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3 mistakes to avoid when setting up an online business

On Behalf of | Sep 30, 2021 | Business Formation |

Individuals with a strong entrepreneurial spirit often search for new and exciting business ventures. In recent years, many business owners have migrated to the online arena either for a new start-up or a significant component of their traditional business model. Many times, however, certain aspects of business formation are overlooked when working online.

Unfortunately, it is not uncommon for some business owners to see the online marketplace as a type of shortcut when compared to their brick-and-mortar counterparts. In fact, outside of the need for a traditional storefront, an online business requires the same legal protections:

  • Entity selection: Setting up an online business is more complex than simply designing a website and going live. Individuals must decide which type of corporation they need to file. The decision is often based on the business structure and future tax liabilities.
  • Operational guidelines: The online business needs to have specific documents in place to thoroughly describe the company. From partnership agreements and employment contracts to organizational bylaws and nondisclosure clauses, the business must have clear agreements in place as well as consequences for breach of contract.
  • Promissory notes: While business loans from financial institutions will likely handle this in their own way, many small online start-ups rely on personal loans from friends and family. It is wise to handle each of these in a professional manner with documentation including the amount of the loan and conditions for its payoff.

Thorough business formation is a crucial process whether it is an individual’s first company or fifth. When setting up an online business, many individuals become caught up in details such as the design of the website or the social media posting schedule. It is wise, however, to take care to initially focus on the legal needs and organizational challenges of an online business.