E-commerce has allowed businesses to expand their market globally. Businesses that utilize online stores for business transactions have a competitive advantage over traditional brick-and-mortar businesses. At the same time, online businesses have additional legal considerations that must be accounted for.
When acquiring an online store, you should hire legal counsel to perform due diligence and ensure all documents are dotted and signed appropriately to avoid future liability.
These advantages range from reduced start-up and operational expenses to more creative content, more effective company operations, and many additional advantages to establishing an internet business.
Overview of Buying an Online Business
Buying an established online business with a relationship with clients, positive cash flow, proven online presence, and sales history is likely a safer option than starting a non-proven commodity.
There are several options to choose from, which can be exciting for an investor. However, the size of the market also makes online business sales susceptible to fraud, so due diligence can be a critical process to ensure the business transition can be performed successfully.
Here are some factors to consider when purchasing an online business:
- The Potential Market of the Business. Examine the company's current performance and future possibilities.
- Key Performance Indicators of Online Success. Examine the website's traffic and lead creation.
- The Business’s SEO Performance. Check the website's rating in search engines.
- Any Potential Metric Inflations. Look for any suspicious backlinks or black hat SEO techniques.
- Key Competitors in the Market. Examine the business model and the product or service offered by the company.
- Legal Assets Being Provided in the Purchase. Check to see what is included with any business acquisitions.
- Customer Service Relations. Examine the company's web reputation and look for any complaints.
Some red flags in the acquisition of an online store can include:
- A history of negative complaints
- Disgruntled clients
- High amounts of returns and chargeback
On the flip side, indicators that the business is being managed well include:
- High ratings from the Better Business Bureau
- Positive online reputation
SaaS companies and online stores are plentiful, so it may be difficult for a potential buyer to decide what e-commerce business might be right for you. However, here are some popular platforms potential buyers turn to:
- Shopify is a leading e-commerce company with over 10,000 online stores. Shopify allows buyers to examine metrics like site traffic and income from the Shopify store. This data can provide confidence in the success of the business. In addition, the platform has an Exchange, displaying store traffic and revenue metrics.
- Flippa.com is an auction-style website that allows merchants to list their online companies for a one-time charge before matching buyers and sellers based on preferences. When a sale occurs, the site charges a ‘success fee,' determined as a percentage of the selling price. Flippa also has Amazon storefronts, iOS, and Android applications, and domains in addition to Shopify stores.
- Freemart is another online marketplace for buying and selling companies. A simple filter allows buyers to look for possible investments based on price, income, and website traffic. Businesses are free to list with the commission due on successful sales. Because Freemarket is an auction platform, prospective purchasers must bid through the bulletin board. The site administers the handover procedure once a deal is agreed upon.
- Via Brokers is a website where sellers pay brokers a charge for their network and experience, which they use to match buyers and sellers to guarantee the greatest fit for the transaction. The site caters to more established enterprises making at least $100,000 per year in profit. Brokers are designed to work with partners to develop a marketing strategy, present executive overviews, and attract future purchasers.
Here is an article about the overview of buying an online business.
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Legal Considerations for Buying an Online Business
While online businesses may present advantages to running operationally than traditional enterprises, due diligence is required before asset purchase to be aware of your legal duties and protect yourself from outstanding and future liabilities.
Assuming you've located the right online business and are satisfied with the purchase price, here are essential considerations to take into account:
Intellectual Property and Trademarks
Intellectual property pertains to the trademark, registered design, video material, blog, brochure, and other creative work of an online business. Trade secrets are another type of intellectual property that can include a patent, proprietary software, graphics, procedures, and even marketing techniques.
Intellectual property, in some cases, can be more valuable than the business itself. Therefore, purchasers must be critically aware of the intellectual property assets owned by the company and ensure these assets are included in the asset purchase.
The list of assets and intellectual property that will be transferred should typically be stated in the sale of a business agreement or in a separate assignment of intellectual property agreement that deals with the transfer of intellectual property.
The business you are purchasing from must own the intellectual property outright. If they simply license the property, they do not have the authority to transfer it.
Software and Technology
Suppose the business utilizes proprietary software or online tools and technologies such as SaaS company technology. First, you must confirm that the vendor will transfer ownership or a license to you. Otherwise, you may need to contact the third-party solution provider to guarantee that you may use the program without infringing on the intellectual property of others.
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Domain Names
Another significant legal aspect is domain names. In most circumstances, transferring domain ownership and getting a
domain name transfer agreement
is straightforward. However, it is always suggested to include the transfer of company domain names within the business selling process and to have the domains described in the business sale agreement.
Marketing and Advertising.
Marketing and promotion are critical components of every business, particularly internet enterprises. Accordingly, various companies' rules and regulations exist to regulate and ensure corporate behavior and commercial activity fairness and openness.
For example, the Federal Trade Commission (“FTC”) regulates online advertising to prevent false representations on social media and online platforms. In Australia, the Australian Competition and Consumer Commission ("ACCC") requires businesses to guarantee that their clients are correctly and truthfully informed about the items and services they purchase. It also outlaws false or misleading advertising, inaccurate or misleading representations, and the imposition of unfair contract conditions.
Here is an article about the legal considerations of buying an online business.
Legal Documents Needed
The complexity of purchasing an online business stems partly from the legal documents needed when purchasing an online store. When performing due diligence for the purchase of an e-commerce company, various documents should be signed to protect it from future liability and ensure a successful purchase. Some of the documents include:
- Business Purchase Agreement. A business purchase agreement is a legal contract between the buyer and seller. Purchase agreements can be broken up into two types of purchase agreements. Asset purchase agreements are used to purchase a company’s assets. They can be explicitly used to acquire individual assets from a company. An entity purchase agreement, on the other hand, an entity purchase agreement is designed to buy out an interest in the company instead of necessarily specific assets. These agreements support overall ownership regardless of the company’s makeup. They can be triggered to take effect right away or in time.
- Bill of Sale. A bill of sale is a legal document that marks the transfer of ownership of an item in exchange for money to a third party. The seller usually drafts the bill of sale, which includes the business transaction information. It protects both the buyer and the seller in future conflicts.
- Terms Sheet. A terms sheet is a nonbinding agreement describing an investment's fundamental terms and conditions. Term sheets are most linked with new businesses. Therefore, entrepreneurs believe this document is critical for recruiting investors with funds, such as venture capitalists, and sparking initial conversations.
- Letter of Intent. A letter of intent is a document stating one party's preliminary agreement to conduct business with another. The letter describes the main details of a proposed contract. It is widely used in commercial transactions to allow serious negotiations to begin.
- A Standard Confidentiality Agreement. A standard confidentiality agreement is a legally binding written agreement that establishes lawfully enforceable terms and circumstances that restrict the signer from exposing secret or private information. A confidentiality agreement typically has a specified length. It covers actions that are prohibited from occurring, allowing for negotiations to progress.
- Exclusivity Agreement - An exclusivity agreement is a legal contract between two parties that prohibits one party (the " licensee "), often an inventor, from selling its product to a specific customer (typically the other party) for a certain length of time. It is frequent when two companies collaborate to form a joint venture in which each party contributes resources and experience to create a product or method.
Here is an article about the legal documents needed to buy an online business.
Do I Need a Lawyer to Buy an Online Business?
Buying an existing online business may be a terrific way to become a business owner. However, several key legal concerns must be addressed before beginning an internet business. The concerns raised differ depending on the nature of the website that supports the business, how it was produced, and the types of intellectual capital it includes.
Furthermore, doing business online involves many of the same commercial/legal risks and obstacles that any firm encounters, such as generating a monetizable business model and operating under the proper legal framework. Therefore, an internet lawyer who focuses on online businesses is highly advised to protect your business from future problems later.
Here is an article about whether you need a lawyer to buy an online business.
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