Start an Online Marketplace on Sharetribe (Legally)

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A few years ago, starting your own online marketplace was expensive and time consuming. Realistically, it was only something that big companies with investors could do. Now, there are so many tools available now to start your own online marketplace, such as platforms like Sharetribe. You can join the likes of Etsy, eBay and AirBnB and you start your own online marketplace too!

We run you through what legals you need to make sure your online marketplace is legally protected in Australia. Starting an online marketplace has many legal risks that you need to be careful of. It is not as straight forward as starting a standard online store.

Checking your platforms terms of service

Your first step is to make sure you read the terms of service for Sharetribe or your marketplace platform provider. The aim is to ensure that:

you are not breaching their terms of service for what you are doing; and
you are aware of the legal implications of using their platform to build your online marketplace. This includes any intellectual property ownership issues.

Selecting a business structure

The next step is to consider your business structure. You may want to consider setting up your marketplace under a company structure. This can act as an additional layer of protection from liability and risk to your personal assets. Check out our article that runs through the pros and cons of three common business structures for more information.

Merchant liability for Online Marketplaces

If you are building a platform for merchants to sell goods or services to customers, you do not want responsibility for those goods or services. For example, if the merchant sells a faulty good, you don’t want customers coming to you directly for a refund. This is one of the biggest risks of starting an online marketplace.

It might seem obvious that the merchant should be responsible for their sale of goods and services. However, without well-drafted contracts that expressly clarify this relationship, you might be in a situation where you end up being liable for the merchant’s goods or services.

You need to take a three step approach to lower the risk of liability for merchant goods and services:

Make sure it is clear, from the copy of your website, that you are “merely a platform”. The main risk is that you don’t want to give the impression to customers that you, the marketplace, are the seller of the goods and services. For example, you could include prominent links to the merchant profile on the product page, so that customers can clearly see who the seller is at the time of purchasing.
Have Terms of Service, both customer-facing and merchant-facing, that clearly defines who this responsible for the merchant’s goods and services. Each step of the sale process should be considered, such as: Who is responsible for providing the product listing and content? Who is responsible for managing the stock? Communicating with customers? Managing refunds, returns and disputes?

It is a fine line, because on one hand you need the ability to intervene if a dispute escalates as it could affect your marketplace’s reputation. On the other hand, you do not want to be held liable for things done by the merchant. Having a well-drafted TOS is essential for a marketplace.

Setting your commission and fees for online marketplaces

You need to determine how you will charge commission or fees on your marketplace. This also needs to be clearly set out in the Terms of Service . Think about couple of key questions:

Will you require merchants to pay a monthly subscription?
Will you take a percentage cut of the payment from the merchant side?
Will you add on a service fee to the customer side?
How will you deal with returns and your commission? Will you waive your commission or will you charge it to the merchant? Will you waive your commission but charge the merchant an administration fee?
When will you remit payment to the merchant? Will it be immediate, or will they have a ‘wallet’ that they can withdraw from once it reaches a particular dollar threshold or timeframe?

You need to make sure that whatever decisions on payment you make, they are consistent in your actual marketplace from a technology perspective. You also need to tell your lawyer to draft the commission and fees clauses in your Terms of Service and merchant terms to reflect this.

Why template TOS is not suitable for an online marketplace

As mentioned, your marketplace’s Terms of Service is probably the most important legal document for your marketplace. It defines your liability and clarifies the structure of everything that is going on in your business. It is crucial to have a well-drafted TOS to protect you and your business from liability.

A copy and paste from another marketplace is not going to do the trick. Buying or using a pre-made template is not likely to be sufficient. Why?

A good, well-drafted and protective Terms of Service needs to be tailored to your business. It is not something that can be templated because every marketplace is different. One small difference in what you do can change the entire content of a TOS.

For example, if your marketplace is a marketplace of goods vs room hire, or hire of equipment vs purchase of equipment, or second-hand vs new goods. Where is your marketplace based or targeted to? How does your commission or fees work? These all have a significant impact on what needs to be included in your TOS.

The other risk with using templates for a marketplace is that they may not be up to date with changes in the law. For example, on 10 November 2023 changes to Unfair Contract Terms laws came into effect.

Key take-aways

Cutting corners on legals is just going to harm you in the long run, especially for online marketplaces. The structure of an online marketplace is strongly based on legal documentation, so you need to get it right the first time.

We offer cost-effective, fixed fee packages for marketplace businesses. Book in a free consultation or contact us today.