Legal Requirements for Starting an Online Store
Business Structure and Registration
Choosing a business structure is your first legal decision because it affects your personal liability, tax treatment, and administrative requirements. You have four realistic options as a new online store owner.
Sole proprietorship: The simplest structure. You are the business, and the business is you. There is no legal separation between your personal assets and business debts. No registration is required in most states (you just start selling), and business income is reported on your personal tax return (Schedule C). The advantage is simplicity and zero cost. The disadvantage is unlimited personal liability: if someone sues your business or you accumulate business debt, your personal savings, car, and home are at risk.
LLC (Limited Liability Company): The most popular structure for online stores because it provides personal liability protection without the complexity of a corporation. An LLC is a separate legal entity, meaning business debts and lawsuits are the LLC's problem, not yours personally (as long as you maintain the separation between personal and business finances). Formation costs $50 to $500 depending on your state (file Articles of Organization with your state's Secretary of State office). Annual fees range from $0 (most states) to $800 (California). A single-member LLC is taxed like a sole proprietorship by default, so no additional tax complexity.
Corporation (S-Corp or C-Corp): More complex than an LLC but offers additional tax planning benefits for profitable businesses. An S-Corp can reduce self-employment taxes once your annual profit exceeds $40,000 to $50,000 because you pay yourself a reasonable salary (subject to payroll taxes) and take remaining profit as distributions (not subject to self-employment tax). Formation costs are similar to an LLC. The additional complexity (payroll, corporate minutes, annual reports) is not worth it until your store is consistently profitable.
DBA (Doing Business As): Not a business structure, but a registration that allows a sole proprietorship or LLC to operate under a different name than the owner's legal name. If your LLC is registered as "Smith Enterprises LLC" but your store is called "Velvet Runner," you file a DBA for "Velvet Runner" with your county or state. Cost: $10 to $50 in most locations.
For most new store owners, an LLC is the right choice. The liability protection alone is worth the modest filing cost. Form your LLC in your home state (there is no advantage to filing in Delaware or Wyoming unless you have specific legal advice to do so), get your EIN, and open a business bank account. The total time for all three steps is about one to two hours of active work plus processing time.
EIN (Employer Identification Number)
An EIN is a nine-digit number issued by the IRS that serves as your business's tax identification number. It is the business equivalent of a Social Security number. Getting one is free, takes five minutes on the IRS website (irs.gov/ein), and is available immediately for online applications submitted during business hours (Monday through Friday, 7 AM to 10 PM Eastern).
You need an EIN to open a business bank account, apply for wholesale accounts with suppliers (most require a tax ID), file business tax returns, and hire employees (if you ever do). Even if none of those apply immediately, getting an EIN prevents you from using your personal Social Security number on business documents, wholesale applications, and tax forms, which reduces identity theft risk.
The application asks for your business name, address, structure type, and primary business activity. For an online store, select "Retail" as the business type and "Online retail sales" or similar as the activity. You receive your EIN immediately upon completing the online application. Save the confirmation letter as a PDF because the IRS does not reissue it easily.
Business Bank Account
Separating personal and business finances is not just good practice, it is legally necessary if you have an LLC. Commingling personal and business funds can "pierce the corporate veil," meaning a court could hold you personally liable for business debts despite your LLC protection.
Open a business checking account at any bank or credit union. Many banks offer free business checking for small businesses with low transaction volumes. Online banks like Mercury, Relay, and Novo offer free business accounts with no minimum balance requirements, which makes them popular with new ecommerce businesses.
All business revenue should flow into this account (connect your payment processor to deposit here), and all business expenses should be paid from it. This clean separation makes tax preparation dramatically easier, provides clear documentation if you are ever audited, and maintains your LLC's liability protection.
Sales Tax Registration and Collection
If you sell physical products to customers in the United States, you are almost certainly required to collect and remit sales tax in at least some states. The rules are complex, but the practical implementation is straightforward because your ecommerce platform handles the calculation automatically.
Since the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require online sellers to collect sales tax once they exceed an economic nexus threshold in that state. Most states set the threshold at $100,000 in sales or 200 transactions within the state during a calendar year. Until you hit that threshold in a given state, you do not need to collect sales tax there.
You always have nexus in your home state (where you or your business is physically located), so register for a sales tax permit with your state's Department of Revenue before making your first sale. Registration is free in every state and is typically done online. Once registered, configure your ecommerce platform to collect the correct tax rate based on the customer's shipping address. Shopify, WooCommerce, BigCommerce, and Squarespace all have built-in sales tax calculation.
You are responsible for filing sales tax returns and remitting collected tax to each state on the required schedule (monthly, quarterly, or annually depending on your volume). Filing deadlines and frequencies vary by state. For a new store with sales in only one or two states, manual filing takes 15 to 30 minutes per state per filing period. As you grow into more states, services like TaxJar ($19/month), Avalara, or Zamp automate multi-state filing.
Digital products and services have different sales tax rules that vary by state. Some states tax digital goods, others do not. If you sell digital products, check your specific state's rules or consult a tax professional.
Required Website Legal Pages
Every online store needs three legal pages at minimum. These protect you legally, comply with federal and state regulations, and build customer trust. Most ecommerce platforms include generators or templates for these pages.
Privacy Policy (legally required): If you collect any personal information from visitors (and you do, through cookies, email signups, checkout forms, and analytics), you are legally required to disclose what data you collect, how you use it, and who you share it with. Federal law (FTC Act), state laws (California's CCPA/CPRA, Virginia's VCDPA, Colorado's CPA), and international laws (GDPR if you have European visitors) all mandate privacy disclosures. Shopify includes a free Privacy Policy generator. Termly (termly.io) and PrivacyPolicies.com offer free generators that cover US and international requirements.
Terms of Service (strongly recommended): Your Terms of Service set the rules for using your website and purchasing from your store. They typically include disclaimers of liability, intellectual property protections, dispute resolution procedures (many include mandatory arbitration clauses), and governing law (which state's laws apply). While not always legally required, Terms of Service protect you in disputes and give you the legal standing to remove abusive users, cancel fraudulent orders, and limit your liability.
Return and Refund Policy (varies by state): Some states (like California, New York, and Florida) require retail businesses to post their return policies. Even where not legally mandated, a clear return policy reduces chargebacks (because customers contact you before disputing a charge), increases customer confidence, and sets clear expectations. Your policy should specify the return window (30 days is standard), condition requirements (unused, original packaging), who pays return shipping, and how refunds are processed (original payment method, store credit).
Cookie consent notice: If you have visitors from the EU (and most websites do), the GDPR requires you to obtain consent before setting non-essential cookies (analytics, advertising). A cookie consent banner is the standard implementation. Free tools like CookieYes and Termly create compliant cookie banners for ecommerce sites.
Product-Specific Regulations
Depending on what you sell, additional regulations may apply. Ignoring product-specific requirements can result in fines, product seizures, or liability for customer injuries.
Food and supplements: The FDA regulates food labeling, health claims, and dietary supplement marketing. You need proper nutrition labels (following FDA format requirements), accurate ingredient lists, allergen disclosures, and compliant packaging. Health claims ("cures X," "prevents Y") are heavily regulated and can trigger FDA enforcement action. If you sell food products, work with a food safety consultant or use a compliant labeling service.
Children's products: Products intended for children under 12 must comply with the Consumer Product Safety Improvement Act (CPSIA), which requires third-party testing for lead content and specific hazards, permanent tracking labels, and a General Certificate of Conformity. Non-compliance can result in product recalls and significant fines from the Consumer Product Safety Commission.
Cosmetics and skincare: The FDA regulates cosmetic products and requires ingredient labeling in descending order of predominance. Making drug claims about a cosmetic ("removes wrinkles," "treats acne") reclassifies the product as a drug, which requires FDA approval. Stick to cosmetic claims ("moisturizes skin," "improves appearance") unless you have actual drug approval.
Electronics: Electronic products sold in the US must comply with FCC regulations regarding electromagnetic emissions. Most consumer electronics require FCC certification or verification. If you are importing electronics from overseas manufacturers, verify that the products carry appropriate FCC markings and have been tested by an accredited laboratory.
Alcohol, tobacco, and cannabis-related products: These are heavily regulated at both federal and state levels. Selling alcohol online requires state-specific licenses. Tobacco products require FDA registration and compliance with the PACT Act for online sales. Cannabis and CBD products have a patchwork of state regulations that change frequently. Consult an attorney specializing in your product category before selling regulated products.
Intellectual Property Protection
Protecting your brand and respecting others' intellectual property keeps you out of legal trouble and preserves the brand equity you build over time.
Register a trademark for your brand name and logo once your business is established and you are confident in the name. Federal trademark registration through the USPTO costs $250 to $350 per class and takes 8 to 12 months to process. A trademark gives you the exclusive right to use your brand name in your product category nationwide and the legal standing to stop copycats and counterfeiters.
Verify that the products you sell do not infringe on existing trademarks, patents, or copyrights. Selling counterfeit products (even unknowingly) exposes you to lawsuits from brand owners, marketplace bans, and criminal penalties. If you source products from overseas manufacturers, be especially cautious about brand-name lookalikes and products that replicate patented designs.
Copyright your original content automatically (product descriptions, blog posts, and product photos are copyrighted the moment you create them), but consider registering key creative works with the US Copyright Office ($65 per registration) if you want the ability to seek statutory damages in infringement cases. This is most relevant for stores selling original artwork, designs, patterns, or creative content.