Is Dropshipping Legal? – Time to Find Out the Truth!

is dropshipping is legal
is dropshipping is legal

If you are reading this article, you may have said to yourself – man, this eCommerce business sounds too good to be true, is dropshipping legal for real? 

The short answer is – yes, it’s completely legal. However, there’s more to it and there are grey areas that you have to avoid if you consider yourself as a smart business owner.

is dropshipping legal

In this article, I’ll share my experience with you and give you the best tips to follow so that you can create a company that could be safe from potential legal battles.

So without any further ado, let’s see, is dropshipping legal or not!

Is dropshipping legal? (from our Youtube Channel)

Grey Area of Dropshipping – Stay Away!

As already mentioned, dropshipping as a business model is completely legal and there’s nothing to stop you from selling right away. However, there are possible grey areas that you have to consider before going all in.

When creating your website or working on marketing content, you can be tempted to just take any photo, video, or music from the internet and use it. However, it’s illegal to do so and that’s due to copyright violations. You can’t use the intellectual property of another person without owning the rights or having their permission. 

This can lead to potential lawsuits, especially if your business blows up and you start getting a lot of traffic.

Err on the side of caution here and find free sources for all your images, videos, and music you want to use in your marketing campaigns.

Getting all your payments to your personal bank account

Now just imagine that you work at a bank and ‘person A’ starts getting loads of cash from ‘person X’ and you see this constant flow of transactions between these two parties. Bank workers will immediately raise eyebrows after seeing this, and they can even terminate your accounts on the counts of fraud suspicion.

The best decision you can make in this situation is to open a separate bank account for your business. If you don’t do that, then at least call your bank and warn them that you will be getting more payments from a certain account.

They can tell you what steps you have to take in order to confirm the legality of those transactions. 

Ethical violations

This is a really grey area in general. Although ethical violations are harder to determine, some of them are written in law. You will have to create several policies for your store to comply with ethical standards that include: 

  • Refund Policy
  • Privacy Policy
  • Terms & Conditions
  • Disclaimers

Furthermore, you have to provide clear information to your customer about the product you’re selling. Otherwise, it might turn out as a deception for your customers, which can lead to ethical violation.

Now that we’ve talked a bit about this, it’s time to make sure whether your company is legally safe or not. More importantly, what measures are important to protect yourself from potential legal action. 

Some Legalities You Wanna Take Care for Your Dropshipping Business

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Let’s start by making sure you get all of the needed licenses to start your company.

Business Licenses

Strictly speaking, you don’t need them to start your eCommerce business. However, by getting them, you will have many advantages and it will genuinely make your life as an owner easier. Here’s why:

  • By owning business licenses, you will be treated as a real company by customers as well as partners (suppliers, marketing firms, accountants, and so on)
  • It will make your taxes easier to do. 
  • If there’s an issue with a product bought from your store, liability would be less as you are not the manufacturer

Having business licenses is what makes you an owner of a real venture in the eyes of the law, your customers, and partners.

It can be transformative for your brand image, as it says to anyone outside that you have serious intentions and are willing to walk the path of building a real company. 

Get an EIN (Employee Identification Number)

Again, this is something that you don’t need. Your business can operate without it. However, it’s better to get it anyway because of a few reasons like this: 

  • A lot of wholesalers and manufacturers will request it when you order products from them
  • Many of the licenses that are generated to operate a business legally often require to provide an EIN in the forms
  • Needed to create a bank account for your company
  • Some dropshipping platforms (like Amazon FBA) will require it for tax purposes
  • Makes taxes easier to do as it allows us to separate our personal taxes from your business ones

Obtaining an EIN is easy, simple, and takes about 15 minutes. You simply go to the IRS website and fill out your application for your EIN, that’s all. 

Business Bank Account

A good friend would always tell you to not use your personal bank account for doing business. In this scenario, I’m that sort of friend. A smart move for any company is to create a bank account under its name and do all its transactions from there.

If you go like this, you can protect yourself from penalties and potential investigations. 

Furthermore, once more money starts flowing in and out of your company, your personal account will only limit you, as it’s not created for that purpose and has more limitations than a business one.

Policies You Should Know About in Dropshipping

There are some policies that you should have written to make your business comply with all the legal requirements. 

Refund policy

You don’t need to have a refund policy for selling products. However, many countries have customer protection laws, so you can’t simply state you won’t provide any returns, since that will be against the law of the land.

The best option here is to determine how you will compensate clients, given that there’s an issue with your product and also what you will require from them as proof.

Having a refund policy protects your company against future lawsuits. Furthermore, it protects your brand from getting a bad reputation online. 

Refunding clients and offering helpful customer service will help you build a name for yourself, especially when you are just starting out.

Privacy Policy

This is a must for any business that collects personal data from its clients. In eCommerce, it’s impossible to sell a product without getting plenty of information about the client – their names, address, phone number, credit card number, etc. 

When you have a privacy policy, you give your customers the opportunity to know what kind of information you need from them and what actions they’re authorizing you to perform with it. 

Here, I recommend that you consult with a lawyer while writing it, so you can be 100% certain that it abides by the law of your state.

Terms & Conditions

Now these are not technically required by law. But yet again, it’s better to have them. Think of them as a way to protect your company (I know I’m repeating myself here, but we’re talking about the law here). 

In the terms and conditions, you can include all other company policies – like the refund one and the privacy one. So when your customers agree to the terms & conditions, they’re saying they’re “okay” with all of your policies and can’t claim you deceived them. 

Disclaimers

They serve as attention grabbers for your clients and aim to get them to acknowledge your store’s best practices. The most commonly used ones are:

  • General legal ones
  • Health and safety 
  • External links

Again, these are not created so that you abide by the law. They just provide you a safety net in case a customer starts a lawsuit. Of course, don’t take this statement as saying, “put warnings and disclaimers everywhere for protection.” 

You shouldn’t overdo them as they might scare away potential new buyers. However, you shouldn’t ignore them either. Create one or two that suit your store best and are a true warning about a certain product or policy. 

Technically, it’s legal on eBay. But, you must follow the rules of the platform and dropshipping is restricted on it. 

You are allowed to do it only if you purchase in bulk from a manufacturer.

On eBay, you can’t resell products from other online marketplaces like AliExpress or Amazon. It’s very strict about this policy and if they see that you are violating it, they will remove your listings altogether or lower their rank.

Another thing to consider is that you have to guarantee 30-day shipping. This means you must establish delivery times with your wholesale partners so that you can be certain that they will ship on time. 

Something else that may get you into trouble is shill bidding. This is strictly forbidden and if eBay finds out you are doing it, they can report you to the attorney general and you can be prosecuted. So, my advice here is – don’t get people to drive your bid prices up, it’s illegal and it’s not worth it. 

As long as you’re standing right with requirements, it’s legal to dropship on Amazon. And guess what? It’s not a short list: 

  • First, agree and comply with seller agreement and other policies
  • You also must be the seller of record for the products you offer
  • Remove all signs of a third-party dropshipper prior to shipping the order (this includes packaging, invoices, or any other identification of the manufacturer) 
  • You are responsible for any issues that occur with your product (you must accept customer returns or refund clients) 
  • Ensure you can comply with the shipping estimates provided to buyers.

Just remember, here you’re not allowed to resell from another marketplace (like AliExpress). 

Let’s start off by saying that you can’t sell anything you want on the Internet, at least not legally. The fastest way to get your business into legal trouble is through selling products that you’re not allowed to. 

It’s never a good idea to create an online store to sell a product that is owned by a recognizable brand or even if it sounds like a good plan, it’s not legal.

To have a successful company and avoid paying thousands of dollars in legal fees, keep on reading to find out what products to stay away from. 

A trademark is a symbol, word, or logo that is legally registered for use by a certain brand. It helps companies protect the logos, slogans, or even mascots that define them from being used by anyone else.

Often on sites like AliExpress, you will find products that are branded with logos of famous sports teams, people, or popular fashion brands. And it may seem like a good idea to sell these items – it’s not. 

In reality, it’s illegal and may get you into some real problems. You simply are not allowed to sell products of a brand that owns its trademark. By doing so, you’re risking getting involved in legal actions.

There are three types of trademark violations: 

  • Counterfeit: These products are created to be an exact copy of the original. Most customers think they’re buying the real thing when they purchase these items. This is called a deceptive practice and can quickly turn into a lawsuit if the client figures out what they got for their money.
  • Replicas and knockoffs: Even if it’s not illegal in some cases, I’d still advise against selling those types of items. But remember, it’s still ethically wrong because you’re still lying to the customers in some way. 

Restricted Products

Alcohol, medicine, and food are three common types of restricted product categories. They can be legal to see, but you have to acquire a license to do so, and getting it is a long and tiring process. For starters, each country has its own regulations on foods, drinks, and medicine. In such a case, you have to get a separate license for each place you want to operate in.

Another thing to consider here is that quality really matters. Selling people products that can potentially harm their health is not a good idea and since you’re dropshipping from a third-party wholesale market, it’s difficult to be 100% certain about the quality of the product.

Causing any type of health-related issue to an individual can get you in a serious lawsuit that will cost hundreds of thousands of dollars, not to mention the guilt you may feel for harming someone.

My advice is to stay away from these product categories altogether unless you’re yourself the manufacturer.

Prohibited Products

These are the types of items that you shouldn’t even consider selling. If you sell those, is dropshipping legal question would not turn in your favour.

I’m sure that your mom has told you at one point in your life: “Do whatever you want, just don’t do drugs.” Well, this rule remains true, even when it comes to dropshipping. 

However, drugs are not the only thing you are forbidden from selling. This category also includes:

  • Weapons 
  • Pornography
  • Poison
  • Precious metals

If you’re not certain whether a product you want to sell is legal or not, my advice is to consult with a lawyer who practices in the country you want to operate in.

It doesn’t matter if the business you’re starting is connected to dropshipping or not, abiding by the law and following all the required rules and regulations is the key.

Of course, eCommerce has its differences compared to more traditional types of business models. But still, it’s not that difficult to start in this space.

You shouldn’t be afraid and wonder – is dropshipping legal, okay. Yes, it’s not exciting to do the boring legal work, but it’s necessary as it doesn’t take too long, and saves you a lot of headaches in the long run. 

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