This blog post aims to educate and inform its readers and is by no means a substitute for legal advice. Make sure to consult an attorney regarding any vital business decisions that involve investing time or money on any of the topics raised in this post. Wiio and the author of this post do not assume any legal liability for any of the reader’s legal decisions.
First things first: yes, it is entirely legal to own and manage a dropshipping business. But there are several elements that a business owner should consider to avoid encountering any legal problems while engaging in this enterprise.
Do take note that eCommerce laws vary per location, so be sure to read up on your country’s specific rules (or those of your target countries) before selling products online.
It also helps to educate yourself on the common legal concerns and issues that dropshippers encounter. We’ll talk about these and more in the sections below.
Table of Contents
What is Dropshipping?
Before we discuss the legality of dropshipping, let’s start by clearly defining what it is.
Dropshipping is a retail fulfillment method that enables a retailer to fulfill orders, forward the details to the suppliers, then finally, have those purchased items shipped directly to the customers.
The retailer (also known as the dropshipper) acts as an intermediary in the transaction. They don’t manage the inventory or hold any stock. Instead, the dropshipper’s work focuses on researching products, marketing, and handling customer service.
For more information on how to start your own dropshipping business, check out our definitive guide.
Recommended Reading: Is Dropshipping Worth It?
Legal Concerns When Establishing a Dropshipping Business
“Do I need to get a business license?” This is one of the most common questions that new dropshippers ask. And the quick answer is: it depends.
If you will use Shopify, eBay, or Amazon, you wouldn’t immediately need a license to start selling products as a dropshipper. However, this doesn’t mean that operating without one, especially in the long term, is a wise idea.
Getting a business license is definitely an added responsibility because of the required paperwork and regular filing of taxes. However, it also offers numerous advantages, including legal recognition and protection from certain liabilities.
Additionally, some selling platforms require proof of business registration before allowing sellers to publish products for sale.
Depending on the type of business structure you choose, your business may or may not be considered a separate entity. If it is considered as such, as is the case with corporations, then your business taxes will be separated from your personal taxes.
Knowing how much you pay for business taxes will make it easier to report your income and any business losses. Additionally, in the field of eCommerce, income taxes from your profit and sales taxes from your products will have to be considered.
If you need more clarity on how taxation works and how to comply with taxation laws, you may consult a local tax lawyer or accountant.
If the business structure you choose separates you from your business, then you now have protection from certain liabilities that may arise from your online’s store transactions.
For instance, if a customer claims that your store’s product caused them bodily harm or property damage, your personal assets won’t be at stake during the settlement. But do take note that different types of licenses provide different levels of protection.
On top of your business license, you can also get product liability insurance to help cover compensation claims if a customer sues your business. This is the worst-case scenario, but it’s better to be prepared than sorry.
Product liability cases can be some of the most costly to litigate, so you should seriously consider giving your business and personal finances an added layer of protection, especially against foreclosure and bankruptcy.
Businesses with proof of legal recognition generally appear more trustworthy in the eyes of customers. And trustworthy is exactly what you’d like your store to be!
Having a license adds value to your company and opens up more opportunities for business deals and government assistance. When your state or local community recognizes your business, you can participate in programs that help small businesses grow and flourish.
These programs can also be a way for you to expand your network, so take advantage of every benefit that comes with being recognized as a legitimate business.
Is Dropshipping Legal on Amazon and eBay?
Yes, it is legal to dropship on Amazon and eBay. Just like with any platform, there are guidelines that you need to follow in order to avoid getting flagged.
In the next section, we’ll go over the general do’s and don’ts of dropshipping on eBay and Amazon.
Proper Usage of the Platforms
- Do accept and abide by their return process. When you dropship on these platforms, you will be solely responsible for accepting, processing, and returning all of the products listed in your store.
- Identify your store as the seller of the products on receipts, tags, slips, and other documentation.
- Comply with each platform’s policies and agreements.
- Don’t ship orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.
- Don’t engage in false advertising.
Failure to abide by these rules will result in a range of administrative actions against your dropshipping store, such as lowering seller ratings, hiding or demoting all listings from search results, losing buyer or seller protections, buying or selling restrictions, and account suspension.
If you are looking into selling on these platforms, make sure to go to their respective websites to have a more comprehensive view of their rules and regulations.
Is Dropshipping Legal on Shopify?
Yes, it’s entirely legal to dropship via Shopify. You can start dropshipping on the platform by looking for a wholesale supplier who can send products to your target locations.
Shopify also offers an app that could connect your store with other suppliers. You can read more information about Shopify’s terms and conditions here.
Dealing with Common Legal Issues with Dropshipping
Restricted and Prohibited Products
It’s essential to do your research before you list products in your store. Note that the list of restricted and prohibited products may differ depending on the country you’ll be selling to.
Restricted products are those that require a proper license to sell. These items are subject to high standards and have the most cause for damage if mishandled. Other grounds for restriction are territorial rights and prohibition in certain jurisdictions. The standard categories for restricted products are food items, liquor, and medicine.
On the other hand, prohibited products are those that are banned from being sold in the country where you’re selling. For instance, the United Arab Emirates prohibits the selling of gambling tools and machines, pirated content, and the like.
Trademark and Copyright
Let’s start by defining these two terms and what they protect.
A trademark could be a symbol or word (or words) legally registered to represent a company or product. Trademarks protect brand names, as well as the logos used on products and services.
Meanwhile, Merriam-Webster defines copyright as the exclusive legal right for an entity to print, publish, perform, film, or record literary, artistic, or musical material and to authorize others to do the same. Copyrights protect intellectual property, including original artistic and literary works.
Examples of trademarked brands include Marvel, Pokemon, and Disney.
Images of characters from these brands abound in many products from AliExpress and Alibaba. Steer clear from such products to avoid trademark infringement and instead go for unique items that provide solutions and give value to your customers.
Counterfeits, Replicas, and Knockoffs
Counterfeit products are manufactured to look exactly like an original product. They automatically infringe upon the authentic products’ trademark and artistic copyright. Talk about a double whammy!
You also have to be wary of selling replicas and knockoffs. These kinds of products are an attempt by the manufacturer to dodge counterfeit laws by making similar products with a change or omittance of logos.
Selling counterfeit products is both unethical and risky. And even if you make sales, you’ll likely get bad customer reviews in the least and a lawsuit at the worst. You may find that the risk isn’t worth it in the long run.
Best Practices for Legal Compliance
1. Get a business license
Having a business license keeps you within legal bounds and protects you and your assets against liabilities. It also helps build an image of legitimacy for your store and you as its owner.
When you are legally recognized as a business, you will have more chances to gain practical opportunities for assistance while also earning respect and traction in the industry.
2. State your policies on your website
By being transparent with your policies, your customers can make informed decisions when purchasing from your store.
Here are some policies that you should include in your online store:
a. Return Policy
Check your supplier’s dropshipping return policies, then base your store’s policies on the information they provide.
The return policy should include the number of days when a customer is allowed to return the item (this depends on what kind of item, but it’s generally between 15 to 30 days after checkout), who is responsible for return shipping fees, and other guidelines.
b. Terms & Conditions
This will explain the rights and responsibilities of your store and your customers. It may also include how consumers may use your website, plus other disclaimers on what your store is (and is not) liable for.
Make sure to make all details as clear and concise as possible. The goal is to make your customers understand them easily. Refrain from using complicated language to avoid any confusion.
Disclaimers inform your customers of what they might be in for when they’re on your website or when they choose to buy your products. Disclaimers can range from general legal to health and safety. You can also use a Disclaimer Page to disclose affiliations.
You don’t have to put disclaimers on every page; that might scare away your customers! Having a section on your website dedicated to a disclaimer is often good enough as a preventive measure for both parties. It gives them information on what they’re purchasing, and it also minimizes your liabilities in the event of a dispute.
3. Practice ethical marketing
It’s pretty simple: stick to the rules of the marketing platform that you’re using. As much as possible, you want to be in their good graces so that your account does not get flagged or taken down.
Also, avoid spamming your customers or using clickbait to get their attention. And make sure that what you’re flashing on advertisements speak honestly for the product. If you’re aiming for longevity (as you should), you would want to win your customers’ loyalty instead of settling for one-time transactions.
4. Avoid inappropriate products
You are in total control of which products you sell, so make it a point to choose products that won’t get you in trouble with the law. Selling knockoffs of a copyrighted item that’s doing well in the market might let you rake in profits for a while, but the repercussions could cost you your reputation and a big dent in your finances.
Look for unique products instead, and you’ll be able to sell them freely without having to watch your back.
Final Thoughts on the Legality of Dropshipping
Giving yourself time to research and prepare before launching your store is an important step to preventing legal issues later on.
Dropshipping eliminates most of the tedious work that goes into establishing a traditional eCommerce store, so it would be best to use that allowance of time and effort to keep up with the government’s rules and regulations and those of your chosen platform.
Any attempts to work around existing laws and regulations may lead to an account suspension or a lawsuit down the line. Shortcuts are not the name of the game here!
Instead, abide by ethical and legal business practices, and you’re surely set to keep and grow your dropshipping business. Happy selling!