Dropshipping is a very popular eCommerce business model these days. Practically, it is a retail fulfillment method that does not imply stock and inventory on the seller’s side. The seller is a sort of intermediary in charge of marketing the products being sold, the shipment, the delivery, and the packaging of the products being outsourced. In such conditions, a legitimate question arises. Is dropshipping legal?
The straightforward answer is “Yes”.
The dropshipping model is subject to criticism as some may consider that the sellers make easy online money on the back of the consumer. By simply purchasing products cheaper in one place and selling them in another one for a higher price.
Or having a successful online store is far from being that simple. It involves tons of effort marketing the products and attracting the right customers.
The Dropshipping Model Has Its Own Risks
Even if having a dropshipping business may seem very approachable, (dropshippers making thousands of dollars daily from reselling items listed on AliExpress are notorious) the reality is a bit different. And this type of business has its own risks that cannot be neglected.
- Fishy suppliers and low-quality products are a reality that you have to deal with in this business. Most often such suppliers use intellectual property that does not belong to them.
- You don’t control the supply chain, but in front of the client, you bear the responsibility. This is the flip side of not having to deal with an inventory.
- You are highly dependent on the marketplaces where you list your products, you can be banned quite easily. A strong marketing strategy is needed to see success in this industry.
- Being an industry with low barriers, literally, anyone can enter it, the competition is harsh.
Dropshipping Legal Requirements
In order to be a successful seller, your online store should be considered trustworthy and legit.
Is a Business License Necessary?
Dropshipping is a legit business, but having a business license is not compulsory. Hence, it’s useful because it will strengthen your eCommerce business. In fact, it’s quite common in the industry not to have a license, particularly among beginner merchants.
It’s recommended to check on your state legislation and the requirements of the platform where you plan to list your eCommerce store. Then act accordingly. Having a business license is the basis for paying your taxes, liability, and legitimacy.
Even if technically you don’t need a business license, having one will establish you as a serious business partner in relation to suppliers and help you gain the attention of your clients more easily. Plus, this is a solid foundation for promoting a professional and reputable business.
Pay Your Taxes
A legit business pays its taxes. And you want to be perceived as a legit business. Recognized as such by customers and state authorities. The level of your taxes depends on your geographic location and may be very different from your direct competitors established in other countries.
Once your business is set up you will have to pay taxes on sales and taxes on income. Consult with a specialized lawyer and an accountant to know exactly what taxes you have to pay, so you can establish the prices for the products you sell accordingly.
Dropshipping businesses operate most often with multiple products and multiple suppliers. Consequently, prices, shipping, and taxes quickly become complicated tasks. As such, consider using a dropshipping platform to help you automate your processes and repetitive tasks.
Having a business license reduces your liability as a person, a fact that may become important if legal issues related to your store appear. Most probably you will work with suppliers operating in foreign countries and problems like poor quality products are common. Thus, it’s wise to be protected in any case.
Besides your business license, it’s probably a good idea to consider a Product Liability Insurance. Its role is to defend your dropshipping business in front of legal and financial risks related to the quality of the items your business sells.
Your Legitimacy as Business
This is another area where a business license comes in handy. No one wants to make business with shadow companies, everyone looks for legit business partners that respect their promises and deliver what was agreed.
And you want healthy, successful, and profitable business relationships with your partners. Consequently, the first step is to prove your business adheres to these principles and is trustworthy and a legitimate entity. Reputable brands work just with legitimate businesses. And consumers have a strong preference for them.
Being a registered eCommerce entity shows that you are serious and that is the best answer to the “Is dropshipping legal” question.
Other Dropshipping Legal Considerations
The following requirements are not expressly necessary, but it is highly recommended to have them for your business health and your peace of mind as a business owner. They are supplementary layers of protection.
Your online store should display the following sections:
Terms and Conditions – You don’t need a “Terms and Conditions” section on your store, but you can’t skip it if you want to protect your business in unforeseen situations. Plus, it’s a good way to let your customers know what your business practices are and what they can expect.
Refund Policy – As various situations beyond your control may appear and unsatisfied clients may claim refunds, you should have such a policy in place. It is a useful tool to help you find a solution to your client’s requests. Do yourself a favor and protect yourself and your brand as much as you can.
Shipping Policy – Clients will be eager to know how fast they can receive the items they ordered. It’s not a must to have a shipping policy, but you will receive this question lots of times and it’s better to have it clearly written.
Your shipping policy should include information regarding domestic and international shipping. For example, domestic shipping takes on average 4-12 days depending on the client’s residency and international shipping takes on average 2-3 weeks.
Track Shipment. Offering your clients the possibility to track the shipment of their item in real-time avoids supplementary questions that your client service should answer. Insert a link or a tracking widget allowing verifications of the shipment status. Customers will be grateful for this attention.
Marketing Best Practices
In general, dropshipping businesses rely on highly popular platforms like Amazon and eBay. If you ask yourself “is dropshipping legal on these platforms?”, you should know that, yes, they are. Moreover, a large part of the retailers selling their products via Amazon and eBay are dropshippers.
The rule of thumb is that you have to respect their requirements and rules and resell just items from wholesalers not from other retailers. For example, you can source your products on Alibaba – a wholesaler and not from AliExpress – a retailer.
The problem with retailers is that the reseller just adds a markup and it’s not ethical from the customer’s point of view. Not to mention that the markup might simply not be worth the effort.
eBay and Amazon are very tempting because they offer access immediately to a massive audience. And they are a good starting point for a dropshipping business if you source unique products direct from manufacturers. Later you can build your own brand, with your own store and use other marketing venues like social media, content marketing, email marketing, influencer marketing, etc.
Legal Matters Regarding Products
The most obvious reason why eCommerce businesses get into legal trouble is because they sell products that either belong to others or are protected by laws or prohibited by laws.
One such situation is selling products protected by trademark and/or copyright. They are trending products or a large number of people want them, but you need special authorizations to commercialize them. These types of products are usually associated with sports teams, world-renown brands, with international stars and influencers. Think Lionel Messi’s t-shirt or toys like Barbie dolls or Lego sets.
Potential lawsuits come most often from counterfeit products or replicas. Customers are misled that they get the original product at a good price and later they notice that the things are not exactly what they were expecting.
If you insist on selling these types of products and want to avoid all potential troubles related to them you should first get a License for Reselling. Then contact the manufacturers and wholesalers entitled to produce and distribute these items.
Another situation that has a high potential for trouble is selling restricted products without the corresponding license. Restrictions are due to the necessity of having certain manufacturing or distribution conditions. Such products are medicines, some food products, or special types of alcoholic beverages.
Dropshipping the Right Way
Having a prosperous dropshipping business involves lots of effort and respecting a long list of dropshipping legal requirements.
To ease your burden, count on a dropshipping platform like Sell The Trend especially designed to help you respect all the legal and ethical practices in the industry. And support you in choosing the right winning products and also selecting some trusted suppliers.