22 Nov

E-commerce Evolution: Building Your Online Store with Robust Protection

Launching an e-commerce store can potentially result in ongoing sales and profound success. However, any business venture entails its share of risk, and e-commerce is no exception. In fact, e-commerce entrepreneurs expose themselves to many different types of risk, including legal peril, cybersecurity breaches, and more.

How can you minimize your risk exposure? There are a number of steps that can shore up the security credentials of an e-commerce store. And, there are steps that can provide the legal safeguards required to keep your business (and your customers) adequately protected.

Understanding E-Commerce Risk

Before considering different methods of protecting an e-commerce store, it’s important to understand what you’re protecting it from. Here is a brief risk assessment, including both the legal and security risks that every e-commerce store faces.

Legal Risks

Data protection and consumer privacy. In recent years, consumer privacy has been an increasingly major focus. Regulations like GDPR (EU) and CCPA (California) have been passed to provide consumers with consent and control over how their personal information is collected, and to give them the ability to change or delete any stored information at their discretion. Non-compliance with these laws not only risks reputational damage for your e-commerce store, but potentially some significant legal penalties, too.
Intellectual property. Another potential risk for e-commerce stores is the use of third-party assets without authorization. Simply put, it’s imperative that e-commerce merchants avoid using trademarked or copyrighted material without obeying the licensing agreement.
Consumer protection. There are a number of regulations that seek to protect consumers from false claims or misleading information, and to ensure any products they buy meet certain standards for safety. Again, non-compliance can result in both financial burdens and reputational damage.
Other legal considerations. E-commerce stores also need to be aware of legal risks related to payment processing compliance and sales tax. Also be mindful of any other laws that may be specific to an industry or jurisdiction.

Security Risks

Data breaches. E-commerce stores are prime targets for cyberattacks, which can result in extensive data breaches. In fact, according to IBM, “the global average cost of a data breach in 2024 is $4.88M–a 10 percent increase over 2023 and the highest total ever.” A data breach may result in identity theft and in the leaking of sensitive consumer information. It can also result in the loss of trust.
Phishing attacks. Sophisticated scammers may actually impersonate your store, trying to exploit your reputation as a way of tricking consumers into giving up important information. It’s vital for e-commerce stores to adhere to robust cybersecurity standards, making it easier for consumers to identify legitimate communications from phishing expeditions. Remember, phishing attacks are the most common type of online scam, and it’s estimated that approximately 86 percent of companies are affected on a global basis.
Payment fraud. E-commerce stores must also be aware of unauthorized transactions and chargebacks, as both can impact revenues and diminish their reputation. According to a study completed by Juniper Research, online payment fraud led to e-commerce companies experiencing $48B in losses in 2023.
Other cybersecurity risks. Malware and ransomware are potential threats to any e-commerce site, while inadequate website security measures may result in a heightened level of risk. According to the World Economic Forum’s 2023 report on global cybersecurity, a ransomware or malware attack on an e-commerce company can cost over $5M in damages.

The bottom line: Setting up an e-commerce shop inevitably means courting risk of all kinds. The question is, what steps can e-commerce companies take to mediate their risk?

Protecting Your E-Commerce Business with an LLC

There are a number of strategies e-commerce stores might implement to keep their risk level low, and foremost among them is choosing the right legal structure. For built-in liability protections, the best option is generally going to be the Limited Liability Company, or LLC.

What is an LLC?

When you launch any new business endeavor, and start generating income on the basis of self-employment, the government automatically classifies you as a Sole Proprietor. For e-commerce merchants, what this means is that you and your store are legally the same entity. It is impossible to separate your personal interests from your business interests. The downside of this is that, if someone sues your e-commerce store or you’re found to be non-compliant somehow, it means risks to your personal wealth and assets.

By registering your e-commerce store as an LLC, you create a distinct legal entity, and make it possible to keep business assets and liabilities separate from personal ones. This is an important way to mitigate your personal risk exposure, and to limit the damage you endure as part of your e-commerce venture.

What are the Benefits of the LLC Format?

It’s worth noting that, beyond personal risk protection, there are a number of other benefits you can expect from the LLC format. Some of these benefits include:

Relative ease of setup and administration.
Pass-through taxation.
Options to transfer ownership of the business (not possible in a Sole Proprietorship).
Flexibility with respect to how you manage the business day-to-day.
A fairly easy, uncomplicated regulatory environment (especially compared with Corporations).

What are the Steps for Registering an LLC?

For e-commerce entrepreneurs who wish to take advantage of the LLC format, there are a few steps required. These steps can vary a little bit from one state to the next, so it’s always wise to check state-specific regulations. As a rule of thumb, though, the process for registering an LLC looks something like this:

Choose the State Where You’ll Register

Legally, you’re free to register your LLC in the state of your choice. To streamline your taxes and other fees, however, it’s almost always best to register in whichever state you live and work.

Find a Registered Agent

Every LLC is required by law to have a Registered Agent. This may be either an individual or an organization whose job is to receive and document legal correspondence on behalf of your business. It’s mandatory that your Agent have a mailing address (not just a PO box) in the state where you’ve registered. For more information about working with a third-party Registered Agent, check out Northwest Registered Agent reviews.

File Articles of Organization

This is the legal document you must file with your state in order to officially register your LLC. Note that there is also a registration fee, which can vary by state. Expect it to be anywhere from $20 to $300.

Create an Operating Agreement

An Operating Agreement clarifies how you share managerial duties, business responsibilities, revenues, and liabilities with your business partners. It may also codify your process for bringing new partners on board, as your e-commerce venture grows. This document is not required by law, but it can help you minimize legal tension down the road.

What are Some Additional Strategies to Mitigate E-Commerce Risk?

Registering your e-commerce business as an LLC is an important way to limit your personal risk exposure. Beyond that, there are a number of ways you can build important protections into the e-commerce shop itself, safeguarding your business interests as well as your consumers. Here are a few suggestions.

Start with a Risk Assessment

It’s important to begin clear-eyed about the different risks that your e-commerce store faces. Remember, these can include non-compliance with consumer privacy regulations and consumer protection laws, but it also encompasses phishing, ransomware, and other avenues of data loss.

Before doing anything else, spend some time seeking IT expertise and legal counsel, developing a comprehensive list of your major e-commerce risks and vulnerabilities. This inventory can be helpful in guiding the rest of your security efforts.

Put Cybersecurity Protocols in Place

There are a number of IT security safeguards you should build into your e-commerce store, helping to minimize the risk of a data breach. Consider:

Strong Password Policies. Password hygiene is a critical way to keep your web store secure. Encourage or even enforce the use of strong passwords, baked by multi-factor authentication (MFA), for customers and admin accounts alike.
SSL Certificates. Secure Socket Layer (SSL) certificates help to encrypt data transmitted between your customers’ browsers and the e-commerce server. This makes each financial transaction safer, and can also allow your customers to shop with greater confidence.
PCI DSS Compliance. E-commerce merchants should also verify compliance with the Payment Card Industry Data Security Standard (PCI DSS). This is an important way to ensure that your site can handle credit card transactions as securely as possible. And, it’s another way to boost consumer confidence and trust.
Secure Payment Gateways. Reputable payment gateways are critical. Look for gateways that offer fraud detection as well as tools for fraud prevention. Such protections are important for your business and for your consumers.
Data Encryption. You’ll naturally need to store customer data on your own dedicated servers. Encrypt sensitive customer data in order to protect it from unauthorized access, and to limit damage done during a data breach.
Firewalls. Finally, note that firewalls and intrusion detection systems can monitor and block suspicious activities, basically acting as bulwarks against cybercriminals and hackers.

Develop Smart Policies

Implementing technical safeguards is one thing, but there are also some important internal practices you can develop to keep your e-commerce business safe and secure. Here are a few suggestions.

Cybersecurity Audits. First and foremost, develop a rhythm of regular security assessments and vulnerability scans. These audits make it possible to identify and address weaknesses in your systems, and to patch vulnerabilities before a hacker can exploit them.
Software Updates. It’s essential to keep all software, including e-commerce platforms, plugins, and security tools, fully up to date. Consider that most software updates are specifically designed to patch cybersecurity vulnerabilities that developers have identified. Out-of-date software can be like a wide open door for cybercriminals.
Employee Education. Train employees about security best practices, and raise awareness regarding phishing, ransomware, and more. Make sure you provide regular reminders about things like not opening unknown attachments and links.
Practice Password Hygiene. Password safety is so important, it bears mentioning more than once. Ensure you have policies in place to ensure all team members use good passwords and MFA.
Vendor Management. When working with any third-party vendors or partners, vet them for their own security practices. Make sure any vendors you work with abide by your company’s own standards for digital security.

Create an Implement Response Plan

Even with the most rigorous commitment to security, you may still wind up getting hacked. It’s important for e-commerce merchants to mitigate their risk of an attack, but also to be ready to respond quickly should an attack take place.

Part of this goes back to LLC registration. Having the right legal structure means your personal liability exposure is already quite limited. Additionally, you’ll want to have an incident response plan in place, ready to execute as needed.

Elements of an incident response plan typically include notifying customers and clients; alerting vendors; seeking legal counsel; working with IT to contain the damage done; and putting out a press statement as appropriate.

Ensure Compliance with Relevant Regulations

Beyond mitigating your risk of a data breach, you’ll also want to minimize your risk of being found non-compliant with pertinent regulations. Remember, non-compliance may come with hefty legal fees, but it can also damage your business’ reputation and erode consumer trust.

A few best practices include:

Review relevant regulations. Seek legal counsel to ensure you know all the laws that affect your e-commerce store, which may vary by state or by industry. For example, healthcare and financial products tend to be much more heavily regulated.
Provide privacy notices. Ensure that all of your consumers know if and how their personal data is being used. Users should also know how they can access, correct, or delete their data at any time.
Offer easy ways to opt-in or opt-out. Make it clear how consumers can opt in, and then opt out, to any communications from your e-commerce business, including newsletters or email blasts.
Ensure ADA compliance. Be certain that your site is accessible to all, including those who may have vision impairments or difficulty maneuvering with a mouse.

These are just a few of the steps that can help you minimize your risk of legal friction and non-compliance.

Keep Your E-Commerce Store Safe and Secure

The bottom line: For e-commerce stores, security is an imperative. There are plenty of risks to be aware of, but also some sound strategies to mitigate those risks. Make sure you have a robust risk mitigation plan in place, and that you are diligent about security for your e-commerce shop.