But, there are legal considerations when you start dropshipping. Such as taxes, business licenses, copyright infringement, and insurance. As well as ethical issues, like return policies and clear advertising.
We have found potentially profitable products. Only to find out they are copyrighted or trademarked. If we had launched those products without checking, we could have had a legal nightmare!
After a few near misses, we have dug through everything that could get us in legal or ethical trouble to ensure our business is as safe as possible.
In this article, we will go over the following:
- Can you get sued dropshipping?
- Legal and Ethical Considerations
- Products types to avoid
- Legality by country
- Can you lose money dropshipping?
- FAQ about dropshipping & legality
Keep reading to learn more.
- Yes, dropshipping is legal.
- When launching new products, check you are not infringing on someone's copyright.
- Pay the correct taxes and ensure you have the right insurance and business license to protect yourself and your finances.
- Add privacy policies, terms and conditions, and clear returns policies to your website.
Can I Get Sued Dropshipping?
You can be sued for various reasons when dropshipping. Including anything from using a copyrighted image to being accused of selling an unsafe product that could endanger life.
Although this sounds scary, there are lots of ways to help protect yourself.
Read on to find out what to consider and how to protect yourself.
Dropshipping Legal and Ethical Considerations
Not all of these recommendations are legal requirements. But they all help to build a relationship with your customers and create a trusted brand.
We have found that honesty and transparency with our customers improve sales and create repeat purchases.
Depending on where you run your business and sell your product will determine the taxes you need to pay.
Make sure to check the guidelines from the state or country concerned. Consult with an accountant or lawyer for accurate information.
A business or selling license isn’t a legal requirement for dropshipping in the US or UK.
However, it is something we strongly suggest for the following reasons:
Legitimacy - Suppliers often respect a business more than an individual. They take you more seriously if you have an LLC or S Corp. You can get better service by forming a stronger and more trustworthy business relationship with your supplier.
Liability - A business license can lessen your personal liability. This helps to keep your personal finances away from your business ones.
Copyright and Trademark Infringement
Copyright is the ownership of creative works. Including text, video, images, etc. For example, the lyrics of a song are creative works protected by copyright.
A trademark is a recognizable sign or design that identifies it. For example, the McDonald's M is a logo protected with a trademark.
Infringement is using or producing protected material without the holder's permission.
Avoid selling branded items, like a Star Wars mug or Pokemon shirt.
You could end up with a lawsuit against you if you don’t get permission from the rights holder.
Insurance isn’t a legal requirement in all states for running a dropshipping business.
Many insurance companies are now offering dropshipping and eCommerce insurance. We recommend contacting 5-10 insurance companies and comparing their coverage and costs.
It can help to protect you and your assets from legal issues.
Return, Warranty, and Refund Policy
Some countries have legal return policies, which you must abide by.
Display a clear return and refund policy for your customers.
This should include the following:
- Time frame - How long do customers have to return products?
- Shipping fees - Who covers the cost of sending the parcel back?
- Processing cost - Does the customer need to pay a fee to return?
- Payment method - Will the refund go to the customer's original payment method? Or do you only offer store credit?
- Payment time frame - How long will it take you to receive and process the refund? When will the money arrive with the customer?
- Condition - What is a reasonable condition for a product to be in when it's returned?
- Faulty, defective, or misleading advertising - Do any requirements still apply if the customer returns for these reasons?
Adding all this information will create trust with the customers and reassurance when they buy from you. This can lead to higher sales and repeat customers.
To make sure your website is legally compliant, you might need to add the following:
Terms and Conditions - These are a legal contract between you and your customer. The customer must agree to the terms and conditions you have to purchase or use your services.
Many websites offer examples or templates for these agreements. We recommend getting these kinds of legal documents from a professional. Free online forms don’t always cover everything required for your niche.
An agreement or contract with your supplier defines the duties and responsibilities that each of you must follow.
This contract protects both the supplier and you and, in turn, your customers.
You can customize the agreement to suit you both. It can include prices, timeframes, policies, and anything else you require.
You should always commit to creating accurate content and advertising. But disclaimers add additional protection.
For example, we have added a disclaimer to this article. We aim to provide the most accurate and up-to-date article using our knowledge and experience. However, we’re not legal professionals or accountants.
False marketing will result in disappointed customers, losing money on refunds, and poor reviews.
Be realistic and truthful with your advertising. This will create trust in the brand. It will leave customers happy and more likely to give a good review and recommend your products. Accurate marketing will result in more sales for you!
Clear Shipping Guidelines
Communicating your shipping time frame clearly with customers sets expectations.
We like to display our shipping times clearly on the checkout page. This shows customers exactly how long their parcel will take to arrive.
If you promise 1-2 day delivery, and the parcel hasn’t arrived in a week, the customer is already unhappy. This can result in a request to cancel the order and a refund.
Products We Avoid Dropshipping for Legal Reasons
Products may be restricted or prohibited in the niche you want to sell.
Before you launch any new product, check the laws and ensure you have all the permits and credentials required.
We recommend staying away from the following products:
Age Restricted Products
Tobacco, alcohol, and other adult-themed products are heavily regulated and sometimes forbidden.
There are also restrictions and bans on adverts relating to these age-restricted products.
So, even if you have jumped through all of the legal loopholes, you may find promoting your products and gaining momentum challenging.
Dangerous Weapons and Firearms
Avoid, avoid, avoid - unless you want to end up with a criminal record.
The sale of firearms and weapons is illegal in many countries. If not illegal, both you and the buyer require a license for sale and purchase.
There are also the legal complications of being responsible for injury and death from those weapons.
Caution should be taken in the medical niche. Each state and country has regulations, policies, and laws to comply with.
We recommend seeking professional legal and medical advice before venturing into this niche. Selling faulty or misleading medical products can have detrimental effects. This can lead to a lawsuit and a failed store.
Facebook also prohibits ads with certain health claims, making it difficult to generate traffic and sales.
For both ethical reasons and with so many regulations, we avoid selling medical products.
A counterfeit is a fake product designed to look like another brand. E.g., a fake Gucci bag.
It’s a crime in both the UK and US.
Selling counterfeit goods in the UK can land you up to ten years behind bars. You could also face prison time and a huge fine in the US.
It’s not worth it, don’t even think about it.
We tend to steer clear of dropshipping electricals. We have found there are too many risks that outweigh any benefits.
Electrical are more susceptible to going wrong after a few weeks of use, resulting in refunds and lost profit.
They also have safety risks that need to be checked, depending on where you buy and sell them. The safety risks can increase your chance of injuring a customer. Not only would this be awful for the customer, but it could result in the closure of your store and a big legal battle.
Which Countries Is Dropshipping Legal In?
Dropshipping is legal in many countries, including the US, UK, India, Canada, Australia, UAE, and New Zealand.
Depending on where you are based, and the country you’re selling in will determine the regulations and laws you need to comply with.
These could be consumer laws, consumer protection, privacy laws, as well as needing a business license or insurance.
Yes! Dropshipping is growing in the UK and becoming more popular.
Make sure your products comply with UK consumer laws.
Yes! It is legal to dropship in the US.
The US has more infrastructure for dropshipping than the UK. It has more storage warehouses making delivery and returns simple.
Shopify operates in India, making it easy to set up your storefront.
Research shows that India’s eCommerce market is rapidly increasing, so there is no better time to start.
Make sure to check that you can legally sell the products in Canada.
You must abide by the Competition and Consumer Act and other relevant laws and legislations.
You might need a trading license before you start, so seek professional advice before setting up shop.
Certain laws need to be followed in New Zealand when selling online.
Can You Lose Money with Dropshipping?
Yes, it is possible. Dropshipping is often sold as a low-risk business model. Even with all the research and due diligence, you could still face problems resulting in lost money.
Common reasons people lose money dropshipping include the following:
- Sample product cost - Checking the quality of your product is essential. You’ll usually have to pay the shipping cost and sometimes the cost of goods to test the product before you commit to selling.
- Broken Items - You will need to arrange a refund or replacement if a customer receives a damaged or faulty product. Or if the product becomes defective or broken after use. This could be a costly mistake if you haven’t agreed with your supplier on handling this.
- Shipping Delays - Shipping delays can result in customers requesting a refund before even receiving the product.
- Advertising Overspend - If you spend more money on advertising than you are making in profit, you will lose money.
All of these reasons can result in your dropshipping business running at a loss.
How Do I Start Dropshipping Legally?
Find a product that is legal to sell, find a supplier who can sell you that product, and create your dropshipping store. Check if you need a business license in the area you’re operating.
Do You Need Permission to Dropship?
You are free to dropship without permission, provided you follow the laws where your business is operating. Make sure not to infringe on any trademarks and stick to the terms of service on any platforms you use.
Can You Get In Trouble for Dropshipping?
Yes. You could get in trouble with your customers, other sellers, or the authorities.
This could be by selling a counterfeit product, not paying your taxes, or misleading advertising, amongst other things.
Is Dropshipping on Amazon Legal?
Yes, but there are strict policies you must adhere to. The competition with Fulfilment by Amazon sellers can make it less appealing.
Is Dropshipping on Shopify Legal?
Yes! We use Shopify to build our eCommerce stores. Not only is it legal, but Shopify actively encourages dropshipping on its platform.
Is Dropshipping on eBay Legal?
Yes! It is legal to use eBay to dropship. You can advertise and sell your products on eBay. Then, your supplier can fulfill the orders directly.
Is It Legal to Dropship from AliExpress?
Yes! It is legal to use AliExpress to source a supplier. The supplier can then send your dropshipping products to customers.
The suppliers on AliExpress are familiar with dropshipping. This makes it an excellent choice for a smooth and seamless dropshipping store.
Use the information we have provided to check each product for potential legal issues before adding it to your store.
Offer a transparent warranty, a clear returns policy, and truthful ads.
Build a store that you are truly proud of and would be happy for family or friends to order from.
Check out our Product Database to help find your next winning product.
Disclaimer: We have done as much research as possible to help provide general information. The information provided is not intended to replace or serve as legal or financial advice. Consult with a professional advisor before making any decisions.