Is dropshipping a legal business practice? As more sellers are jumping on board and finding easy ways to make high profits, it may sound too good to be true.
In fact, dropshipping has become the best way to earn profits in the e-commerce world. The demand for products is so high that almost anyone can open a store and start earning right away.
But can it be legal to resell a product you don't own? The truth is that dropshipping in general is a legal and generic business model. The key is to avoid illegal risks as you go on a profitable journey.
In the article Is dropshipping legal? All you need to know about 2022, we will discuss how to run a legal dropshipping business. We will look at the different requirements that a company must follow and the types of practices that you should avoid, in order not to turn to the illegal side.
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| Is dropshipping legal |
Is dropshipping legal?
take it easy. Dropshipping isn't just legal; everything around us. Both e-commerce stores and regular retail stores participate in dropshipping.
If you think about it, dropshipping is just a way to fulfil. You take orders from customers and have your supplier ship products directly to them. Therefore, a lot of retail stores prefer dropshipping. It is an easier, faster, cheaper and less risky method of realization than holding inventory.
So, in this case, you must be wondering: Is dropshipping legal on eBay, Shopify, Amazon, Wix, and Facebook?
at all!
At this point, it supports major selling platforms like Shopify and Wix and encourages dropshipping. Shopify owns Oberlo, a dropshipping platform that helps you find products. For its part, Wix recently launched a comprehensive dropshipping platform.
Rest assured that such major companies will not risk public promotion of illegal practices.
Additionally, eBay, a leading global online marketplace, encourages dropshipping from wholesale suppliers. Officially, it bans dropshipping from retail marketplaces like Amazon, but in reality, plenty of sellers do so without hindrance.
However, in some ways dropshipping on any platform can become illegal.
For example, you are not allowed to sell copyrighted or branded products.
With that in mind, let's cover the legal obligations of dropshipping companies and the types of activities to avoid.
Do I need to pay taxes?
When all is said and done, dropshipping is a business like any other. There are many obligations you have as a business owner to remain up to their legal responsibilities.
For starters, you are required by law to file and pay dropshipping taxes. These taxes generally fall into two categories: sales tax and income tax. Dropshippers collect sales tax from customers on every purchase and send money to the government at the end of the year.
Many sales channels collect and pay sales tax for you. However, it may not. So, always check your sales channel before you start.
On the other hand, income taxes are a percentage of dropshipping profits that the business owner pays at the end of the year. Governments do not automatically collect this money from us. Instead, we must file our income tax return at the end of the calendar year.
Finally, don't forget to comply with the privacy rules. Many countries and localities require that you keep all customer information, especially payment information, private. Today, it is standard practice for dropshipping stores to write a privacy policy and make it available for customers to read.
Should I open an LLC?
Although not a legal obligation like taxes, registering your dropshipping business as a Limited Liability Company (LLC) is a useful way for you to avoid legal trouble down the road.
Once your company becomes a registered LLC, it becomes a separate entity for liability purposes. If the company is issued for any reason, your personal assets will not be at risk.
However, switching to an LLC does not replace good business practices. So don't treat it as a free ticket to act recklessly. Moreover, this method does not completely protect you from liability in all cases.
What is a dropshipping agreement, and should I get one?
Dropshipping agreements formalize the business relationship between you and the supplier and confirm that you are a legitimate distributor. It gives you an extra layer of protection so that if something goes wrong with the shipping or the product itself, the agreement obligates the supplier to correct the problem.
However, that does not mean that not having a dropshipping agreement makes you illegal. Not many suppliers offer a dropshipping agreement, yet some, like AliExpress, encourage dropshipping.
So, when a supplier offers a drop shipping agreement, you should get one. But don't let the lack of an agreement stop you from using other quality suppliers like Amazon or Walmart.
What are legal dropship products?
Aside from maintaining the trading system, you should also pay attention to the products you are selling. We can't sell anything in a dropshipping store.
There are four important elements to keeping your products legal:
- Stay away from copyrighted products
- Do not sell age-restricted or prohibited products
- Avoid listing dangerous items
- Do not sell special categories such as medical products or nutritional supplements
Let's dig deeper into each of them, so we know what to look for.
Copyright
We'll start with copyrighting because it's a common mistake shopper make. As a general rule, avoid listing or selling any item that you know is protected by copyright. Big brands like Nike or Adidas are more straightforward, but there's a lot more you might not guess on your own.
The eBay Vero page contains a list of sellers and manufacturers whose products we cannot sell without express permission. The database includes detailed information about how each company intends to enforce copyright infringements.
Needless to say, these companies are not interested in where the violation occurred. It could be eBay, Shopify, or any other online selling channel.
So treat eBay VeRO as a helpful resource that can help protect you from copyright infringement no matter what sales channel you're currently using.
What happens if you sell a copyrighted product?
Consequences of violating copyright rules can range from removal of your listing, suspension of your account, or potential legal action. While the latter is less common, any of them are bad for business. So before you list something, double-check the eBay VeRO website.
Verifying the eBay VeRO site can take a long time each time you list, especially if you are trying to expand. That's why your best bet is to use the AutoDS platform. Armed with the eBay VeRO Detector, the system alerts you when you try to list an item from the VeRO listing.
For additional information about eBay VeRO and what to do when a violation occurs, follow our detailed eBay VeRO guide.
Prohibited and age-restricted products
Next on our list are age-restricted and prohibited products. While fewer leakers make this mistake, it can lead to more serious consequences than copyright violations.
Most countries, especially in large markets such as the United States or Europe, have strict laws and regulations regarding the sale of age-restricted items to minors.
To be clear, in some US states, selling alcohol or tobacco products to minors is a misdemeanour punishable by fine or possible imprisonment.
This is in addition to the fact that selling tobacco online even to adults is a complex legal landscape. Usually, many states require retailers to have a license.
Do you then need a license to dropship tobacco products? There is an opportunity to do so, and it depends on several factors. Only a lawyer can give you a clear answer.
However, when you consider the risks of selling to minors, it is best to avoid dropshipping tobacco altogether.
Regarding non-age prohibitions, some countries prohibit the sale of sex toys or other products of an adult nature. It can also vary from state to state within the country.
Moreover, many ad platforms block ads related to adult content, so it is best to avoid dropshipping from this category. To keep things simple, refrain from selling anything that is listed in Facebook's Commerce Policies, which apply to all sales channels.
How do some banned stores sell?
You may find online stores that sell prohibited categories. Don't assume it makes it okay. These stores are either fully compliant with complex regulations or take unnecessary risks.
Given how dropshipping works, complying with complex rules can become a burden. Therefore, it is best for you to completely avoid the prohibited categories.
With millions of fully legal products from an abundance of categories, there is simply no need to take risks.
Can I sell firearms, ammunition and other dangerous weapons?
Weapons and ammunition are a very dangerous category to be avoided like the plague. Some require that you and the buyer have special licenses, while others prohibit it entirely.
Due to the severe penalties for violating these laws, one wrong move can make you criminally liable. This is in addition to the possibility that you will be liable for damages and injuries resulting from the use of these weapons.
Can I sell medical supplies and similar categories?
Although not as dangerous as weapons, medical devices and supplements are additional categories that you should avoid selling in your dropshipping store.
Special laws and regulations govern the sale and marketing of these products. You will have to be very careful about the claims you make in the advertisement or product description. In some cases, you may need a special license to sell them.
Additionally, once customers receive a medicinal or supplement product, they may request instructions and instructions about its use or troubleshooting. Without the right knowledge, you cannot help them.
Finally, in rare cases of injury resulting from the use of a medicinal product, you and your business can become liable. So it is best to stick to simple categories that you can sell and market at your discretion.
Dropshipping Fake Products and Scam
Other than avoiding certain categories of products, you should be on the lookout for scams and counterfeit products. Adhering to this rule is essential to maintaining a legal and profitable dropshipping store.
Unfortunately, in today's massive e-commerce market, it is not uncommon to find suppliers selling imitations of famous brands. Selling such things is illegal, and you and the supplier are complicit, even if you didn't know.
Another way a supplier can cheat a drop shipper is by not fulfilling an order at all. Alternatively, the supplier can collect the payment and never send the item.
To protect yourself from such scams, start by going with reliable and proven suppliers. AutoDS supports over twenty-five resources, and it's best to stick with those.
However, that won't protect you one hundred per cent of the time. So research your product by checking the seller's reputation and avoid big brands or fakes. It should keep you in a good place.
Is dropshipping legal in the US, UK, Canada, and Australia?
The vast majority of countries allow sellers to use the dropshipping model. However, each can have its own regulations in place.
For example, each state sets its own tax laws. The income tax structure can vary depending on where you live. Correspondingly, the import tax depends on where the end customer lives.
Like taxes, each state can differ in how they regulate online selling. The UK,
for example, has strict consumer protection and anti-competition laws, while other countries may not be as stringent.
Fortunately, many suppliers and sales channels handle country-specific rules for us. However, it may not. To avoid surprises, try to familiarize yourself with the laws of each country before expanding into new markets.
What is price gouging? Is this legal?
It has become very common to hear about natural disasters these days. Unfortunately, this devastation often leads to shortages of supplies of all kinds.
For some dropouts, an emergency can seem like an excellent opportunity to increase profits by raising prices for goods in high demand. However, depending on the level of the increase and local laws, this practice can be considered price gouging.
Some notable examples of price gouging include raising the price of batteries in the hurricane. Likewise, the early stages of the Covid19 epidemic saw shortages of hand sanitiser and toilet paper for some strange reason. Some sellers have raised prices to unreasonably high levels, only to discover that they are illegal.
Keep in mind that price gouging laws vary by country and location. Each one sets its own thresholds for the prohibited percentage. Likewise, the products and categories to which restrictions apply differ from place to place.
The lesson is strict adherence to local price gouging laws, most of which apply in case of emergency.
However, in most cases, you can and should raise the prices of your products. A good pricing strategy can go a long way in increasing your profits and sales.
Dropship Legally and Profit
There you have it, a comprehensive guide on dropshipping legally. It may sound like a lot of information, but remember that some sales channels actually cover many legal hurdles.
In addition, the scenarios we have presented are very rare. Most shoppers don't want to sell guns. Likewise, it is not uncommon for a supplier to cramp you without ordering or sending a fake item.
At the end of the day, dropshipping is legal and profitable. Why are you afraid of regulations?