#Video - Informative Business Guide for Determining Laws Applicable to Startups - Marketplace Business Model Case Study

Laws for Startups

For startups and entrepreneurs, a common issue faced while starting a new business is how to decide which laws are applicable to the business, especially in digital space involving websites and mobile applications.

Corporate laws across various jurisdictions were originally drafted for offline transactions and with advent increase in digital innovations across internet, websites and mobile apps, though some countries have graduated their laws to adapt to digital needs, there are certain gaps that still exist limiting the application of existing laws to next generation of business models.

Assume a hypothetical business model for case study that relates to selling automobile parts online.

There are two ways to structure this business, wherein first one includes buying inventory of all products to be sold and then selling it online. In this case all laws and regulations that are applicable to offline or physical businesses will be applicable for online business model in addition to internet related laws (IT and cyber laws), which are standard and well know.

Marketplace Business Model – Website and Mobile Apps

A second option for executing this business model, which is technology driven and is termed as marketplace or aggregator business, includes business owners providing a platform for buyers and sellers to carry out transactions, or in simple terms, Amazon for automobile parts.

Vendor Agreement

With a view to determine applicable laws in this case, the marketplace can be assumed as a physical mall, wherein the space is allocated to sellers to set up shops. Similar to the mall having lease agreements with different brands who wish to open shops, vendor agreements are required to be executed with online sellers defining business relationship between sellers and marketplace.

Additionally, in a mall, shoppers pay directly to the sellers, however, in case of online marketplace, the payment gateway is generally provided by the aggregator. So corresponding payment terms have to be defined by way of payment agreement, which can either be a standalone agreement or part of the main vendor agreements.

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As a general practice while executing legal agreements and contracts, it is advisable to have separate dedicated agreements for each purpose so that in case of any issue faced regarding a particular aspect, it doesn’t effect other transactions.

Website Terms and Conditions

At buyers side, similar to the mall where shoppers are aware of the fact that products are sold by the sellers and not by the mall, marketplace users should be clearly informed about the same by way of website terms and user agreements. These documents define role of marketplace, scope of business transactions, role of sellers or vendors, product return and replacement policy, payment refund procedure, dispute resolution process etc.

Privacy Policy

Also, a privacy policy is required to define how marketplace will use data of users, how this data will be protected, with whom the data will be shared, etc.

So this process of comparing online business models with offline ones can give broad idea about legal and regulatory requirements.

Originally published here.

Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at info (at) techcorplegal (dot) com & @rdpatentlawyer on Twitter

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