The Legality of Dropshipping: Everything You Need to Know

DISCLAIMER: This post is meant to provide general information – not legal advice – to anyone wondering if dropshipping is a legitimate and legal business model. For the nitty-gritty details, you’ll want to talk to a legal professional who knows the laws and regulations regarding dropshipping in your part of the world.

We want to make it clear we’re not lawyers. We’re just a couple of guys sharing our experiences with dropshipping and our knowledge of how it works. Please don’t hold us or Dropship Breakthru responsible for how you use this info.

Alright, with that out of the way, let’s get to the point of why you’re here.

“Is dropshipping legal?”

We always get asked this question, so here’s what we know.

We’re assuming you already know what dropshipping is. But just in case, here’s a quick recap. Dropshipping is a business model where you sell products online without holding any inventory. Instead, you forward your customers’ orders to your supplier, who ships the product directly to your customer.

The products vary in price from a couple of bucks to thousands of dollars. Our businesses have focused on high ticket dropshipping products going for $800 or more.

If you want to start your own Ecommerce business, this is a fantastic and life-changing way to do it – with minimal risk and upfront investment. (We calculated, it’s less than $500. Not bad, huh?)

And now … to answer the burning question, “Is dropshipping legal?”

Yes, absolutely! Dropshipping is totally legal.

If you’re thinking about it as a new business or even a side hustle, don’t let legal worries scare you away. You just need to know the rules – like any other business.

Watch it on YouTube

Understanding Basic Dropshipping Legal Requirements

Let’s start with the main questions and stumbling blocks newcomers to dropshipping usually run into.

Business Structure

When starting an Ecommerce business, it’s important to consider which structure will work best for you. There are several options to choose from, each with its own advantages and disadvantages.

Common options in the US include:

Sole proprietorship might be the right fit if you’re looking for a straightforward option. However, it offers the least amount of legal protection. You should also avoid using personal bank accounts and credit cards as a sole proprietor, as this can be a mess to sort out down the line.
Limited Liability Corporations (LLCs) can provide better liability protection for you and your business. So, if you want to get into dropshipping for the long haul, this might be the better option.
Partnerships can be great if you find someone who brings skills and experience you don’t have. Partners can also help with blindspots you may have, which can help grow your business.

And remember, the rules outside the US are likely to differ, so you should learn the legal requirements of the country you’re operating from.

Bottom line: It’s quite an easy thing to solve. Don’t let it hold you up from taking massive action.

Liability

There’s a common misconception that as a dropshipper, you’re liable for everything. However, this is only partially accurate.

Example: You buy an X-Box from Walmart, and it breaks. You’d go to Microsoft, the manufacturer (that usually offers a warranty), for a resolution to the issue – not Walmart, the retailer. It’s the same for dropshipping, especially high ticket – you’re the retailer.

However, this isn’t always the case for cheaper items. It can get confusing unless you know the differences between low ticket and high ticket dropshipping.

That said, there are still liabilities you need to know about. Like, you can’t sell:

Products with trademarks or logos that you’re not authorized to sell. This includes knockoffs and counterfeit items, which are illegal and can get you into serious trouble.
Products that don’t meet safety standards or have other limitations prohibiting their sale. Due diligence is your friend. Ensure your products are safe and legal to sell in your jurisdiction.

Contracts

Contracts are a necessary part of any business venture. You’ll sign contracts with your suppliers and possibly other providers, such as payment gateways or distributors.

Contracts are legally binding agreements that establish the rights and responsibilities of everyone involved. That’s why it’s important you read them carefully and understand all the terms and jargon before signing them.

See a lawyer or business advisor if you’re unsure about anything in a contract.

Sales Tax & Certificates

Taxes, as much as they might annoy or confuse us, are unavoidable. But don’t let that turn you off from starting a dropshipping business.

Sales tax differs from state to state, so we like to keep things simple by getting the experts to take care of it from the outset. We recommend you use a service like Tax Valet.

In the US, you need a resale certificate in your own state to start your dropshipping business. You’ll need to charge sales tax in your state when starting out as well.

Every other state has its own requirements and thresholds.

Policies (Returns & Refunds)

A clear returns and refunds policy is vital and helps avoid potential disputes. The good news is creating a fantastic policy is easier than you think.

Plus, it can help you win business if you have a clear policy that makes customers feel more confident about a big purchase.

Start by matching your supplier’s policy or blending the best bits of different policies into one you’re comfortable with.
Keep it straightforward. You want your customers to understand the process without having to decipher any complicated legal jargon.
Outline the conditions for returns and refunds, such as timeframes and product condition.
Make sure it works for multiple products if you sell more than one thing.
Be proactive and remember, it’s YOUR business. Build a policy that works for you AND your customers.

Accepting Payments

When you take payment for a product, you’re entering into a contract with the customer to deliver goods they’ve paid you for. It’s not just an ethical obligation. It’s a legal one to ensure the order is fulfilled.

Work closely with your suppliers, keep an eye on the delivery process, and communicate openly with your customers. Look at it as an opportunity to provide top-notch service by ensuring your customers receive their orders on time and with a smile.

Dropshipping legal requirements are no more complicated than any other business. If you’re prepared to put in the research and effort, you can build a successful and compliant Ecommerce business to be proud of.

Our course for building a life-changing dropshipping business covers all the potential issues that trip people up when starting.

Now let’s look at some best practices for dropshipping, which overlap many of your legal obligations.

Want to start your own high ticket dropshipping business?

Watch this FREE, on-demand training session that will uncover the exact steps you need to take to launch your first high ticket dropshipping business in the next 30 days.

Best Practices to Avoid Legal Headaches in Dropshipping

A great way to avoid legal hiccups is to sell high-quality, established products made in your own country.

This approach ensures products meet the necessary safety and quality standards and avoids navigating complex international regulations.

In contrast, low ticket dropshipping can be a minefield of trademark infringements and counterfeit goods.

We recommend prioritizing quality over quantity and building a reputable Ecommerce business.

Here are some pointers.

Getting a Resale Certificate

To get your dropshipping business off the ground in the US, you need:

A resale certificate for your state
An Employer Identification Number (EIN) if you plan to hire staff or open a business bank account

Make sure you do your homework on the rules in your area and double-check with a legal expert. Your local Small Business Administration (SBA) office can also be a great resource to ensure you cover all the bases.

Creating Terms & Conditions

Creating clear and comprehensive Terms & Conditions (T&Cs) from the outset will help you avoid potential headaches. Make sure to include these on your website and that they are easy to find.

When drafting your T&Cs, consider the customer’s purchasing journey so you cover all the critical information they need to know, like shipping times and return policies. You can base them on what your retailer says on their site to ensure everything lines up.

Describe Your Products Accurately

Making over-the-top and misleading claims about your products is illegal, so just don’t do it. It leads to unhappy customers and possibly legal trouble. So always describe your products accurately.

A great way to do this is to imagine you’re the customer. What kind of information would help you make a purchase? Size, colors, materials, unique features?

And, of course, make sure everything you say lines up with how the manufacturer describes the product.

Have a Clear and Efficient Return Policy

Returns are inevitable – they come with the territory of any retail business. But with high ticket dropshipping, the rate of returns is lower because your customers tend to do more research and know what they want before they purchase.

When you do have products returned, make it as easy and pleasant as possible. Your customers will appreciate your honesty and willingness to make things right.

Handle Returns and Refunds Promptly

We can’t stress enough the importance of handling returns and refunds promptly. This tells your customers you’re committed to providing outstanding customer service and prioritizing their happiness.

Excellent customer service is the secret sauce to a successful Ecommerce business. Customers are more likely to purchase from you again and recommend you to friends.

Vetting Suppliers

If you properly vet your suppliers, you’ll avoid pitfalls like counterfeit items, inconsistent product quality, or shipping delays.

But if you’re following our tips on starting a high ticket dropshipping business, then you already know to look for well-known and established brands to work with (we teach you how to find them in our course).

Start by looking at their reviews, testimonials, and social media accounts to get a feel for their reputation. While you’re doing this, appraise their responsiveness, shipping methods, and level of customer service.

When you’re ready to discuss terms, here’s a great podcast episode to help you negotiate the best possible margins for your new business. Though, you only want to do this after you’ve established yourself as a solid seller of their products.

Fulfilling Orders and Handling Payments

When you accept a customer’s payment, place the order immediately with your supplier. Keep an eye on the entire process to ensure the product reaches the customer without a hitch, and keep them informed every step of the way.

For payments, we recommend Shopify, which handles this for you via Stripe whitelabeling.

Product Safety & Compliance

Prioritizing product safety is a legal obligation and reflects your professionalism. Non-compliant products can result in consumer complaints, negative reviews, or even costly fines. All of which will impact your business’s bottom line and reputation.

Take the time to research the safety regulations relevant to your products, and work closely with your suppliers to ensure they meet these standards.

Is Dropshipping Right for You?

Starting any Ecommerce business can be stressful. But as long as you follow the basic legal requirements and best practices outlined in this post (and get proper legal guidance), dropshipping is well worth it.

To recap:

Make sure you fulfill your obligations when accepting payments
Never make misleading claims about your product
Avoid selling unauthorized items with trademarks or logos
Always ensure your products meet local safety standards and regulations.

Watch this FREE, on-demand training session that covers the steps you need to take to launch your first high ticket dropshipping business in the next 30 days.

Want to start your own high ticket dropshipping business?

Watch this FREE, on-demand training session that will uncover the exact steps you need to take to launch your first high ticket dropshipping business in the next 30 days.

Article by Jon Warren

Jon Warren started his first high-ticket dropshipping business 7 years ago and hasn’t looked back.

Worked with 400+ Ecommerce business owners to help them grow their business
Started 3 high-ticket dropshipping businesses that reached 7 figures per year in revenue
Managed marketing for his and his clients’ businesses that has produced 117,000 high-ticket purchases for an estimated value of $120.5M