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Is Dropshipping Legal? and How To Avoid Infringement Issues

Blog, eCommerce Insights | November 19, 2020

For those entrepreneurs who wish to start their own enterprise, dropshipping could be a great way to be your own boss, ditch the 9 to 5 and be in control of your income.

 

According to those in the know, the U.S. online retail sales of physical goods during 2019 reached an incredible 343.15 billion US dollars and is projected to reach upwards of 476.5 billion US dollars in 2024.

 

So with eCommerce stores and dropshipping ventures set to rapidly increase over the next few years, many business owners might be asking the question, is dropshipping legal?

 

So let’s hit the ground running with the definitive answer before we head into more details.

 

Is dropshipping legal? Dropshipping is legal in the US and many other countries. Always check if you intend to set up your store in a different country. Be sure not to sell any replicas, counterfeit, copyrighted, or banned goods such as medicines or drugs. Follow standard business set up procedures and register for tax.

 

So that’s the short takeaway nailed, so we can better understand whether dropshipping is legal, let’s start by exploring a little more about the dropshipping model.

 

What exactly is the dropshipping model?

Dropshipping is a type of eCommerce method where an online store doesn’t actively keep the products it sells physically in stock, such as in a warehouse.

 

Instead, when a store sells a product using the dropshipping model, it purchases the item from a wholesaler or other business and then has it shipped directly to the customer. Using the dropshipping method, the seller doesn’t handle the product directly.

 

One of the main differences between dropshipping and the more usual way of conducting a retail business model is that the seller doesn’t own any stock or inventory. One of the main benefits of the dropshipping model is, according to Shopify is,

 

Not having to worry about fulfillment is incredibly convenient and frees up your

time to concentrate on your marketing plan, customer service, and operations.”

 

What are the basic requirements of a dropshipping store?

So before you get started with your dropshipping store, make sure you’ve got these basics covered.

Brand and logo

One of the first things most people do when starting a new business venture is to create a logo and start to develop their brand.

 

It’s a good idea at the outset to register your brand for copyright protection and set up as an Entity.

 

Setting up as an Entity will bring you better tax rewards and protection.

 

There are various types of business entities:

 

  • Sole proprietorship
  • Partnership
  • LLC
  • Corporation

 

A business’s entity type dictates both the structure of your organization and how the company will be taxed.

 

Making sure you do both of the above important steps will also be a useful addition to your offering if you decide to sell your business at a later date, for any reason.

 

“It’s a good idea at the outset to register your brand for

copyright protection and set up as an Entity.”

 

Business license

Although legally a business license isn’t required to set up a dropshipping or eCommerce store, it is an important part of making sure your business is as compliant as possible alongside other traders.

 

Although you can start a store and begin trading without a license, it’s a good business practice to factor it into your business plan. It’s worth understanding too that having a business license can actively reduce Personal Liability if any product in your store creates an issue.

 

If you are going to be conducting your dropshipping or eCommerce store in countries where lawsuits and legal action are common, such as the U.S, a business license is imperative.

 

“having a business license can actively reduce Personal Liability, if

any product in your store creates an issue.”

 

Refund policy

Although a refund policy isn’t a bona fide legal requirement of entrepreneurs starting a dropshipping venture, in order to make sure you offer the best service you can and also to protect yourself, it’s important to have a refund policy.

 

The internet is the perfect place for opinions to brew, whether right, wrong, or even justified, but having a refund policy in place will protect you and your brand.

 

If any unhappy customers want a refund or exchange, having a robust refund policy in place means you can refer your customers and be able to arrive at a satisfactory arrangement for both you and your customers.

 

“having a refund policy in place

 will protect you and your brand.”

 

Shipping time promise

So you can remain as transparent as possible in your quest to avoid any difficult situations with customers, you need to make your shipping times as visible as you can on your store.

 

A shipping details page on your website could link from checkout and the footer. The more your delivery times are transparent, the better for both you and your customers.

 

Being as clear as possible about potential delivery times will help to disarm potential complaints, and also reduce refund requests.

 

So now we’ve looked at some of the initial important things to do in order to comply legally as a dropshipping business, let’s now take a look at any potential dropshipping copyright infringement issues and how to avoid them.

 

“Being as clear as possible about potential delivery times will help

to disarm potential complaints, and also reduce refund requests.”

 

Infringement issues

Any dropshipper providing any goods of the following nature could find themselves with an infringement issue, so make sure you fully understand the implications of every product you sell and do thorough research as it’s the store owner’s responsibility.

 

  • Trademark copy
  • Replicas and copycats
  • Forbidden categories such as medicine and drugs

 

“make sure you fully understand the implications of every product you sell

and do thorough research as its the store owner responsibility.”

 

With dropshipping stores most certainly legal in many countries, including the US, this important subject now leads us on to a topic that may put that legality into jeopardy, which is counterfeit goods.

 

Why you shouldn’t dropship counterfeit goods

Make sure you practice due diligence when researching all products for your dropshipping store as you may find yourself inadvertently selling goods that are counterfeit.

 

The repercussions of this, if discovered can be devastating to your business and may even force you to cease trading altogether.

 

Let’s take a look at what could happen if you dropship counterfeit goods.

 

  • Payment gateway freeze
  • Ads account close
  • Lawsuit

 

Although we now of course understand that dropshipping is legal, are there any intellectual property situations you should be aware of?

How to avoid Intellectual Property infringement

Many suppliers might not be not aware that their products are violating intellectual property.

 

It is down to the store owner themselves to undertake a full check of the legitimacy of every product for sale on your website.

 

  • Do your research
  • Ask for a distribution permit
  • Get legal consultation

“It is down to the store owner themselves to undertake a full check of

the legitimacy of every product for sale on your website”.

 

To finish on…

We hope this article has given you some background into whether dropshipping is legal and some of the important measures necessary to be compliant and start a successful dropshipping enterprise!