How to legally set up an e-shop?

Mistakes when setting up an e-shop can cost you dearly. When setting up an e-shop, it is necessary to meet the conditions of many legal regulations. If you are about to start an online business, this article is for you.

Žena hledající informace o tom, jak si založit e-shop
10 minutes of reading

Chapters of the article

What form of business to choose when setting up an e-shop

First and foremost, you need to remember that you will be acting as an entrepreneur when running an e-shop. It is therefore essential to first obtain the relevant trade licence. You can get this within a week at any trade office. You must also choose the right form of business for your business.

Choose the form that will best suit your business not only in the beginning but also with respect to the intended growth of the company. Remember, however, that the more complex the form, the higher the cost of setting up and then also running it. There is no shame in trying to set up an online business on a ‘sole trader’ basis, plus it will allow you to save on taxes compared to a limited company. If your business goes well, you can add to the complexity by setting up a limited company or a public limited company.

Tip: Read our article and avoid the 7 most common mistakes made by start-ups.

What forms are you most likely to consider?

  • Self-employed – a sufficient option for the beginning, which takes the shortest time to process, just a week. The downside, however, is that you are liable for any debts with all your assets. On the other hand, there is no need to have a special business bank account and you can use the money from your business freely.
  • Limitedcompany – a suitable form for larger projects or if you plan to set up an e-shop with more people. As far as debts are concerned, the owners are only liable for them up to the amount of the outstanding share capital. Moreover, an e-shop backed by a limited company is more credible. The disadvantages are higher taxes, more complicated payment of profits and bookkeeping.

Things to remember: If you decide to do business with other partners, clarify the relationships and responsibilities for the activities of the e-shop in advance. The contract might also already have in mind the possible entry of an investor in the future.

In addition to the trade license, do not forget about:

  • registration with the tax office,
  • the social security administration
  • and health insurance.

Tip: Read in detail how to set up a company and what you need to do before you can do it.

Have a lawyer on hand after setting up an e-shop

Abusiness lawyer is a great investment, especially in the beginning. For 6 or even 12 months, you can call him at any time with a specific problem or send him any legal document for review or preparation.

What about paying VAT after setting up an e-shop?

At the beginning you will not need to deal with it, you are a non-taxpayer. VAT will only start to apply to you when you exceed a turnover of CZK 1 million in any 12 consecutive months, or when you voluntarily register for it because of your suppliers or business partners.

How does it work in practice? The e-shop will cross the CZK 1 million mark in March. It must register for VAT with the tax office by the 15th day of the following month – i.e. 15 April. All April invoices will already contain VAT. The first control report must be submitted by the 25th day of the following month, which in our case is May.

How to protect your e-shop brand?

The most important advice right from the start – when choosing a name, make sure that your name is truly unique and that it is not interchangeable with the name of another business. A name that is similar or even identical to an existing company will not even be registered by the court.

However, you risk not only potential legal hassles, but also a far worse penalty. This is customer confusion and confusion of your service or product with a competitor’s offering.

Interesting fact from practice: we have encountered a case where Heuréka gave a completely different merchant bad reviews because of its name, which matched a store with bad customer references that it had registered earlier.

If you create a logo for your e-shop, it will be advisable to register it as a trademark so that another person cannot use it. Registration of a classic Czech trademark is done at the Industrial Property Office and is a relatively simple matter. The basic fee for a trademark is CZK 5,000. However, it is also possible to think higher and apply for a so-called Community trademark, which is valid for the whole EU. However, this is many times more expensive.

Protecting your IP as the foundation of your e-shop

Trademarks, domains, patents, utility models etc. are the essence of any business. Don’t start one without proper protection of your IP (intellectual property). There is nothing sadder than having a competitor register your trademark after your business has taken off. This is because these rights are used to defend your own know-how and block competitors (e.g. non-disclosure of goods or services and release of ill-gotten gains).

In protecting IP, also keep in mind the possible expansion of your business abroad. If you plan to sell your goods or services in Slovakia, register everything you need here right away. Keep in mind that many IP rights can be registered at the EU level and therefore with protection in all member states, otherwise as mentioned for trademarks above.

Tip: Watch Ondrej Preuss’ video with Young Entrepreneur on how to protect your brand online.

What about employees when running an e-shop

Many start-up entrepreneurs don’t know how to hire an employee properly and what it even entails when they want to fire them. In doing so, they often underestimate the complex legal agenda that taking care of employees entails. However, having the right employee relations in place is key to the success of the collaboration.

Poorly set up relationships end in leakage of know-how and experience, lawsuits and visits from the labour inspectorate. A separate issue is also the widespread “shvarcsystem”, i.e. the “employment” of freelancers who are not distinguishable from employees.

It is equally important to pay attention to social security and health insurance contributions for each employee, otherwise you run the risk of heavy penalties.

So pay attention to all documents that relate to HR. It will save you a lot of setbacks, disappointments and avoidable problems.

A few tips for employing people:

  • For part-time jobs, it will be advisable to use a work activity agreement or a work performance agreement, which are the most advantageous for employers from a tax point of view.
  • Under an agreement, employees cannot work more than 300 hours in a calendar year, whereas with a work arrangement, employees can work a maximum of 20 hours per week.
  • If the employee will be doing more work, then enter into an employment contract with the employee.
  • As an employer, you will also have to pay income tax and social and health insurance for your employees.

Tip: We have discussed the types of employment relationships in detail in a separate article.

Terms and conditions for e-shops

Selling on the Internet creates the same legal relationship as if you were selling in a regular brick-and-mortar store. However, sales in an e-shop require more detailed regulation, which will be contained in the terms and conditions.

In 2023, an amendment to the Civil Code came into force, which obliges you to send your customers terms and conditions by email.

What must not be missing in the terms and conditions of the e-shop?

  • Information about you,
  • identification of goods and services,
  • description of the conclusion of the contract,
  • payment and delivery terms,
  • rights of defective performance,
  • withdrawal from the contract,
  • information on out-of-court dispute resolution,
  • handling of personal data.

Tip: Read this article and avoid the 9 most common mistakes in e-commerce terms and conditions.

When setting up an online shop, we do not recommend using the model terms and conditions for an e-shop available for download on the internet, as they may not correspond to the current legislation or your specific needs.

Contracts with suppliers

For the smooth operation of the e-shop, you also need to ensure that you have sufficient quantities of goods and that you can replenish them if necessary. From the start of your business, it is therefore advisable to have contracts with your suppliers, based on which you will order goods when needed, including the negotiation of binding delivery dates. This is the only way to avoid a situation where you are not able to deliver the ordered goods to your customers on time.

By negotiating precise terms with your suppliers, you will also prevent unpaid invoices from weighing on your budget, as you will be able to better plan your cash flow. If your turnover exceeds one million crowns in the last 12 months, you must expect to become liable for value added tax. You will therefore need to take VAT into account in your prices both when buying and selling goods.

Enter into non-disclosure agreements with important suppliers, employees and customers. Otherwise, it can easily happen that the know-how you have built up over a long time and with great care ends up with your competitors or somewhere on the Internet. You really don’t want that!

Tip: Watch the video on the topic: How to set the terms of cooperation with a freelancer.

Contracts – the basis for smooth operation of the e-shop

If you supply a standardised product, have standardised contracts. A standardized and well-drafted contract will bring order to your business, so you can focus on the delivery itself.

Look at the contracts your competitors use. Think carefully about the way you want to market your products or services, and then get a lawyer to write everything up and put it into a broader legal framework.

Kontrola produktové nabídky po založení e-shopu

Customer data protection and GDPR for e-shops

When running an e-shop, you will be working with your customers’ personal data on a daily basis. This must be handled in accordance with the law and the new European Union Regulation (GDPR). It is therefore necessary to obtain the customer’s unambiguous consent to the processing of this data in advance or to base the processing on a so-called legitimate interest.

Tip: Learn how to cope with GDPR.

What changes with the button amendment

6.on 1 January 2023, an amendment to the Civil Code, known as the Button Amendment, came into force. Its aim is greater consumer protection, which also affects you as an e-shop owner. As its nickname suggests, it concerns the change of the “order” button. It should now be made clear what such a button means. It should therefore have a name that clearly indicates that the customer is obliged to pay after clicking it. The time for delivery of goods is also changing. The customer must now receive the goods within a maximum of 30 days of ordering, otherwise he has the right to withdraw from the contract.
The changes also largely concern the fraudulent practices that many e-shops resort to. It will no longer be possible to use fake discounts, which are created by artificially inflating the price of a product before the discount. Fake reviews will also be banned – they will now have to be verified, otherwise they will be marked as unverified.

Summary in conclusion, what to think about when setting up an e-shop

  1. Think about the appropriate form of business.
  2. Have a guarantee that you have all contracts and documents in order.
  3. Register your trademark.
  4. Write the terms and conditions of the e-shop well.
  5. Negotiate terms and conditions with suppliers.
  6. Consider the appropriate type of employment relationship for your employees.
  7. Thoroughly check the handling of personal data.
  8. Defend your copyrights.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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