The rapid rise of the online marketplace has created a secondary market for selling virtual stores on Taobao.com. Xu Lin discovers it is a legal gray area.

China's leading online marketplace Taobao.com will set out virtual property rights regulations allowing online stores to be inherited if the owner dies, and directing what to do when owners divorce. The new rules and an online application platform are expected to be rolled out within the next couple of months.

Though owners will not be able to sell, rent, or hand over their stores to third parties, according to the regulations, transferring store ownership is a growing trend.

"Online stores are a kind of property. It would be wasteful if a well-run online store is closed for ever. What I'm doing is like recycling a resource," says one Taobao store owner who would only provide his surname of Cheng.

He bought his online store for about 10,000 yuan ($1,610) last March to expand his Internet business interests.

The 28-year-old previously sold snacks from Heilongjiang province in Hefei, Anhui province, making about 300,000 yuan ($48,330) profit, about one third of which was from online sales. He says he is focusing on his virtual store now because rent on the physical store is expensive.

Store owners on Taobao.com have to register with their real names, one ID card for one store. As such, buyers of stores have to use the seller's identity, because it can't be changed. They then change the passwords and adopt the account so the buyer can operate the seller's Alipay, which is akin to PayPal.

"I just wanted to take a chance. It turned out to be a worthwhile risk," Cheng says.

Like many others, he didn't dare make the deal person-to-person in case the original store owner took charge again using their ID card. Instead he turned to 5pao.com, a third-party platform for online store transfers that was established in 2010.

The website operates similar to a property agency. The seller can post information about their store and the price on the website for free, and those who are interested can contact the seller via the website's employees.

Prices range from several thousand yuan to hundreds of thousands of yuan, depending on the stores grade, credit and customer ratings.

The agent acts as a middle man and arranges the transfer contract, which becomes effective as soon as both parties sign the agreement in triplicate.

Ning Hua, the operation director of the website, says the contract is legal and in accordance with the related assets transaction clause of the Contract Law of China. To ensure both parties' rights and interests, buyer and seller have to provide their ID cards and photos of them with the contracts.

After consulting a lawyer, Cheng went to the website's headquarters in Shanghai to sign the contract with the seller.

"It's very difficult to start an online store from scratch due to fierce competition. A good rating attracts customers who prefer not to buy from new arrivals in the market," Cheng says.

"It saved me a lot of time. Now all I need to do is to run it well to attract more customers with my good service and products."

Ning says the value of an online store is subject to such a variety of hard-to-quantify factors that prices offered by the platform are just a reference point for a sale.

He says the number of online store transfers started to rise in the second half of 2011 and currently about 40 deals are wrapped up every day, while the agency makes a profit from commissions and service fees.

"There are about seven similar companies in China. Several of them reached agreements with us last year about important issues, such as online store transfer procedures, credibility management and after-sales service, in order to provide high-quality services," Ning adds.

Taobao.com has more than 500 million registered users and more than 8 million online store owners, with about 8 million visits daily.

It claims the online stores accumulate a reputation based on long-term service and this is why it forbids transfers, because it cannot guarantee the reputation is deserved when a new owner takes over.

Ning says the biggest risk is that the seller changes the Alipay password and takes back the store after agreeing to a deal. In such cases the buyer has to take legal action, which takes time, though the action is likely to be successful.

However, Zhang Yanlai, a lawyer and researcher at China E-Business Research Center, says because the owner has a legal agreement with Taobao.com not to transfer the store without consent, a private transfer violates this agreement.

He says the contract between buyer and seller only has legal validity between the two parties involved. If the store buyer sells prohibited goods, the seller is technically responsible.

Chen Yuxin, a visiting professor from China Europe International Business School, says change is inevitable.

"It's just like physical store transfer. The demand for online store transfers is very strong and Taobao can't avoid it. They should be open about it and make it transparent," he says.

Chen adds Taobao should allow owners to open online stores as companies so it is easier to transfer stores, as the online store is more about a company brand's reputation than an individual brand.

"There should be a regulation that one must post an online notice to tell customers about the transfer. If not, there may be doubts about ownership and it may affect Taobao's acclaimed credit mechanism," he says.