Is Dropshipping Legal? | What Legalities Should You Look Out For?

If you just discovered the dropshipping business and are wondering: Is dropshipping legal? Yes, you're on the right path. No business should ever be launched without knowing the legalities. This post will answer all the burning dropshipping questions that you need to know, so you could decide if this kind of e-commerce business model is the right one for you. 

Dropshipping Business 101

Dropshipping businesses have been a lucrative e-commerce business since 2006 when owners of online stores discovered that they could connect to suppliers directly from China. We also provide you with the best dropshipping courses out there.

What is Dropshipping?

In a dropshipping model, you (the store owner)  do not keep products in stock. Instead, you find a third-party dropshipping company (the supplier/wholesaler) that can supply you with the products you want to sell. When a customer orders from your store, the supplier will be responsible for shipping the product to your customers. It's also good to know what automated dropshipping is.

The products won't even reach your hands anymore, which completely removes the need for storage and shipment processing. When a person orders from your shop, you forward this order to your supplier, and then the supplier ships it off directly to your customer. However, your main goal is to market the products, so more and more people order from your online store.

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Dropshipping Pros and Cons

Dropshipping businesses are perfectly legal in all countries. However, like any kind of business venture, there are pros and cons to dropshipping.

Pros of Dropshipping

  • Little startup money required: You don't have to purchase hundreds of products to sell. Your only investment is time for researching which products to sell and hunting down potential suppliers of these products.
  • No brick-and-mortar shop needed: You can travel the world and still run this business.
  • Low overhead: Because there is no inventory or store needed to run this kind of business, you won't want to pay for an employee's salary, or rent for a leased warehouse.
  • Option to sell a wide range of products: Since you do not have to buy the products you wish to sell upfront, you can list hundreds of products on your online store.
  • Highly scalable: Start with just one product, then add another product after a while. The great thing about this is you don't have to store a single product to operate.

Cons of Dropshipping

The only downside of dropshipping is low-profit margins, especially if you've chosen a highly competitive niche. You won't be the only business-minded individual taking advantage of this e-commerce business model. To solve this, you must conduct product research more extensively before you add the items to your shop.

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Dropshipping Legal FAQs

How legal is dropshipping? What kinds of business licenses do I need? Here are 5 frequently asked questions about the legality of dropshipping as a business:

1. Do You Need a License for Dropshipping?

If your business is earning money from selling products and you have a storefront, there's a good chance you'd need a business license to operate. Most cities would require business owners to apply for a business license, which is then renewed regularly.

However, if you are operating your eCommerce business completely online, you'd have to look into your city's laws and regulations to avoid any legal issues in the future.

2. Is Dropshipping Legal on eBay and Amazon?

Yes, dropshipping is legal on eBay. eBay dropshipping is allowed, as long as the seller can guarantee that their customers receive the items within 30 days from the end of the eBay listing. Anyone with an eBay seller account can dropship the products they sell at the eBay marketplace.

Yes, it is completely legal to dropship on Amazon. The company states that dropshipping is "generally acceptable" as long as you're following Amazon dropship guidelines:

Amazon allows order fulfillment by a third-party supplier as long as you:

  • Are recorded as the seller of the products
  • Identify yourself as the seller on sales invoices, and packaging
  • Remove all of the wholesaler/supplier's identifying labels from the packaging or invoices before sending the products to your customers
  • Make refund policies clear.
  • Comply with all other Amazon seller agreement terms

Fulfillment by your supplier is only legal if your packaging clearly states that you are the seller.

3. Is it Legal for Wholesale Dropshipping Companies to Ship Internationally?

Yes, it is legal to dropship internationally, as long as you follow import rules, shipping guidelines. In fact, many shop owners pick from China-based AliExpress suppliers.

4. What Legal Issues Should I Look Out for?

Yes, dropshipping is legal in America and most countries. However, this doesn't mean you won't face legal issues in the process. Examples of this include:

  • Refund problems: Whether you choose to list your items on eBay/Amazon, or decide to open up your own Shopify shop, you should have a solid refund policy.  Publishing this piece of information on every product listing will free you from so much hassle when a refund does come from a customer.
  • Inaccurate shipping times: Because shipping from other countries would take time, any customer who buys what your selling should be informed when they are likely to receive the item. When listing down shipping estimates, make sure you account for custom clearance, holidays, and other factors that could delay shipment.
  • Counterfeit issues: When you begin a dropshipping business, you get your information about the products and suppliers online. Not everyone makes a trial order of that product. As such, it is impossible to know if the items are quality made. And if you're unlucky, you might even be unintentionally marketing and selling counterfeit products. To prevent this from happening, make sure you pay for the trial order before you have it shipped directly to the customer.
  • Hunt for legitimate dropshippers: In the past, scammers roamed AliExpress and lured Shopify shop owners into making a deal with them. Turns out the suppliers aren't really there to start a partnership, but to just take your credit card payments and never ship off any product. Because of this, it is very important to find a reliable and legitimate AliExpress supplier so that you can keep the supply chain running.

5. Is Dropshipping Ethical?

Dropshipping is as legal and ethical as any other kinds of eCommerce businesses. However, if you are not careful, dropshipping can fall under the unethical category real quick. For example: if you know you can make money with a particular product even though it costs only 5% of your retail price, would you still post it on your eCommerce site?

There is no right or wrong answer to this question. What one may feel like a ripoff price, another customer may think otherwise.

Get Started with this Ecommerce Business

Dropshipping can be lucrative if you know what you're doing. To get started with this legal eCommerce business, follow this quick guide:

  • Start planning your eCommerce business. Commit to an amount you can invest in. Spend time figuring out a dropshipping business idea. Use Google trends and other similar analytical tools for keyword and competition research. Do not skip these steps. You wouldn't want to start the wrong way.
  • Choose a dropshipping supplier: Like the niche, this will make or break your business endeavor. Be thorough in looking for a supplier. If you don't have the time, your next best route is to use a tool like Oberlo that verifies potential suppliers for you.
  • Build your eCommerce shop. If you're going to use Amazon or eBay exclusively, learn about the policies of each platform first. You don't want to work hard building your online storefront only to get it shut down if you accidentally broke a rule. The superior way of selling is via your own store (get a hosting, domain and check out Shopify to help you build a shop from scratch almost instantly). If you have funds and just want to buy an existing shop, there are marketplaces available for fully functional dropship sites for sale.
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  • Fulfill legal requirement: You have to decide what kind of business structure you want (sole proprietorship, LLC, C corporation, etc.), then request an EIN for your business which you'll be asked when filing your taxes.
  • Prep your finances. Open a bank account for your dropshipping business. This is where all your money will go whenever you sell products from your shop. 
  • Obtain permits: Check what kind of business license you are required to apply to.
  • Master marketing techniques: Your sales will be directly affected by how well you conduct your marketing campaigns. Fortunately, there are plenty of ways to find potential buyers. Learn about paid ads, content marketing, influencer marketing, mobile marketing, and other ways of reaching your target market.
  • Tweak your sales pitch: Not getting enough customers? You can always change up your sales techniques, add information to your items, or brainstorm better ways of showcasing what you're selling.
  • Like any kind of business, dropshipping requires careful planning and research to succeed. 

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