Disclaimer: This content is intended for informational and entertainment purposes. Please consult with a lawyer before making any legal decisions about your business.
If we’re honest, dropshipping is a pretty sweet gig. You don’t have to worry about stocking, shipping, or storing products. When you sell other people’s products as a dropshipper, you can take a cut and let most of your business run on autopilot.
That sounds great, right?
Sometimes it sounds too good to be true, and that’s why so many people wonder if dropshipping is legal.
To set the record straight: yes, the dropshipping business model is a legal, valid business model in pretty much every country in the world. It’s a beneficial way to get into the eCommerce game because:
While dropshipping has many benefits, its legalities can get pretty complicated, especially if you’re selling to customers worldwide. You need to structure your business correctly and follow dropshipping best practices to grow your business into something that’s both resilient and legitimate.
A little bit of planning and a call with your lawyer will set you on the right path. While you should always run an ethical business, you also need to stay on the right side of the law.
Learn why dropshipping can be risky from a legal standpoint and follow these five requirements to protect your business.
We love dropshipping, but like any business model, it isn’t without risk. If you’re considering jumping into dropshipping, you’ll face risks in several areas:
Even though the dropshipping business model is completely legal, there are a number of areas where you need to ensure that your online business is compliant to stay on the right side of the law.
Let’s have a look at the most common ones.
Like any business, dropshippers are liable for taxes, including collecting and remitting applicable sales taxes, paying income tax, and paying applicable customs and duties when importing goods from another country.
Many states in the USA require a retail business, which includes dropshipping companies, to have a valid business license and a sales tax permit. Here is a list of states requiring a sales tax permit and instructions on where and how to obtain one.
As a dropshipper, you must ensure that you don’t sell counterfeit goods violating copyright laws. This means you must ensure that your suppliers do not ship counterfeit goods to fulfill your orders, as you can be sued for infringing on another company’s intellectual property rights if they do.
You might not be making the products you are selling, but that doesn’t mean you are not responsible for the quality and safety of the products shipped to your customers. This means that you must ensure you comply with the applicable consumer protection regulations for the areas in which you are selling your products.
Like any retailer, you are responsible for accurately representing the products you sell in your online store. You will most likely encounter legal issues if your marketing efforts mislead your customers about the products you are selling. So, it is important to ensure you comply with relevant truth in advertising laws.
Now that you understand the areas in which you will need to stay compliant, look at the following best practices to help ensure you run a legitimate business.
Dropshipping does have its flaws. If you want to protect yourself and your business in the long run, we highly recommend taking legal steps to legitimize your business.
If you aren’t sure where to start, consider these five dropshipping requirements to legitimize your business. As always, make sure you talk to a lawyer before doing anything.
As a dropshipper, you depend entirely on your suppliers to store, ship, and fulfill every order. If you sign on with a low-quality or fake supplier, you’ll not only be out thousands of dollars, but you could even land yourself in hot water with the law.
You can still be liable if your supplier does something legally shady. For example, if the supplier sells knockoff Disney merchandise they assured you was real, you could still be in trouble. You're still liable even if you honestly believed the merchandise was legitimate and acted in good faith.
That’s why you need to vet suppliers very carefully. This is one of the most important decisions you’ll make in your dropshipping business, so don’t include a supplier in your supply chain without careful consideration.
Handshake agreements still happen, but they won’t protect you in a court of law. Get absolutely everyone involved in your business to sign a contract, including:
Hopefully, you’ll never need to use these contracts in court. But having contracts in place from the start can wrap you in a protective layer against lawsuits. Hire a lawyer to draft and review every contract that goes through your business. You want these contracts to be airtight so you’re actually protected if you’re taken to court.
You don’t have to get a business license to start dropshipping. You can just create your store and go.
But just because you can do that doesn’t mean you should. In the US, registering your business:
There’s nothing worse than an unhappy customer—except for an unhappy customer who’s also litigious. You want to protect your dropshipping business from lawsuits as much as possible. A good way to do that would be to disclose information to shoppers, like:
If you’re in the US, you’re probably aware of the CAN-SPAM Act. This spells out how, exactly, businesses can contact customers via email and phone calls.
Every email your dropshipping business sends out must honor CAN-SPAM and any other city or state requirements. That includes proving an existing relationship with your customer, honoring unsubscribes, and other simple but mandatory requirements.
Failure to follow email marketing laws can put your business at serious risk of a huge fine per email, so take this seriously.
Dropshipping is a legal way to earn a living. But like any eCommerce business, you have liability issues when choosing a dropshipping model. You can shield your business (and yourself) from liability by future-proofing your business with the five dropshipping legal requirements listed.
However, you should also consult relevant legal professionals to ensure your operation isn’t violating any laws.
But we know legalities are just one side of the puzzle. When you want to grow your dropshipping operation to be streamlined and profitable, you need expertise on your side. Check out Spark Shipping to streamline tedious to-dos so you can focus on the mission-critical tasks in your business.