E-Commerce and the Need to Incorporate
As we here at San Diego Corporate Law have written on several occasions, there are many good reasons to incorporate. However, when contemplating starting a global e-commerce business or expanding your existing business into global e-commerce, incorporating is essential. There are just too many risks. Here are few things to consider.
What is Incorporating?
Creating a corporate entity through which you run your business is done by filing articles of incorporation or organization with the California Secretary of State. There are certain requirements, such as using the proper name for the type of entity you choose, and you must pay annual taxes.
When you form a corporation or a limited liability company (LLC), you are forming a legal entity separate and apart from yourself. Like you, the corporate entity can own personal and real property. As such, forming a corporate entity has these advantages:
- Personal asset protection: If properly structured and if the formalities are maintained, only corporate or LLC assets can be taken to pay for business debts and obligations; personal asset are shielded (subject to certain exceptions).
- Status and credibility: Customers are often more impressed if you have the “Inc” or “LLC” after your business name; it is also somewhat easier to protect a corporate name via trademarking and a proper business name dovetails better with your website.
- Perpetual existence and transferability: If you are planning to spend your time and energy building a business, you want it to be solid, permanent and, when it is time to sell or pass it along to family members, you want that process to be easy; corporations and LLCs offer those advantages.
- Tax advantages and expensing flexibilities
Why This Matters for Starting/Expanding into Global E-commerce
Put simply, global e-commerce is risky. Generally, the rewards justify the risks if you succeed, but there are undoubtedly greater risks. As such, you want and need the protection provided by the corporate shield. (And, do not underestimate the public relations aspect of the “Inc.” and “LLC.”)
Take a global e-commerce business as simple as buying electronics from China and selling them on eBay or Amazon. There are a host of legal considerations including currency conversion, shipping, risk of loss, trade treaties, and customs and regulatory rules. For example, if you are importing and re-selling electronics, your devices must comply with the emission regulations of the Federal Communications Commission (“FCC”). All electronic devices emit radio frequencies and FCC regulations mandate that such devices not cause interference with other devices and with radio and broadcast communications. Electronic devices must be properly designed to seal off the harmful emissions, there must be testing and certifications showing compliance with the FCC regulations. See general information on FCC regulations here.
Often the manufacturers of the electronics have already done the testing and can provide compliance documentation, but not always. China and India, for example, have different regulations concerning emissions. So, an Indian-manufactured cell phone might not be FCC-compliant.
Selling non-compliant electronics is unlawful and can subject the SELLER to any of the following:
- Criminal fines exceeding $100,000
- Additional criminal fines based sales of non-compliant devices and equipment
- Civil fines of $10,000 per diem
FCC regulations are just one example showing how global e-commerce can be unexpectedly risky. With these types of business risks, you do not want your personal assets on the line. Forming a corporate entity will help shield your assets from these types of risks. Note the word “help.” Incorporating does not eliminate all risks. Insurance is essential, as is compliance with laws and regulations. As always, it is very important to have competent, skilled, and proven legal counsel.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has the experience to help you create your corporation or LLC, keep it in good standing, create and review all needed corporate papers, and assist with any business-related matter. Contact Mr. Leonard by email or by calling (858) 483-9200.