First off, I am not a lawyer. If you really are looking for legitimate legal advice, you have to consult a lawyer. I don’t want you telling me you got sued or something following my advice. This is for informational purposes, not legal advice 🙂 Also, it is impossible for us to cover all countries in the world, so be sure to find out about the specific countries you operate in.
Alright, now let us talk about our subject matter for today. Is dropshipping legal?
The quick answer is yes. There are no laws forbidding you to buy a product from a supplier and then selling it to a consumer in your online retail business.
What you should really focus on are the gray areas that surround the entire Shopify dropshipping business model. And that is what I want to teach you today.
I will discuss:
- Business ownership
- Legal and illegal items
- Copyright and trademark infringements
- Compliance with the law
After reading this, you should know that you have been warned.
Just because you can create an online business doesn’t mean that you are not required by law to establish yourself as a legal entity.
While it is not advisable to register your business when you are just starting out, you have to register your business once it starts earning money.
Because it is illegal to conduct business if it is not registered in the government. Yes, you need a business license to operate.
By the time your business has scaled up, your government will eventually find out. And if you are a dropshipper earning tens of thousands of dollars a month without a business license, you are in violation of the law.
Different countries have different laws regarding business ownership. In addition to this, there are many forms of business—sole proprietorship, partnership, corporation, LLC, and so much more. It is best that you discuss these options with a lawyer or an accountant—only consult with a professional who can give you the appropriate guidance.
A business license also protects you from liabilities. This is why many dropshippers who have succeeded have registered their businesses as corporations. Should they come across a situation where they are financially liable, they will only lose the corporation’s asset’s, not their own personal assets.
You have to pay your taxes. It is illegal not to do so. The IRS will come knocking at your door, and the last thing you want is to go to jail for tax evasion. The government is unforgiving when it comes to taxes. Even celebrities go to jail, like Wesley Snipes.
As a business owner, you are obliged to pay your tax dues. While this certainly hurts your profitability, the law is the law.
As always, different countries have different tax rates and requirements. The type of business ownership your run also has an impact on the cost of your taxes.
Is dropshipping worth it? Of course it is. You still keep your profits after paying your taxes.
As a business owner, you have a responsibility to your government and to your country. The taxes you pay are used for purposes to develop your nation—do not skip this part of your obligation. Instead of being a problem, be the solution to it.
Legal and illegal items
Just because you do not manufacture the goods doesn’t mean you have no liability if you violated the law. You need to be selective about the products that you sell.
Here are some examples of products that you are not supposed to be selling:
- Guns – guns and airsoft guns are not items that you should be selling online. Countries issue special licenses to sellers of guns. Unless you have one, you cannot dropship this item. Also, you need to know that gun ownership laws vary greatly between countries. Your buyer may not even get the gun as it gets held up in customs.
- Drugs – anything that is related to chemicals, drugs, and drug paraphernalia are illegal. There are exemptions, of course, like art materials that have chemicals such as glue. If you are from the parts of the US where marijuana is legal, it still does not mean that you can dropship this item willy nilly 🙂
You see, in the eyes of the government, you are the seller. What this means is that you need a permit to sell marijuana and paraphernalia related to it. Only registered businesses that passed that government requirements may be issued a license like this. Avoid drug products at all costs.
There are so many more illegal items that we don’t have the time to list here. As a dropshipper, you are an adult who should know what items are allowed and not allowed. If you have no money to consult with a lawyer, a good practice is to visit Amazon and eBay and see their policies about forbidden items. Do your research to avoid pain later 🙂
Copyright and trademark infringements
It is illegal to dropship goods that violate copyright and trademarks. For example, you cannot sell Disney dolls and Marvel toys from China just because someone is manufacturing them.
You have no right to sell these toys, even if you find dropshipping suppliers that sell them. Only companies with distribution rights can do this. Also, the source of the toy must be the licensed manufacturer of the company who owns the copyright.
Do not try it on when it comes to this, it’s not worth it in the long run! If you are found out, your customers will report you to the authorities. The worse thing that can happen to you is that you go to jail for knowingly selling and distributing copied or counterfeit goods.
And speaking of counterfeit materials, you cannot sell any item that is fake, like fake Nike shoes and branded bags.
As a dropshipper, you have to sell only the items that are un-branded. Also, forget about selling cheap knockoffs of electronic items such as chargers. These things have a demand, but the amount of money you earn is just not worth your freedom. Especially if they end up causing your customers electrical faults!!
Compliance with the law
The last thing you need to know is compliance with consumer laws.
Here are some examples:
- Refund policy – there are laws protecting consumers; they deserve to get a refund for products they bought.
- Transparency – you need to put disclaimers on your website and tell the consumer what they are paying for; you should not use phrases that are misleading.
- Health and safety – do not sell hazardous items such as batteries or electronic cigarettes that can explode in people’s mouths. If you do, and something bad happens, you will be liable.
As you can see, there are so many laws that you need to abide by. In Europe, there is a GDPR policy. In America, you are supposed to disclose your physical location, even if you are an online only store. All these violations can lead to fines, which you do not want. The worse thing that can happen is for the government to shut you down.
The best thing to do is contact your local “Better Business Bureau” or whatever government agency you have that exists to help support business’. They can keep you in the loop about guidelines you should be following.
Summary: is dropshipping legal?
Dropshipping is a legal business. How you do your business is where the risks come from. You have to understand the laws governing commerce and trade, not just from your country but in countries where you are shipping to.
If you do not know it yet, there are countries with extradition treaties. If you violate their laws and what you did is a crime, in their country, you could be extradited, tried and sentenced.
To fully understand if you are in compliance with the law, consult a lawyer. If you do not want to consult a lawyer, just remember this: if what you are doing is gaming the system, fooling the customers, and selling goods that are not morally ethical, then you may be in violation of the law. And it will catch up with you at some point!
Stay on the safe side. Dropship goods that are generally accepted worldwide and avoid shady areas like guns, drugs, and pornography.