The last thing I want to do is offer a free Web site and get sued for it.
A: First, let's briefly address the incorporation question. It's easy to incorporate these days-you can frequently do it online, at minimal cost. One popular option is the limited liability corporation, or LLC, which, in most states, you can start with just one person. The "limited liability" means that you risk only capital paid into the business; none of your personal assets is at stake. This means less reaching for the Maalox at 4 a.m. over a business glitch.
Incorporating is one defense against liability. Another is building a Web site that has a clear idea of how the business (in your case, selling books to college students) will go and builds in solutions to possible problems.
- Who's eligible to use the site
- What fees apply
- Details of bidding and buying
- What you can and can't sell
- Exclusion of warranties or guarantees on products
- Advisory that sales/income tax may be due
- When the webmaster can suspend an account or stop a trade
- What happens when the buyer doesn't pay or doesn't receive the item advertised
And others customized to fit your business. The point of this agreement: You set out the circumstances under which you're doing business. By clicking an "I agree" button at the end of the terms and conditions, a user forms a contract as binding as one completed with pen and paper. These terms should be mandatory and agreed to before someone can trade on the site-you'll have much more leverage.
- A "hold harmless" or "release" section, stating that the buyer releases you and your company from responsibility for a deal gone wrong
- A "dispute resolution" provision setting out how disputes will be settled. One possibility is using an online mediation service such as www.eresolution.com or www.internetneutral.com, which can work out conflicts online.
And while you're certainly not planning anything on the scope of eBay, think through the issues involved in dealing with students:
- Age necessary to enter into a contract in your state
- Whether you'll accept checks, money orders, VISA, etc.
- Dropping a class after ordering the book
- Different editions of the same text
Since you have a captive audience, your book business should do very well.
Joan E. Lisante is an attorney and freelance writer who lives in the Washington, DC, area. She writes consumer-related legal features for The Washington Post, the Plain Dealer, the Spokane Spokesman-Review and the Toledo Blade (Ohio). She is also a contributing editor to LawStreet.com and ConsumerAffairs.com.
In her practice, Lisante is counsel to ConsumerAffairs.com and was counsel for Zapnews, a fax-based customized news service for radio stations. Previously, she served as Assistant District Attorney in Queens County, New York, and Deputy District Attorney in Nassau County, New York.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.