How to Run a Legal Dropshipping Business: A 2024 Guide

When we talk about dropshipping, the reason why it’s currently the hottest e-commerce business model is that your business runs on autopilot.

With major tasks such as stocking, storing, handling returns, and shipping managed by your supplier, your checklist is limited to focusing on how to grow your dropshipping business.

For many, this is the dream business model, while others who are unable to digest its numerous benefits question its legality. If you’re asking the following question, “Is dropshipping legal?” this guide will answer all your queries in this regard. So let’s get started!

Is Dropshipping Legal?

Before we get into the details of a legal dropshipping business, let’s answer the main questions. Yes, dropshipping is a legal business structure, recognized by almost all the countries across the globe.

Apart from that, it’s also the least complicated way of getting the gist of the e-commerce market since:

● Barriers to entry are low. Dropshipping requires minimum startup costs, enabling you to start your entrepreneurial journey with as little as $100.

● It’s cheaper than the other branches of e-commerce. Certain elements of online sales, such as storing or shipping, that form a large chunk of your expenses are catered to by your supplier.

● Dropshippers have the flexibility to add new products to their catalog without any added cost depending on the changes in consumer preferences.

These tempting benefits are enough to reel in several budding dropshippers who are unaware of its complex legal structure.

Keeping the legalities of dropshipping in check is of utmost importance to escape the risks associated with it, especially if you’re extending your offerings worldwide.

Why Dropshipping Can Be Risky?

While it’s true that dropshipping is a hassle-free model as compared to other e-commerce frameworks, it still has its fair share of risks. These include:

● Intense competition: As a dropshipper, you need to remember that the product you’re selling is also being sold by multiple other dropshippers. Now, you can reduce your prices to attract customers, but there are risks involved by following pricing policies like MAP (Minimum Advertised Price).

● Lack of control: Before starting a dropshipping business, you enter into a relationship of trust with your supplier since they’re the ones handling the crucial aspects of your business, such as ensuring product quality, processing returns, or timely deliveries.

However, you have no control over their actions. If they decide to drop the ball on you one day, it can negatively impact your relationship with customers and, hence, your business.

● Product arbitrage: Some dropshippers buy their products from an existing marketplace and sell them elsewhere for higher rates. This is known as dropshipping arbitrage and has already been banned by marketplaces like Amazon and eBay. So, if you’re starting a dropshipping business, steer clear of product arbitrage.

● Selling worldwide: While no country has proclaimed dropshipping to be an illegal trade, there are certain places that have stringent pricing, shipping, or marketing laws. To avoid getting tangled with dropshipping risks, it’s integral that you’re acquainted with the laws of your target market.

Most Common Dropshipping Compliance Issues

Compliance with the law is essential to ensure the longevity and security of your business. Here are a few compliance issues that most dropshippers get caught up in their respective journeys:

● Tax laws – If you’re running a business, tax liability is a given. For dropshipping, this means collecting and sending applicable sales tax, customs duties tax when bringing in products from another country, and income tax.

● Licensing laws – Countries like the USA have imposed legal liability on retail businesses, including dropshipping, to possess an authorized license along with a sales tax permit.

● Copyright laws – Dropshippers need to ensure that their suppliers don’t sell counterfeit products to their customers, as this can leave you prone to be sued for breaching copyright laws.

● Consumer protection laws – Even though you’re not manufacturing the products being shipped to your customers, you still have to guarantee their quality and safety. In other words, this means complying with the pertinent customer protection regulations depending on the countries you’re selling in.

● Advertising laws – Advertising your offerings is essential to broadcast them to your target audience. However, if your marketing efforts are misleading, you can end up in serious legal trouble.

Legal Requirements to Protect Your E-Commerce Business

If the talk of dropshipping risks and compliance issues scared you, here’s a list of legal requirements to ensure you never get trapped in the web of any of the above-mentioned uncertainties.

Choose Your Supplier Carefully

Your dropshipping supplier has the power to make or break your business. If you partner with a supplier that sells low-quality products or knock-offs of certain items, you can end up in hot waters regardless of whether you were aware of the products being fake or not.

Sign Contracts for Every Deal

Written contracts are your bodyguards in case of any issues since they can be used as legitimate evidence in a court of law. Don’t leave a single department of your business without binding them with a contract. These include:

● Suppliers

● Freelancers

● Platforms

● Contractors

● Employees

Having these contracts as a backup can keep you protected from unforeseeable lawsuits.

Get a Business License

For dropshipping, getting a business license isn’t mandatory. However, having one can help you in innumerable ways, some of which include:

● Simplify tax filings by creating a barrier between business and personal taxes.

● Shows proof of your legitimacy to top-tier suppliers

● Reduces your limited liability. Thus, in the face of legal action, your personal belongings will remain safe.

Be Open With Your Customers

Shoppers are quick to express their discontentment in return for a poor shopping experience, with some even going to the extent of filing lawsuits. To avoid this, it’s crucial to be open with your customers about information like:

1. Refund Policies – Share your framework for handling refunds. Not only does this help you clarify your customer’s expectations, but also keeps you safe from potential liability.

2. Terms and Conditions – Establishes customer-seller understanding.

3. Disclaimers – If you’re selling products that can harm users, it’s always wise to add a disclaimer on your product (e.g., choking hazard) to safeguard your business if a customer gets injured.  

4. Privacy Policy – As an e-commerce store, you’ll need to take your customer’s personal and bank details to aid in shipping. Since you’re dealing with sensitive information, it’s imperative to have a privacy policy. Otherwise, you can be penalized or find yourself in grave legal trouble.

Bottom Line

In conclusion, dropshipping is legal, but like every other business, if you’re planning to start dropshipping, you’ll have to comply with the legal entities associated with it.

Not only does this establish you as a trustworthy brand, but keeps you backed up in case you find yourself on the receiving end of lawsuits.

With Doba dropshipping as your supplier, you’re safe from all sorts of risks that can harm your dropshipping business. Partner with Doba for peace of mind and security today!