Running a digital product store, such as an Etsy or Shopify store as a side hustle can be a great way to make extra money in addition to your primary job. Though these platforms can help you to easily set up your side hustle – remember, it is a business!
Starting a business comes with legal implications and risks, including your personal assets that you have already worked so hard for in your primary job. You don’t want a ‘side hustle’ to put that at risk.
In this article, we highlight some common legal traps that entrepreneurs may encounter when operating a digital product store as a side hustle in Australia. This article is part of our ongoing ‘Side Hustle’ series.
1. Consider your Side Hustle’s business structure
It is likely that you will be starting off a side hustle as a sole trader in Australia as this is the simplest method to start – all you need to do is register for an ABN and register a business name (assuming your store or brand will not be your personal name) and you’re set!
However, if you have a high risk product – that is, one that is likely to cause legal liability such as if you are knowingly producing content that defames or copies popular brands, I would highly recommend setting up a company to run the business.
This is because a company can essentially isolate liability to the company’s assets. If you are running your business as a sole trader, any liability of the business will go directly to you and you have to pay it out of your own pocket, which could mean risking your house, car and personal finances. Though the costs of setting up and managing a company are higher, it may be worth it depending on your level of risk.
2. Avoid Intellectual Property infringement
One of the main legal traps for digital product stores is unintentional (or intentional) intellectual property infringement. It is essential that the digital products you sell, such as e-books, software, or graphics, do not infringe on the copyrights, trademarks, or patents of others.
Consider which countries you are targeting your store to, as different countries have different intellectual property laws and registers. If you want to limit your risk, you may wish to consider limiting your audience to specific countries.
Conduct thorough research and seek legal advice if needed to ensure your products are original or properly licensed if they are not created by you.
3. Have the right licenses
When selling digital products containing resources from others, always ensure to check that the license allows for commercial use.
Ensure that you comply with the terms and conditions set by the content creators or copyright holders. Keep detailed records of the licenses obtained to demonstrate your legal compliance.
4. Follow Privacy and Data Protection Obligations
Protecting customer privacy and complying with privacy laws is crucial for any online business. If your digital product store collects customer information, such as email addresses or payment details, ensure you have proper security measures in place to safeguard this data.
Comply with Australian privacy laws, including the Privacy Act 1988, and clearly communicate your privacy practices through a privacy policy. Though the Privacy Act contains a small business exemption, there are other Australian laws such as the SPAM Act and Telecommunications Act which could still cover your business.
5. Be aware of Consumer Protection Laws for your Side Hustle
As an online business, you must adhere to the Australian Consumer Law (ACL) to protect your customers’ rights.
- Avoid engaging in deceptive or misleading practices when advertising your products. Be careful to ensure that any ‘sales’ or ‘discounts’ you offer are genuine, and keep records of the date and time period that your products are sold at full price.
- Ensure that your digital products meet the quality standards and descriptions you provide.
- Be transparent about refund policies and honor consumer guarantees as outlined in the ACL. Under ACL, you do not have to accept refunds for ‘change of mind’ but you MUST accept refunds for faults that constitute ‘major failures’. For a digital product, this could mean that the product was of low quality or not as described. Never have a blanket ‘No refunds’ policy – these are not allowed.
6. Have well-drafted Terms of Use and Disclaimers
Create clear and comprehensive terms of use for your digital product store. Include disclaimers regarding the limitations of liability, intellectual property rights, and any usage restrictions. Whilst some platforms may provide default terms and conditions for you to use, they may not always be sufficient for what you are doing or be drafted for Australian law.
Always consult with a business lawyer to draft these terms to ensure they are tailored to your specific business needs and compliant with Australian laws.
7. Know your Tax Obligations
Even as a side hustle, you may have tax obligations for your digital product store. Familiarise yourself with the Goods and Services Tax (GST) requirements and registration thresholds. Keep accurate records of your income and expenses for tax reporting purposes, and consult with a tax professional to ensure compliance with tax laws.
8. Conclusion
Operating a digital product store as a side hustle can be a rewarding and profitable venture. However, it’s important to navigate the legal landscape to protect your business and avoid potential legal risks.
By being aware of your risk in business structure, intellectual property infringement risks, obtaining proper licenses and permissions, prioritising customer privacy, complying with consumer protection laws, having clear terms of use and disclaimers, and fulfilling tax obligations, you can run your digital product store side hustle with greater peace of mind.
Check out our other posts as part of the ‘Side Hustle’ series:
What is ‘The Side Hustle Series’?
‘Side hustle’ culture has been trending for a while now, especially amongst those tired of their 9-5 grind.
Starting a side hustle or business is great, however, a lot of the content you see on social media platforms like Youtube, Facebook, Instagram and TikTok focus on the practicalities of starting a ‘side hustle’ or ‘side gig’ but without thinking about legals.
This can be a huge risk, especially because so many people are starting their businesses without setting up a company first, meaning that they as people, are personally liable for the business.
In this series, I’m going to talk about how to protect yourself legally if you are starting a ‘side hustle’ by going through some of the most popular trending side hustles.
