{"id":2777,"date":"2025-03-25T02:51:23","date_gmt":"2025-03-25T02:51:23","guid":{"rendered":"https:\/\/fanso.io\/blog\/?p=2777"},"modified":"2025-03-25T02:58:06","modified_gmt":"2025-03-25T02:58:06","slug":"legal-considerations-for-running-a-subscription-based-business","status":"publish","type":"post","link":"https:\/\/fanso.io\/blog\/legal-considerations-for-running-a-subscription-based-business\/","title":{"rendered":"Legal Considerations for Running a Subscription-Based Business"},"content":{"rendered":"<p><a href=\"https:\/\/fanso.io\/blog\/how-to-start-a-subscription-based-website\/\"><span style=\"font-weight: 400;\">Starting a subscription business<\/span><\/a><span style=\"font-weight: 400;\"> definitely offers a steady income and drives customer retention. While more businesses are adopting the subscription model, there are a slew of laws to ensure compliance.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Navigating the legalities could be challenging, as there is no single governing &#8220;subscription law.&#8221; Regulations and procedures differ across countries and states, as well as with subscription services and delivery methods. Let&#8217;s explore the <\/span><b>key legal considerations for subscription-based business<\/b><span style=\"font-weight: 400;\"> and effective consumer management practices.\u00a0<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Here&#8217;s what you&#8217;ll learn in this blog:<\/span><\/i><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Choosing the right business structure<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Regulatory Compliance &amp; Consumer Protection Laws<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Payment Processing and Recurring Billing Compliance<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Contracts, Terms of Service, and Privacy Policy<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Data Privacy &amp; Cybersecurity Regulations<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Handling Cancellations, Refunds and Customer Disputes<\/span><\/i><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><i><span style=\"font-weight: 400;\">Cross-Border Tax Implications<\/span><\/i><\/li>\n<\/ul>\n<p><i><span style=\"font-weight: 400;\">So, it&#8217;s time you revamp your website&#8217;s terms and conditions, privacy and refund policy!<\/span><\/i><\/p>\n<figure id=\"attachment_2778\" aria-describedby=\"caption-attachment-2778\" style=\"width: 492px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" class=\" wp-image-2778\" src=\"https:\/\/fanso.io\/blog\/wp-content\/uploads\/2025\/03\/Legal-Considerations-for-Running-a-Subscription-Based-Business.png\" alt=\"Legal Considerations for Running a Subscription-Based Business\" width=\"502\" height=\"1255\" \/><figcaption id=\"caption-attachment-2778\" class=\"wp-caption-text\">Legal Considerations for Running a Subscription-Based Business<\/figcaption><\/figure>\n<div id=\"toc_container\" class=\"toc_white no_bullets\"><p class=\"toc_title\">Table of Contents<\/p><ul class=\"toc_list\"><li><a href=\"#1_Choosing_the_Right_Business_Structure\"><span class=\"toc_number toc_depth_1\">1<\/span> 1. Choosing the Right Business Structure<\/a><\/li><li><a href=\"#2_Regulatory_Compliance_Consumer_Protection_Laws\"><span class=\"toc_number toc_depth_1\">2<\/span> 2. Regulatory Compliance &amp; Consumer Protection Laws\u00a0<\/a><\/li><li><a href=\"#3_Payment_Processing_and_Recurring_Billing_Compliance\"><span class=\"toc_number toc_depth_1\">3<\/span> 3. Payment Processing and Recurring Billing Compliance\u00a0<\/a><\/li><li><a href=\"#5_Data_Privacy_and_Cybersecurity_Regulations\"><span class=\"toc_number toc_depth_1\">4<\/span> 5. Data Privacy and Cybersecurity Regulations\u00a0<\/a><\/li><li><a href=\"#6_Handling_Cancellations_Refunds_and_Customer_Disputes\"><span class=\"toc_number toc_depth_1\">5<\/span> 6. Handling Cancellations, Refunds, and Customer Disputes\u00a0<\/a><\/li><li><a href=\"#7_International_Expansion_Cross-Border_Tax_Implications\"><span class=\"toc_number toc_depth_1\">6<\/span> 7. International Expansion: Cross-Border Tax Implications<\/a><\/li><li><a href=\"#Conclusion_Legal_Best_Practices\"><span class=\"toc_number toc_depth_1\">7<\/span> Conclusion &amp; Legal Best Practices\u00a0<\/a><\/li><li><a href=\"#FAQ-Related_to_Legal_Considerations_for_Subscription_Business\"><span class=\"toc_number toc_depth_1\">8<\/span> FAQ-Related to Legal Considerations for Subscription Business<\/a><\/li><\/ul><\/div>\n<h2><span id=\"1_Choosing_the_Right_Business_Structure\"><span style=\"color: #333399;\"><strong>1. Choosing the Right Business Structure<\/strong><\/span><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Setting up your business structure is one of the most essential steps to start your subscription-based business. Now, this affects several aspects of running your business \u2014 registration, profits, legal maintenance, liability, taxes, etc. Besides it also affects your normal business operations like the ownership of your business, and your personal assets at risk.\u00a0<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Sole Proprietorship vs. LLC vs. Corporation<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">The most common business structures for subscription businesses are sole proprietorship, LLC, and Corporation. Here are the advantages and disadvantages of each business type:<\/span><\/p>\n<h4><strong><span style=\"color: #333399;\">Sole Proprietorship<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">This is the simplest business structure run by a single person. Many independent entrepreneurs start their business as a sole proprietorship and it&#8217;s the least expensive structure to start.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here there are no set barriers for personal and business income. The business income taxation comes under personal tax returns. However, in dire consequences, there&#8217;s no liability protection given to the owner&#8217;s personal assets.\u00a0<\/span><\/p>\n<p><b>Pros<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Offers ease of setup as there are no partners involved and you have to deal with less paperwork<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Less expensive as license fees and business taxes are the only costs involved<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Flexible for those running the businesses along with a full-time job<\/span><\/li>\n<\/ul>\n<p><b>Cons<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">No liability protection for your personal assets if the business incurs financial loss<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Less credible for investors and makes it difficult to raise capital<\/span><\/li>\n<\/ul>\n<h4><strong><span style=\"color: #333399;\">LLC<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">A limited liability Company(LLC) is a hybrid business structure offering the best of both\u00a0 corporation and partnership structure types. It combines partnership\u2019s tax benefits (taxed as a single entity) with the corporation&#8217;s limited liability advantage. Small business owners generally choose to create an LLC, given its simplicity and liability protection.<\/span><\/p>\n<p><b>Pros<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Offers liability protection for your personal assets<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Single-owner LLCs are not considered separate entities for taxation<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Less paperwork as compared to C and S corporations<\/span><\/li>\n<\/ul>\n<p><b>Cons<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pay self-employment taxes on your earnings<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Difficult to raise capital; investors prefer corporations<\/span><\/li>\n<\/ul>\n<h4><strong><span style=\"color: #333399;\">Corporations<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">Corporations are the most complicated legal structures, requiring more capital and complex paperwork. Like LLCs, shareholders of corporations have limited liability (they are not personally liable for business claims). C corporations and S corporations are the most popular corporation types.<\/span><\/p>\n<p><b>Pros<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Corporations and owners are separate entities and stakeholders not liable for business loss<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Easier and credible enough to raise large amounts of capital<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Continuity of normal operations, even if someone departs or sells shares<\/span><\/li>\n<\/ul>\n<p><b>Cons<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Complex and expensive structure and involves more legal compliances and paperwork.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">C Corps might be subjected to double taxation<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Subject to extensive record-keeping and audit procedures; requires annual and shareholder meetings<\/span><\/li>\n<\/ul>\n<h3><strong><span style=\"color: #333399;\">Tax Implications of a Subscription Model<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">The taxation for subscription services differs from traditional one-time purchases. It\u2019s one of the important <\/span><b>legal considerations for running a subscription business.<\/b><\/p>\n<h4><strong><span style=\"color: #333399;\">Understanding Recurring Revenue Taxation<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">Understanding the tax obligations of subscription businesses could be challenging, considering its recurring revenue. Recurring revenue is a company&#8217;s revenue that is expected to continue in future. Auto-renewal subscriptions are counted as recurring revenue; they continue until the consumer terminates the service. Managing the recurring billing and payment gets increasingly complex, as the audience base grows.\u00a0<\/span><\/p>\n<h4><strong><span style=\"color: #333399;\">Sales Tax Requirements for Digital vs. Physical Subscriptions<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">The sales tax might not be the same for all subscription services. The taxation differs based on state and tax regulations. Moreover, subscriptions might be billed based on origin or destination of services.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some states might consider subscription services taxable, while in other states, they are exempt. Taxation also differs based on billing frequency: monthly, annual, or semi-annual.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Further, knowing which products are taxable is another aspect businesses need to consider. Some consider digital products as tangible products, treating them as physical goods. So, the definition of tangible products is broad in these states.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Other states might consider digital download as a service. So, the digital services might be subjected to taxes only if the specific state imposes tax.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Further, tax obligations might be dependent on sales presence or nexus (physical presence). For instance, businesses meeting a specific sales threshold or nexus presence might be required to remit sales tax. For example, digital products are taxable in Arizona but not in California.<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Lastly, subscription laws change from time to time, so update yourself regularly.<\/span><\/i><\/p>\n<h2><span id=\"2_Regulatory_Compliance_Consumer_Protection_Laws\"><strong><span style=\"color: #333399;\">2. Regulatory Compliance &amp; Consumer Protection Laws\u00a0<\/span><\/strong><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">When starting your subscription business, compliance with global laws is paramount. These laws typically deal with different aspects of the subscription economy: consumer protection, easy cancellation, tracking dark patterns and clear disclosure of information.\u00a0<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Key Global Laws Affecting Subscription Businesses<\/span><\/strong><\/h3>\n<h4><strong><span style=\"color: #333399;\">Federal Trade Commission (FTC)<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">The Federal Trade Commission (FTC) is the US&#8217;s consumer protection agency. It\u00a0 enforces different policies for transparent and fair practices for content creators.\u00a0<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">\u201c The<\/span><\/i><a href=\"https:\/\/www.ftc.gov\/news-events\/media-resources\/what-ftc-does\"> <i><span style=\"font-weight: 400;\">FTC Act<\/span><\/i><\/a> <i><span style=\"font-weight: 400;\">empowers the agency to investigate and prevent deceptive or unfair methods of competition in commerce. This protects consumers and promotes positive competition.\u201d<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">The FTC has stringent regulations for endorsements, testimonials and influencer marketing.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here\u2019s what <\/span><b>FTC\u2019s areas of concern<\/b><span style=\"font-weight: 400;\"> are for subscription services:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Clear disclosure of information: <\/b><span style=\"font-weight: 400;\">Subscription businesses should provide clear information about their subscriptions before the customer makes the purchase.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Easy cancellations: <\/b><span style=\"font-weight: 400;\">Cancelling subscriptions hasn&#8217;t always been as easy as signing up. The FTC\u2019s recent<\/span><a href=\"https:\/\/www.ftc.gov\/news-events\/news\/press-releases\/2024\/10\/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring\"> <span style=\"font-weight: 400;\">click-to-cancel rule<\/span><\/a><span style=\"font-weight: 400;\"> supports a simpler cancellation process, keeping aside endless hoops and traps. The rule also prohibits negative marketing for goods and services. Besides, the FTC emphasizes disclosing essential information and getting consumers\u2019 consent before serving them additional offers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Dark patterns: <\/b><span style=\"font-weight: 400;\">The FTC is serious about cracking down on the \u201cdark side\u201d of a subscription business. Unexpected flash sales, limited-time countdown clocks, and hidden purchase fees are some of the dark patterns it has spotted.<\/span><\/li>\n<\/ul>\n<h4><strong><span style=\"color: #333399;\">EU Consumer Rights Directive (UK)<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">The EU consumer rights directive protects consumer rights across the European Union. Like the<\/span><a href=\"https:\/\/commission.europa.eu\/law\/law-topic\/consumer-protection-law\/consumer-contract-law\/consumer-rights-directive_en\"> <span style=\"font-weight: 400;\">FTC&#8217;s cancel-to-rule<\/span><\/a><span style=\"font-weight: 400;\">, the directive aims to harmonize consumer protection rules. <\/span><b>It lays down the information traders need to provide before a consumer purchases digital goods, services, or digital content.\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">It also bans pre-ticked boxes and charges additional payment fees in addition to the trader&#8217;s main contract.<\/span><\/p>\n<h4><strong><span style=\"color: #333399;\">Consumer Contracts Regulations 2013 &amp; DMCC Act (UK)<\/span><\/strong><\/h4>\n<p><span style=\"font-weight: 400;\">If you own a subscription business in the UK, your services must align with the <\/span><a href=\"https:\/\/www.legislation.gov.uk\/uksi\/2013\/3134\/contents\"><b>Consumer Contracts Regulations Act<\/b><\/a><span style=\"font-weight: 400;\">. <\/span><b>The act lays out the information to be shared by the trader with consumers, consumer rights to change decisions and return the goods or service, exception rules for distance selling.\u00a0<\/b><\/p>\n<p><i><span style=\"font-weight: 400;\">There&#8217;s a &#8220;cooling off period&#8221; of 14 days after one purchases the product or service. The customer can change their mind and return the product, expecting a full refund within this period<\/span><\/i><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The<\/span><a href=\"https:\/\/www.legislation.gov.uk\/ukpga\/2024\/13\/section\/1\"> <span style=\"font-weight: 400;\">Digital Markets, Competition, and Consumers Act 2024<\/span><\/a><span style=\"font-weight: 400;\"> (DMCC) is another act that has created ripples in the UK&#8217;s subscription landscape. It was introduced to amend the existing Competition Act 1998 and Enterprise Act 2002.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It aims to introduce provisions for fair competition practices and protect consumer rights. This way the act protects consumers from falling into &#8220;subscription traps&#8221;. Businesses need to provide pre-contract information,cooling-off period, reminder notices, and easy cancellations.<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Consult a lawyer to get legal advice and be acquainted with recent advancements in the legal landscape.<\/span><\/i><\/p>\n<h3><strong><span style=\"color: #333399;\">Auto-Renewal &amp; Cancellation Policies<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Customer retention is the norm for subscription services, and so is the annoying auto-renewal feature! With every other subscription you activate, managing them feels like being stuck in a maze!\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To the point that you even forget to cancel subscriptions you are no longer using and feel frustrated for every $100s or $50s that gets cut unknowingly. Thus, you&#8217;re stuck in a subscription trap!<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While the business owners haven&#8217;t defied the law, it doesn&#8217;t eliminate customers&#8217; disappointment. But, active opt-ins and renewal reminders could save the day!<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In addition to the FTC&#8217;s regulations, <\/span><a href=\"https:\/\/leginfo.legislature.ca.gov\/faces\/codes_displayText.xhtml?lawCode=BPC&amp;division=7.&amp;title=&amp;part=3.&amp;chapter=1.&amp;article=9.\"><span style=\"font-weight: 400;\">California&#8217;s Automatic Renewal Law (ARL)<\/span><\/a><span style=\"font-weight: 400;\"> is a state-level preemptive measure to regulate subscription billing. Under the law, businesses must send an acknowledgement with a clear disclosure of the terms and conditions and cancellation policy before the user subscribes.\u00a0<\/span><\/p>\n<h2><span id=\"3_Payment_Processing_and_Recurring_Billing_Compliance\"><span style=\"color: #333399;\"><strong>3. Payment Processing and Recurring Billing Compliance\u00a0<\/strong><\/span><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The recurring payments provide automated cash flow, but you also deal with failed transactions and chargebacks. Businesses need to integrate robust payment processing systems that streamline payment processing and also security.\u00a0<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Secure Payment Handling: PCI DSS Compliance<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Subscription businesses need to deal with managing sensitive customer information like credit card information and offer transaction security. A payment gateway that&#8217;s compliant with Payment Card Industry Data Security Standards (PCI DSS) handles these transactions securely.\u00a0<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">So, what&#8217;s PCI DSS compliance?\u00a0<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">This simply means adhering to a standard set of security rules to protect cardholder data. All entities, including merchants, payment gateways, banks, and service providers, follow the rules. This reduces the risk of data breaches and offers fraud prevention.<\/span><\/p>\n<p><a href=\"https:\/\/stripe.com\/\"><span style=\"font-weight: 400;\">Stripe<\/span><\/a><span style=\"font-weight: 400;\">, <\/span><a href=\"https:\/\/www.paypal.com\/\"><span style=\"font-weight: 400;\">PayPal<\/span><\/a><span style=\"font-weight: 400;\">, and <\/span><a href=\"http:\/\/authorize.net\"><span style=\"font-weight: 400;\">Authorize.net<\/span><\/a><span style=\"font-weight: 400;\"> are a few popular PCI-DSS-compliant payment gateways.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here are the basic steps involved in recurring payment processing:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Customer authorization &#8211; <\/b><span style=\"font-weight: 400;\">During the checkout process, the customer gives consent for recurring payments and provides the credit card or bank information.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Secure storage of payment information<\/b><span style=\"font-weight: 400;\"> &#8211; The customer payments are tokenized and stored for future transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Processing payments at scheduled intervals &#8211;<\/b><span style=\"font-weight: 400;\"> Whether businesses opt for weekly, bi-weekly, or monthly payments, the payment gateway processes the payment accordingly.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Transaction request and confirmation<\/b><span style=\"font-weight: 400;\">\u2014The payment gateway initiates a payment request to the bank or credit card authorities. Then, the customer is notified of the successful transaction.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Additionally, upgrades, downsells, cancellations, and refunds are included in subscription management.<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">4. Chargeback Management &amp; Fraud Prevention<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">As global e-commerce revenue increases, fraudulent chargeback incidents significantly increase. Digital Trust Index reported an alarming<\/span><a href=\"https:\/\/www.globenewswire.com\/news-release\/2024\/12\/12\/2996377\/0\/en\/Report-Consumers-Turning-to-Chargeback-Fraud-as-Tactic-Goes-Mainstream.html\"> <span style=\"font-weight: 400;\">78% year-over-year<\/span><\/a><span style=\"font-weight: 400;\"> surge in chargebacks, and Q1 2024 was called the &#8220;chargeback season.&#8221;<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">So, what&#8217;s a chargeback?<\/span><\/i><span style=\"font-weight: 400;\"> Consumers can initiate a chargeback and seek a refund in the event of fraud, product or service dissatisfaction, or merchant errors. While chargebacks are a consumer protection mechanism, consumers often use them to their advantage and raise illegitimate chargeback requests.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Frequent chargeback requests can eat up your subscription business&#8217;s profits. On top of that, high-risk merchants are more vulnerable to chargebacks.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Given are the<\/span><b> top fraud back prevention strategies<\/b><span style=\"font-weight: 400;\">:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To reduce customer disputes, implement <\/span><b>transparent terms and service<\/b><span style=\"font-weight: 400;\">, including subscription cost, customer billing, refunds and returns policy.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Provide excellent customer service<\/b><span style=\"font-weight: 400;\"> and record order delivery and status for accurate information<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Integrate identity verification protocols<\/b><span style=\"font-weight: 400;\"> like biometric verification, two-factor authentication, and security questions<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Use fraudulent detection tools <\/b><span style=\"font-weight: 400;\">like AVS, CVV(3-digit verification number behind credit card), 3D secure, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Deal with chargebacks effectively with <\/span><b>automated chargeback notifications and responsive services, documentation services, and appropriate escalations.<\/b><span style=\"font-weight: 400;\">Contracts, Terms of Service, and Privacy Policies\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">When starting your subscription business, defining contractual obligations and terms of service is non-negotiable. Regular and effective communication reduces customer disputes and facilitates effective resolution.<\/span><\/p>\n<h3><span style=\"color: #333399;\"><strong>Crafting a Legally Binding Terms of Service (TOS)<\/strong><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">A term of service establishes the grounds of sound agreement between consumers and business owners.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The subscription agreement must include the following details:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Rights &amp; responsibilities when using the subscription<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Payment terms &amp; subscription cost<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Auto-Renewal clauses<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Cancellation &amp; refund policies<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Confidentiality &amp; non-disclosure agreements on how you handle their data<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Licensing details &amp; the restrictions of usage<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Systems to manage declined payment &amp; egregious actors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Limitation of liability explaining the provider&#8217;s liability from the damage due to subscription services<\/span><\/li>\n<\/ul>\n<h3><strong><span style=\"color: #333399;\">Privacy Policy Compliance\u00a0<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Subscriptions often manage and store consumers&#8217; personal information. A privacy policy is important to explain the personal information you collect, how and why you collect data, the security measures employed, and customer privacy rights.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Why do you need a privacy policy for subscription business? Many state and global data protection laws like GDPR and CCPA expect subscription businesses to maintain privacy policy.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To comply with these laws, businesses must obtain consumer consent before collecting and processing data. They must implement security measures and comply with cross-border data transfer restrictions.<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Intellectual Property Protection<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">When you find a niche idea and set up your subscription business, you typically brainstorm a business name and seek the right investors. But there&#8217;s one more essential thing <\/span><span style=\"font-weight: 400;\">\u2014<\/span><span style=\"font-weight: 400;\"> protect your business&#8217;s intellectual property (IP)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">IP is basically anything you create and put in the public domain. IPR laws have been created to protect your intellectual property from infringement.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Subscription businesses should safeguard their brand identity and intellectual property while sharing it on the internet. This reduces the risk of brand abuse, trademark infringement, or reputation damage.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If your subscription involves trademarks, copyrighted content, or patented technology, get the necessary licenses and permissions for future disputes.<\/span><\/p>\n<h2><span id=\"5_Data_Privacy_and_Cybersecurity_Regulations\"><strong><span style=\"color: #333399;\">5. Data Privacy and Cybersecurity Regulations\u00a0<\/span><\/strong><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Adapting to the data privacy and cybersecurity regulations is not just security compliance <\/span><span style=\"font-weight: 400;\">\u2014<\/span><span style=\"font-weight: 400;\"> but winning trust and forging customer relationships! You cannot neglect these non-negotiable<\/span><b> legal considerations for subscription business.<\/b><\/p>\n<h3><strong><span style=\"color: #333399;\">GDPR, CCPA, and Global Data Protection Laws<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Consumer data is valuable and businesses can&#8217;t risk to underestimate its importance. While collecting essential data can help subscriptions to offer personalized services, consumers might be reluctant to give up their personal information.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, with increasing data protection regulations, collecting data has become all the more difficult. Let&#8217;s take a look at the major global data privacy laws and how they influence subscription businesses!<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h4><strong><span style=\"color: #333399;\">Global Data Protection Regulation (GDPR)<\/span><\/strong><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The<\/span><a href=\"https:\/\/commission.europa.eu\/law\/law-topic\/data-protection\/data-protection-explained_en\"> <span style=\"font-weight: 400;\">GDPR law<\/span><\/a><span style=\"font-weight: 400;\"> governs businesses established in the EU and entities providing services in the EU.<\/span><\/p>\n<p><b><i>The law lays regulations for transparent data collection, data minimization, storage limitation, enhanced security measures, consumer rights awareness, among others.<\/i><\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h4><strong><span style=\"color: #333399;\">California Consumer Privacy Act (CCPA)<\/span><\/strong><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">One of the strictest laws in the US, <\/span><a href=\"https:\/\/oag.ca.gov\/privacy\/ccpa\"><span style=\"font-weight: 400;\">CCPA<\/span><\/a><span style=\"font-weight: 400;\">, states how businesses should process customer data. Like GDPR, it&#8217;s applicable to both businesses operating in California and those providing services to individuals in California.<\/span><\/p>\n<p><b><i>Its key regulations are clear disclosure of data collection, storage, usage and sharing in privacy policy and subscription forms.<\/i><\/b><span style=\"font-weight: 400;\"> It expands consumers rights to access, opt-out, rectify, and even delete data. Additionally, it sets guidelines for the effective management of customer requests and data disposal.<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Best Practices for Data Security<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Compliance with GDPR and CCPA is challenging for subscription businesses, as they have to process data for customer billing cycles and customer retention.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Securing data is a prerequisite to ensure compliance with global data laws. Hence, subscription businesses must follow:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Data Encryption <\/b><span style=\"font-weight: 400;\">&#8211; Use data encryption protocols like HTTPS for sensitive data like payment and billing information. Also, encrypt customer data stored on servers and databases to prevent unauthorized access.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Access Controls &#8211; <\/b><span style=\"font-weight: 400;\">Allow access to your subscription platform based on role, thus reducing incidents of data breaches. Implement multi-factor authentication and a strong password policy for user accounts and internal systems. Grant &#8220;least privilege&#8221;, offering minimal access to users for completing their jobs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Security Audits<\/b><span style=\"font-weight: 400;\"> &#8211; Conduct timely security assessments and testing to identify the potential weaknesses and vulnerabilities in your subscription system.<\/span><\/li>\n<\/ul>\n<h2><span id=\"6_Handling_Cancellations_Refunds_and_Customer_Disputes\"><span style=\"color: #333399;\"><strong>6. Handling Cancellations, Refunds, and Customer Disputes\u00a0<\/strong><\/span><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Whether you&#8217;re setting up a subscription box for food services or live fitness classes, your ultimate goal is to satisfy your customers. Well, you can&#8217;t please everyone and customer disappointments are inevitable! To handle the cancellations and refunds, you need to plan well ahead!\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Creating a Compliant Refund &amp; Cancellation Policy<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">A fair and transparent refund policy &amp; cancel is a must for managing any subscription business. It clearly defines when customers can raise a refund request.\u00a0 Even service-based subscription businesses get refund requests from dissatisfied customers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Refund policies could be overwhelming, considering the amount of information to be included. Some of the essential elements to be included in the refund policy are:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Eligibility <\/b><span style=\"font-weight: 400;\">to raise a refund request<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Timeframe <\/b><span style=\"font-weight: 400;\">for requesting a refund after purchase<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Steps to raise a refund request <\/b><span style=\"font-weight: 400;\">and proof required<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Whether the customer is <\/span><b>eligible for returns, exchanges or refunds<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Refund exceptions <\/b><span style=\"font-weight: 400;\">where standard policy isn&#8217;t applicable<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">For the cancellation process, FTC&#8217;s recent &#8220;click-to-cancel&#8221; expects a simple cancellation process as its sign up.\u00a0 Similarly, the cancellation process must include eligibility, timeframe, process, and cancellation fees. This improves the overall customer satisfaction!<\/span><\/p>\n<h3><strong><span style=\"color: #333399;\">Preventing Subscription Fraud &amp; Abuse<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">With the surge in subscription sales, incidents of fraud and counterfeits have also increased subsequently.<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">So, what&#8217;s a subscription fraud?<\/span><\/i><span style=\"font-weight: 400;\"> A subscription fraud is a misleading or deceptive practice to gain unauthorized access into the subscription system. Fraudsters often exploit the subscription model using different tactics or methods.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This could be through account takeovers, payment frauds, chargeback frauds, service abuse, etc. This obviously leads to financial losses and compromises the system&#8217;s security.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Given below are <\/span><b>different strategies to prevent fraudulent attacks:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Transparent disclosure of subscription costs<\/b><span style=\"font-weight: 400;\"> and terms of service<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Implement additional identity verification<\/b><span style=\"font-weight: 400;\"> through SMS or email verification<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Monitor any unusual behaviour like multiple failed payments<\/b><span style=\"font-weight: 400;\">, excessive account creation attempts<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Limit account-sharing capabilities <\/b><span style=\"font-weight: 400;\">by limiting the number of devices that can access<\/span><\/li>\n<\/ul>\n<h2><span id=\"7_International_Expansion_Cross-Border_Tax_Implications\"><span style=\"color: #333399;\"><strong>7. International Expansion: Cross-Border Tax Implications<\/strong><\/span><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The tax obligations vary greatly across countries. Understanding the global tax implications is essential for tax compliance and better planning.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here&#8217;s how<\/span><b> tax compliance is different across the globe:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>United States: <\/b><span style=\"font-weight: 400;\">The US requires you to collect sales tax in states where the business has nexus (physical presence) or economic activity. Further, the complexity of sales tax differs from state to state.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>European Union<\/b><span style=\"font-weight: 400;\">: In the EU, businesses have to pay VAT on digital goods based on the consumer&#8217;s location. For physical goods, VAT depends on delivery location.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Singapore: <\/b><span style=\"font-weight: 400;\">A 9% GST tax is applicable for all digital and non-digital services in Singapore.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Regional Obligations: <\/b><span style=\"font-weight: 400;\">There is no single governing entity for sales tax in the US. You need to determine taxability based on state statute. Consider how the tax applies to sales of audio files, streaming services, and digital books.<\/span><\/li>\n<\/ul>\n<h2><span id=\"Conclusion_Legal_Best_Practices\"><strong><span style=\"color: #333399;\">Conclusion &amp; Legal Best Practices\u00a0<\/span><\/strong><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Understanding the <\/span><b>legal considerations for subscription business<\/b><span style=\"font-weight: 400;\"> is crucial to building customer trust and avoiding expensive lawsuits. Most importantly, you need fair and transparent terms and conditions, including subscription costs, cancellations, refunds, and auto-renewal clauses.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To comply with FTC&#8217;s click-to-cancel rule, ensure your subscription cancellation is straightforward. The tax implications for recurring subscriptions are different from one-time purchases. Check for sales threshold and tax obligations in your state and country.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With the surge in fraudulent chargebacks and data breaches, the legal bodies are planning to tighten the laws concerning subscriptions further. Prioritizing consumer consent,\u00a0 simplifying processes like cancellation, auto-renewal, and refund policies and making it more customer-centric.\u00a0<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Seeking legal advice is crucial for compliance and setting accurate systems to keep your subscription service up and running!<\/span><\/i><\/p>\n<h2><span id=\"FAQ-Related_to_Legal_Considerations_for_Subscription_Business\"><strong><span style=\"color: #333399;\">FAQ-Related to Legal Considerations for Subscription Business<\/span><\/strong><\/span><\/h2>\n<h3><strong><span style=\"color: #333399;\">1. What are the legal considerations for subscription business?<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">Given are the key legal considerations for starting a subscription business:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Choosing the right business structure<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Transparent terms &amp; conditions, including subscription pricing,auto-renewal clauses, cancellation policies &amp; customer disputes<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compliance with global laws &amp; regulations<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Secure payment processing management &amp; chargeback protection<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tax management<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Compliance with data privacy &amp; cybersecurity regulations<\/span><\/li>\n<\/ul>\n<h3><strong><span style=\"color: #333399;\">2. What are the major factors to consider when choosing a business structure for your subscription business?<\/span><\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">When choosing a business structure, liability protection, tax implications, ease of operations, and business scalability should be considered. Your choice of subscription business depends on the type and size of your business. Each business structure has its own advantages and disadvantages, so choose based on your business needs.<\/span><\/p>\n<h3><span style=\"color: #333399;\"><strong>3. Can businesses refuse to refund subscriptions?<\/strong><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Businesses can decline to refund subscriptions based on the state laws, cooling-off period, no refund policy, breach of contract, etc. Hence, subscription businesses should enforce a transparent cancel &amp; refund policy stating the refund eligibility, timeframe, refund process, and refund exceptions.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Starting a subscription business definitely offers a steady income and drives customer retention. While more businesses are adopting the subscription model, there are a slew of laws to ensure compliance.\u00a0 Navigating the legalities could be challenging, as there is no single governing &#8220;subscription law.&#8221; Regulations and procedures differ across countries and states, as well as &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Legal Considerations for Running a Subscription-Based Business\" class=\"read-more button\" href=\"https:\/\/fanso.io\/blog\/legal-considerations-for-running-a-subscription-based-business\/\" aria-label=\"More on Legal Considerations for Running a Subscription-Based Business\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":2780,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_generate-full-width-content":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no"},"categories":[28],"tags":[26,266],"yoast_head":"<!-- This site is optimized 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