Is dropshipping a legal business model? Can you dropship from AliExpress using Shopify legally? The consesus is...
Some beginners find it hard to believe that an ecommerce business model where you never touch the items you're selling is legal, but in reality, dropshipping has been around for a long time and has always been legal.
At its heart, dropshipping is an ecommerce business model where you (the retailer) do not keep stock of the goods you are selling, meaning that your customers orders are fulfilled by the manufacturer of the goods or a sourcing agent, thereby drastically cutting business costs.
In this sense, it could be seen as obvious that dropshipping is not only a legal business model, but also an advantageous way of running a company - as there is no need to hold stock that won't sell, a smaller upfront investment is needed and you have the ability to list an enormous range of products on your website.
Is dropshipping legal? It's an easy question to answer. However, the legalities of dropshipping can get quite complicated, in this article we're going to cover all the common scenarios that you need to take into account.
Before eCommerce came about, issues with suppliers were commonplace and starting an ecommerce business, especially one that has a business license and focuses on selling good products. For this reason large corporations started using the dropshipping mode of fulfilment for some of their products. The only thing that changed with the advent of eCommerce is that dropshipping became accessible for small ecommerce businesses and individuals alike. This meant that the availability of good products vastly increased, further improving the odds of dropshipping business success.
Even though AliExpress and Shopify dropshipping in and of itself is completely legal, if you’re not careful and don’t do your due diligence, you might run into potential liability, especially taking into account that there are large players with deep pockets out there. For that reason it is best to learn of the potential implications and stay on the safe side.
What will follow is a discussion of all of the key factors that must be considered by anyone who is thinking of starting a Shopify dropshipping business.
One of the first things that come to mind when starting a Shopify dropshipping business is: Do I need a licence? Will suppliers care if my ecommerce business doesn't have a business license? Do I need a business license for marketing?
To put it simply, in order to start a Shopify dropshipping store and start selling products from that store, you don’t need any type of ecommerce business licence. However, that being said, just because it’s not a legal requirement does not mean that it is not a good idea to factor that in, especially taking into account if you’re going to run a long-term, legitimate business, so the benefit of getting a business license is an obvious one. Outlined below are some of the reasons why you might consider getting a business licence.
Please note, this article is for educational purposes only and should not be taken as a legal or financial advice. Rules and regulations are widely different from county to country. Be sure to do your due diligence and carefully evaluate each potential option when starting an ecommerce business.
This is where having a business licence helps the most. If you purchase stock through your store, there is less risk to incur personal liability. This is particularly important if you live in a country that’s prone to litigations, such as United States. For that reason, in the US every ecommerce business has a business license (ie eBay, Amazon, AliDropship, Chinabrands, etc)
The risk of liability is particularly high when it comes to AliExpress dropshipping, due to the fact that this business model is heavily reliant on (for the most part) foreign suppliers, such as AliExpress, Alibaba, etc. In China, for instance, product quality and customer protection laws are much more lenient than in the West and refunds, more often than not, are hard to come by. For that reason, you need to be careful when purchasing inventory for your ecommerce business.
Apart from getting a dropshipping business license, something worth considering is product liability insurance, this will limit your legal and financial repercussions in case of faulty goods are being sold through your ecommerce store. It will also cover any legal fees arising from a potential dispute (including personal injury, property damage, pecuniary loss, etc). This problem shouldn’t arise assuming that you stick to the safe niches, as we teach in our guide on the niche selection, nevertheless, it’s better to be safe than sorry, so it is something worth to consider.
Whilst in some jurisdictions have heavy business regulations and laws specifically aimed at ecommerce stores, where dropshipping customer refunds are prescribed by law, in others there is no such requirement. Nonetheless, irrespective of jurisdiction, 99.9% of ecommerce stores (including dropshipping stores) around the world have some sort of refund scheme, a legitimate ecommerce business cannot simply state: “No Refunds”.
It is important that you clearly outline what your dropshipping store policy is when it comes to refunds. Sooner or later every ecommerce business will have a dispute and having a refund policy to refer to can make things run a lot smoother.
Disclaimers are statements made by you in order to make it clear to the customers how your dropshipping business operates. Unlike legal agreements, these statements are just there for the customer to take notice. These can be quite important when it comes to limiting your liability, in case a potential dispute should arise.
Common disclaimers include:
It is important that you don’t over do it and scare away your customers with disclaimers popping up in every page. What types of disclaimers you use and in what quantity will depend on what your niche is, what type of products you’re selling, the risks involved, etc.
Amazon and eBay are two of the largest online marketplaces in the world. For that reason it is understandable that many sellers want to take their ecommerce business to those platforms. Strictly speaking, eBay and Amazon do not prohibit AliExpress dropshipping, however, it is important to ensure that whilst trading on those platforms you abide by their company policies. It’s particularly important that you abide by the seller requirements, below is a brief outline of things that you should be aware of.
What new AliExpress dropshipping businesses often do, when they first start selling on Amazon or eBay is to purchase ite from big retailers, such as Walmart and then placing them on Amazon/eBay for a significant mark-up. It’s basic knowledge that retail prices are different to wholesale prices, therefore buying from big retailers and then re-selling those same products again on eBay/Amazon constitutes a double mark-up and constitutes a noticeable price inflation.
Understandably, such practices are undesirable and put your seller account at risk, which is a problem if you're Shopify dropshipping. Moreover, because of the final price being too high, this deters most new customers from buying anyway, so no matter how you look at it, it’s simply not worth it. Dropshipping businesses have an ethical obligation to both the consumers and ecommerce platforms to source their products from wholesalers, at a wholesale price.
When it comes to ecommerce marketplaces, proper usage refers to sellers sourcing unique products from manufacturers and wholesale suppliers for their online store inventory. Most ecommerce marketplaces have certain rules and regulations when it comes to shipping times. Therefore, it is important that you develop a strong relationship with your manufacturers in order to abide by the rules set in place by the marketplace.
Other important business considerations:
Using the big online marketplaces alleviates one of the biggest headache’s when it comes to running your own ecommerce store: Marketing. Beginners can spend hundreds if not thousands of dollars on Facebook ads and Google ads before they make their first sale. Using places like eBay and Amazon solves that problem to a large extent (although you still have to compete with the big brands). If you’re planning to use those marketplaces, it’s only fair that you abide by their rules.
After running your Shopify dropshipping business for quite some time your sales will grow and your customer base will expand accordingly, you will likely amass a significant number of repeat buyers. More traffic will allow for alternative marketing tactics, such as newsletter subscription, where you can provide valuable content and exclusive offers to your loyal customers.
It is important to ensure that whilst advertising to your audience you comply with the anti-spam laws legislation of your jurisdiction. For instance, in the US anti-spam laws are quite strict and can lead to criminal enforcement.
Please note anti-spam best practices:
Finally, ignorance of the law excuses no one, so make sure you are aware of amendments and alterations, when it comes to dropshipping (whether it's on AliExpress, Shopify, Amazon, eBay, etc.)
Imagine you have a store hosted on Shopify or WordPress (which you might do already) and you want to start dropshipping from it - You list products on your site, market your goods and get a sale. In this scenario, you are relying on your supplier (a store on AliExpress, eBay or Amazon), to fulfill the order and have it arrive safely with your new customer.
Provided you find the best supplier for your product, the customer should receive their product on time and be happy with their order. As a dropshipping business, we recommend you manage customer expectations properly, and let them know that your products will likely take 7-20 days to reach them.
In some cases, beginners think that selling products at a markup (a higher price than you bought it for) is an underhanded tactic. However, in reality, every single dropshipping business on the planet sells their products at markups. That is exactly how dropshipping businesses have operated and made money since the beginning of time.
Companies need to sell products at a markup to pay their employees and reinvest money back into the company, so they can make better products in the future. For example a Nike shoe may cost $17 to make in a factory, but is sold for $170 RRP, a designer handbag may cost $200 to make, but can be sold for $2500 or more. Similarly, most products you buy on Amazon can be bought on AliExpress for a fraction of the price.
The exact same product being sold on Aliexpress for $3.69 and $19.99 on Amazon.
To conclude, dropshipping is perfectly legal and you can absolutely to sell products on your own website that way. But the question remains, what are the best products to sell?
It should come as no surprise that you should not sell illegal or dubious goods when dropshipping, such as branded / trademarked products, counterfeit luxury products, restricted imports. Even CBD oils / vapes require having an appropriate Age Check that complies with the policies of your country or territory (and, indeed payment processor). Below are a few examples of goods that cannot be sold using the popular payment processor Stripe (which therefore also includes Shopify Payments).
You can find the full list of restrictions here
Some of these, such as IP infringing or Counterfeit Goods, are not allowed at all by any reputable payment processor or website host; however the sale of drug paraphernalia and adult toys is not specifcally restricted by, for example, Shopify. In this scenario, you can do your own research as to which payment processor will allow your dropshipping store to take payments for goods such as these. For IP infringing goods especially, it is possible to get into serious legal trouble if you even list such products on your store.
If you hadn't already guessed by now, Shopify, Aliexpress & Oberlo support dropshipping businesses. Aliexpress is our favourite platform tosource products for beginner and intermediate dropshipping stores , the wide selection of products, increasing support for dropshipping and escrow system makes it perfect for selecting products to sell online.
In other words, using these platforms is the ideal way to make sure your ecommerce business stays legally protected and PCI compliant.
There are no countries that explicity prohibit dropshipping business, however you should look up the laws on specific items that could be prohibited to import into the country. Countries like Australia have strict import laws that have to be taken into account when dropshipping.
In addition to this, you will want to take a look at the tax laws related to dropshipping in your country. In the United Kingdom, for example, tax laws become much more favourable once you register an LLC. PayPal & Stripe will generally ask for your ecommerce business details once you start making over a certain amount of money so that they can comply with these laws, it's useful to be prepared for this as these payment processors reserve the right to hold your money until they are certain about the legal status about your dropshipping business.
I have that we've clearly answered the question: "Is dropshipping legal?" Dropshipping is an excellent way to make money, as long as you take into account all the relevant laws regarding which products you can sell. In most cases, entrepreneurs end up starting successful dropshipping businesses without any legal issues.
Here is a quick summary of all of the necessary steps for you to take, in order to ensure that your dropshipping business is not breaking any legal or ethical requirements:
1.Consider getting an ecommerce business licence: This will go a long way when it comes to taxation, liability and will fundamentally legitimise your dropshipping business, both in the eyes of your suppliers and consumers
2.Consider displaying documents that give a clear outline of your dropshipping business practices: This applies to things like the refund policy, data collection and usage, various legal agreements, etc.
3.Ensure that your dropshipping marketing tactics are legal and ethical: Make sure your marketing strategy goes in line with the anti-spam legislation of your ecommerce business residence and don’t forget to take into account your customer’s perspective when it comes to receiving your marketing materials
4.Do not start dropshipping illegal, restricted or dubious products: This includes things like drug paraphernalia, counterfeit products, restricted products, adult toys, etc.
A great way to not have to worry about the legality of what you are selling is to use SaleSource to browse vetted, trending products that are ready out-of-the-box to sell online.