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Key Contracts For an Online Business

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In the age of digitisation, more and more people use the internet for business services. Indeed, brick and mortar stores are increasingly moving online to help their business grow and conduct their activities online. If you are a business operating online, there are several key contracts you will need to be aware of. This article will walk you through the contracts an online business should be using and what to include in those contracts.

What is an Online Business? 

An online business is an organisation that conducts its daily functions through the internet. For example, you can classify a restaurant that operates an online delivery service as an online business. Other examples of some different types of online businesses include: 

  • e-commerce businesses
  • bloggers;
  • affiliate marketing;
  • graphic designers;
  • researchers;
  • SEO advisors; and
  • YouTubers.

Type of Contracts

When you form a contract with another person or business, you enter into a legally binding agreement. One of you promises something to the other, and the other promises the other party something in return. Companies, including eCommerce businesses, will likely enter more than one contract during their lifetime. You are likely familiar with contracts such as terms of use and privacy policy. Below we look at some contracts that will likely be relevant to your online business. 

Collaboration Agreements

A collaboration agreement is a contract you form with another company, such as an eCommerce brand, because you decide to work on something together. For example, a project or business initiative. It is essential that this agreement is drafted by an experienced lawyer to ensure:

  • your commercial interests are protected;
  • you and the other party are both clear on your respective rights; and 
  • you both understand what each is responsible for in the agreement. 

Design and Development Agreements

Every business looking to digitise its services has to start by designing and building a website. You can design a website yourself. However, if you are a large company looking to make a complex and modern website, it might be better to hire a designer. This is because designers have specialist skills and resources at their disposal to create a functional and aesthetic website. To hire a designer, you should draft and agree on a design and development agreement. Your website design agreement should include provisions on the:

  • specification of work;
  • duration of work and milestones; and
  • ownership terms 

Specification of Work

You should clearly state what you want to be developed and outline a specification for what you want the designer to create. It is very important to establish this in a contract. Indeed, the clearer both parties are on the nature of the work you require, the less likely a dispute will arise around what the developer produces. 

Duration of Work and Milestones

It is also important to set out a time frame for the completion of the works. If the developer does not complete your website on time, your online shop will not be up and running when you need it. Consequently, you may lose money from not operating your business. That is why it is important to state the duration of the contract and agree on milestones that the developer must reach in the web building process.

Ownership Rights

You may also want to include terms that give you full ownership over the design of the web page and any software that they have used in the website. This is known as intellectual property. The designer you hire is likely the first owner of the intellectual property in your website. Therefore, as a website owner, your design contract should require the web developer to transfer any intellectual property rights they have over your website to you. This is to ensure you have full control over your site and avoid any future legal issues or copyright lawsuits. 

Licensing Agreements

A contract you may not have considered for your online business is a licensing agreement. These can be useful if you need to use something for your brand that belongs to another. This can include:

  • technology; or
  • intellectual property (IP).

Non-Disclosure Agreements (NDA)

As an online business, you may decide to use an independent contractor. For example, if you need your website pages updated or a decision to rebrand your business image. In this case you may be an individual working, such as in the capacity of a sole trader. 

A non-disclosure agreement helps protect your confidential business material. This is because the contract prohibits the party you work with from sharing personal information about your business. 

Procurement Contracts

You will likely need to purchase other goods or services from different companies. You may hear people refer to procurement contracts as vendor agreements. These businesses will become your suppliers. For example, if you are an eCommerce business selling handmade fashion wear, you will need to buy your materials from a supplier business. 

When your online business purchases supplies from another business, you will create a procurement contract with them. This is crucial as it will detail important aspects of obtaining your supplies. For example:

  • delivery terms;
  • how and when to pay; 
  • description of the product or service;
  • termination clauses;
  • indemnity clauses;
  • confidentiality clauses; and
  • quality control of the goods or services they provide you with.

Service Level Agreements

If your online business provides services to customers rather than goods, you likely use service-level agreements. These are contracts between you and your online customers, which contain the details of the service you agree to provide them. Service level agreements will detail:

  • how you will deliver the service;
  • the level and quality of the service;
  • any quality control of the service you provide; and
  • remedies and penalties in the contract.

You may also enter into service-level agreements as an online business for services you wish to receive. For example, your web host and any software service provider you use. 

Terms of Use Agreements

Terms of use agreements are an important measure online businesses must implement to oversee how visitors use their website. They are generally distinct from your company’s terms and conditions. Terms and conditions clarify the general business obligations and rights you have to your customer. On the other hand, terms of use apply between the website owner and their customers. You can commonly find them on e-commerce and media streaming sites, including terms on how the customer can use the website.

A terms of use agreement would usually include a list of terms, including:  

  • liability limitations for your business;
  • warnings and disclaimers;
  • a privacy policy; 
  • copyright clauses; 
  • disclosures on cookies; 
  • your ownership rights to the site; and 
  • any provisions on how to terminate a person’s access to the site. 

Website Hosting Agreements

Once the developer completes your website, you will need to find a server that will upload your web pages to the internet. This is known as web hosting and is a requirement for any online business. This is because web hosting allows visitors to log onto the web and view your website. Website owners will create a hosting agreement with a web host, and this should set out several key considerations, including: 

  • the scope of services to be provided;
  • a declaration from the host that their servers will not drop below a certain bandwidth, ensuring smooth web browsing for your customers;
  • declarations on the periods at which the server will be live for; and
  • the network security of the server
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UK Website Terms of Use

If your business has a website, you will need to provide terms and conditions of usage for your website’s users. These Website Terms of Use set out the rules for people using your website.

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Key Takeaways

Online businesses will come across a variety of contracts. One of the most important contracts for online businesses is a terms of use agreement. This is a contract between a website owner and consumers to help limit a business’ liability to any damages or legal claims if someone misuses digital content on your website. When drafting any type of contract, online businesses need to be clear and thorough on the terms and conditions you include in that contract. The more detailed your contracts are, the fewer disputes are likely to arise from those contracts. It is also advisable to get legal advice when drafting new contracts for your online business.

If you need assistance, particularly if you are planning on setting out a terms of use agreement, contact our experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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Clare Farmer

Clare Farmer

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