Do I Need a Terms of Service?
If your product has users, you need a Terms of Service (“TOS”). For founders, it is tempting to treat this document as something to handle after launch, after traction, after the first funding round, or with a ChatGPT output. That instinct is understandable, and it is also costly. A well-drafted TOS is a foundational legal document.
What a Terms of Service Actually Does
A Terms of Service is a binding contract between your company and the people who use your product. It defines the rules of the relationship: who can use the service, on what terms, and what happens when something goes wrong. Without one, you are operating without the legal infrastructure to protect your intellectual property, limit your liability, establish a dispute resolution mechanism, or remove bad actors from your platform.
A Terms of Service can include disclaimers and limitations of liability that help protect the startup from potential legal action. For example, if a user suffers losses or damages as a result of using the service, the agreement can limit the company's liability. It also gives you contractual grounds to address user-generated content, set acceptable use standards, and define what happens when those standards are violated. None of those protections exist if you never established them in writing.
The Legal Landscape
Unlike a privacy policy, no single federal statute universally mandates a Terms of Service. The obligation emerges from many overlapping sources. Some come from traditional common law and others from consumer protection statutes. For example, The Restore Online Shoppers' Confidence Act (“ROSCA”) applies to sellers of goods or services featuring a negative option, including automatic renewals, continuity plans, and free-to-paid conversions. ROSCA requires those sellers to clearly disclose all material terms upfront, obtain the consumer's consent before charging, and provide a straightforward way to cancel. Violations of ROSCA are subject to civil penalties of up to $53,088 per violation.
What Happens Without One: Amazon’s $2.5 Billion Dollar Mistake
In September 2025, the Federal Trade Commission (“FTC”) secured what it described as a landmark settlement against Amazon, Inc. (“Amazon”). FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC (W.D. Wash. 2025). The FTC alleged that Amazon enrolled millions of consumers in Prime subscriptions without their consent and knowingly made it difficult for consumers to cancel, requiring Amazon to pay a $1 billion civil penalty, provide $1.5 billion in refunds to consumers harmed by the deceptive Prime enrollment practices, and cease unlawful enrollment and cancellation practices Federal Trade Commission. Internal Amazon documents introduced in the proceedings revealed that executives had been aware of the problem for years. A compliant product requires, at minimum, a robust TOS that must clearly outline subscription terms, secure affirmative consent, and offer an easy cancellation process. These provisions are what distinguish a legitimate product from the type of conduct that has historically resulted in FTC enforcement actions.
What a Terms of Service Must Cover
Your Terms of Service must describe the relationship between your company and your users. For example, they must identify who is permitted to use your product and any eligibility restrictions, describe your intellectual property rights and what users may or may not do with your content, outline your dispute resolution process, including any arbitration or class action waiver, and limit your liability to the extent permitted by applicable law. If your product involves subscriptions or recurring billing, you will need to include clear and conspicuous disclosures about all material terms of the subscription, including cost, billing frequency, whether the subscription auto-renews, and how to cancel, and you must provide a cancellation mechanism that is at least as simple as the sign-up process.
If you need help, reach Out to Stealth Legal
Stealth Legal is a boutique tech-focused law firm that works with startups and technology companies on contracts, compliance, and regulatory risk. Whether you are launching a new product or revisiting agreements that have not been touched since day one, our team can help you build a legal foundation that protects your business and scales with it.
If you have questions about your Terms of Service or other foundational documents, contact us at pavin@stealth.legal
This post is for informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a licensed attorney.
