Legal Requirements of Starting a Cloud Hosting Business

6 min read

As technology continues to evolve, cloud computing has become a highly popular solution for companies, organizations, and government agencies. Cloud computing offers flexibility and functionality while reducing operating costs for companies that choose to use it. Are you looking to launch a cloud hosting company? The business venture can be an ideal opportunity to capitalize on the emerging business opportunities cloud solutions provide. Starting a cloud hosting business is a potentially lucrative career move. It also comes with certain legal considerations to help determine the best way to set up and operate the company effectively.

Cloud Hosting Business

Here is a closer look at the legal factors to consider as part of your planning to launch a cloud hosting business.

Registering Your Cloud Hosting Business

Registering your business with your desired business type is a critical step. The business structure is the legal organizational model you use to operate your business.

The business type you select has key implications for how you operate the business, tax implications, and liability protections.

For a cloud hosting business, a smart business formation option is a limited liability company (LLC). An LLC is a popular legal option for many business owners because it provides extensive financial and operational flexibility while protecting personal assets.

This business structure is referred to as a pass-through entity because all profits and losses are passed through from the business to the owners’ income tax forms. The business itself does not pay taxes.

From an operational perspective, the LLC allows you to operate the business yourself or, along with any other owners, hire a manager to run the company day to day.

Where the LLC is particularly popular is in the extensive liability protections it provides. An LLC ensures that, except in cases of gross negligence, an owner’s assets are protected.

That protection is crucial. It means that in the case of an adverse legal judgment against the company, creditors cannot attempt to seize personal property, such as your home, car, or savings.

For a cloud hosting company, that liability protection is critical. While safeguarding data is the primary job of a cloud host, cyberattacks are persistent. Such attacks, if successful, could result in damaging litigation against the company.

Prioritizing Cybersecurity

Prioritizing Cybersecurity

Cloud hosting has many advantages over managing your data. With a cloud solution, a company’s data, applications, and operating systems are hosted on remote servers.

These servers may be in far-flung regions and aligned with multiple servers that host the information of multiple clients. Their contents are backed up regularly to other servers, often in disparate regions.

This structural approach helps to reduce the risk of harm from a cyberattack. If criminals assault one server, its contents are on multiple servers. However, some content is potentially lost in these attacks.

The ongoing cyber threats are why cloud hosting businesses must invest aggressively in strong cyber defense. Your infrastructure creation needs to defend against attacks and include multiple defenses.

For example, firewalls protect the data and systems stored in your cloud servers. Firewalls are software programs deployed in clouds to prevent or mitigate access to networks.

Software-as-a-service (SaaS) firewall types are designed to secure a client’s network and users. Next-generation firewalls are used in virtual data centers to protect and secure incoming and outgoing traffic across applications.

An SSL certificate (secure socket layer) is used to guarantee the authenticity of websites hosted on your cloud servers. They encrypt information flowing into and out of websites.

Distributed denial of service (DDoS) attacks are orchestrated assaults on a domain and can cripple access and functionality. DDoS protection ensures that attacks do not occur and maintains operability.

Expansive cybersecurity is essential to attracting and retaining clients. Without it, your client’s data, and your business, are vulnerable.

Also Read: Types Of Cyber Security: Navigating The Cyber Security Landscape

Obtaining Proper Licenses and Certificates

As a cloud hosting provider, you may be holding and accessing data from clients around the globe. That means ensuring that your business has the correct licenses and certificates necessary to operate.

You may need licenses to run your business in each location where you have servers housed. You may also be required to obtain business licenses allowing you to operate in other jurisdictions.

Ensuring Compliance

Data is a sensitive topic today and the focus of regulatory mandates in multiple jurisdictions.

The regulatory focus is important and ensures that user data is protected, used appropriately, and accessible to the owners of that data and the customers whose data is stored on your servers.

There are many different regulatory rules, laws, and standards that may apply to your cloud hosting business, including the following:

General Data Protection Regulation (GDPR)

The GDPR covers data held by organizations around the world related to European Union residents and citizens. It is one of the world’s most strict data security standards, providing consumers with broad rights to see, control, or delete information stored about them by businesses.

The GDPR mandates that cloud providers have strict data security measures in play whenever they are processing or storing data belonging to EU citizens. Encryption, on-demand data deletion, and notification of data breaches are core elements of the GDPR.

California Consumer Privacy Act (CCPA)

The CCPA is the most far-reaching state law regarding privacy. It provides privacy rights and consumer protection for California residents.

For cloud providers, the CCPA requires businesses to maintain security protocols, create and post privacy policies, and maintain the capacity to respond to consumer requests to access or delete data and opt out of selling data.

Payment Card Industry Data Security Standard (PCI-DSS)

This federal rule governs any business that accepts, processes, stores, or sends payment card information. It requires cardholder data stored or processed in the cloud to be protected, to maintain vulnerability management tools, to create rigorous access control protocols, and to constantly monitor and test networks.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA ensures that patient data are protected. Companies that work with protected health information (PHI) must have strong physical, process, and network security protocols in place. Cloud vendors must also have business associate agreements in place with healthcare providers to ensure secure management of health data.

Also Read: Avoiding HIPAA Violations: Guide to Secure Data Management

ISO 27001

ISO 27001 is an international standard used for information security management. It lays out detailed frameworks for creating, building managing, and improving security management systems.

Obtaining ISO 27001 certification demonstrates that your cloud hosting business has secure systems that protect confidentiality, data integrity, and availability.

Sarbanes-Oxley Act

Sarbanes-Oxley is a set of rules that public companies must follow related to the accuracy of their financial information. It requires businesses to have the proper controls in place to ensure the accuracy and security of financial data. These controls include encryption and access control, data backups, and audit trails.

Drafting Privacy Policy and Terms of Service

The creation of core documents is essential when running a cloud hosting business. A privacy policy is a mandate for many of the regulatory rules applying to cloud hosts.

Privacy spells out the company’s use of data and how it is stored, used, protected, and accessible. It details the legal obligations of the company and the rights that users have to the data contained within the cloud servers.

Terms of service are detailed documents that spell out the obligations and responsibilities of the cloud provider and the client. Terms of service detail the following:

  • Proper uses of the cloud service, including what activities are allowed or disallowed
  • Costs, fee payments, and timetables for them
  • How the services may be used
  • Security measures in place
  • Termination clauses and grounds
  • Proprietary rights to content stored in the cloud
  • Liability Limitations
  • Dispute resolution procedures

Both documents protect you and your company and are important legal pieces to create before launching.

Selecting Internet Service Providers and Backups

One of the most important tasks you will do before launching a cloud hosting platform is to find an ISP to ensure that you have reliable, secure, and multiple network connections. Your clients will rely on easy, fast, and constant access to the cloud spaces you provide.

Be sure to do your due diligence when selecting an ISP and establishing a backup plan. Check references and have the potential contracts reviewed by an attorney before committing to a service provider.

Cloud hosting is a dynamic business, allowing you to provide exceptional, needed services to businesses and organizations of all types across industries. With a clear understanding of the legal steps to take, you can launch your business confidently and successfully.

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