Is dropshipping legal? – Of course, it is legal. It is one of the most cost-effective ways to run an e-commerce store. Furthermore, starting a dropshipping business is easy and does not require a lot of paperwork. Hence, after the popularization of eCommerce businesses, dropshipping became a widely popular business model. However, the business needs to adhere to basic local, federal, and international laws.
In this article, you will learn some general details of a dropshipping business and where it stands with its legal aspects. Moreover, we will discuss the dropshipping business model and the way it works. Furthermore, you will learn the major players within this business model. Finally, we will discuss the pros and cons of dropshipping. Hence, to learn more, read on through to the end of the article.
Is Dropshipping Legal?
Yes, dropshipping is fully legal and is a very popular business model. Here, the retailer is not responsible for storing the for-sale product. Instead, the retailer takes orders from customers and transfers them to a dropshipping supplier or manufacturer. The supplier then ships the product directly to the consumer’s place. However, you will still need to sill follow local, federal, and international laws for business.
According to BigCommerce.com,
“Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product and passes on the sales order to a third-party supplier, who then ships the order to the customer. However, contrary to popular belief, the dropshipping business model is not a get-rich-quick scheme.”
One of the major aspects of a dropshipping business is that you have very little personal liability risk. To stay clear from any legal issues, you can hire a lawyer/ attorney to draft legal agreements. Hence, you will have a better understanding of the legal liability for issues that might arise during the sales process. This will also help you during the shipping process and when the customer receives the product.
Legal problems may arise when you come across a supplier who is not as legitimate as per claims. Hence, you might not have information about where the merchandise is coming from. In other cases, some illegal suppliers also deceive drop shippers by illegally using a trademarked logo or the intellectual property of another company. As these practices are common, having legal protection while starting a business is mandatory.
What Is Dropshipping And How Does It Work?
According to Amazon,
“Dropshipping is an order fulfillment option that allows ecommerce businesses to outsource the processes of procuring, storing, and shipping products to a third party—typically a supplier. This fulfillment model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost—especially when it comes to customer experience.”
With the dropshipping business model, an entrepreneur outsources the handling and shipping of products to a third-party supplier. If you are looking for efficiency and low overhead costs, this can be a great source of income for you.
This business model also allows you to promote products and provide an online storefront to your target customers. When a customer orders a product, you send the order to your supplier (drop shipper) and assure customers that their product is in process.
The supplier then handles the shipment and packaging of the product. The supplier manages the fulfillment of the order. However, you might need to handle various customer service processes at times of need.
Who Are The Key Players In A Dropshipping Business?
Shopify.com states –
“When a customer places an order, a third-party supplier takes over. This outside supplier is the company that actually manufactures the product and sends it to the customer. In some cases, one outside company may make the product, and a different one ships it. Nonetheless, the company that sells the product to a consumer is not the one that makes the item or fulfills orders.”
The following are the key players of a dropshipping business:
1. Seller Of Record (SoR)
This is you, the individual who is bringing in the sales. The customer is getting the product from your end. You will need to set the price, record your purchase, and assume responsibility for the tax purpose.
2. Manufacturers
These are the ones that make the product. They then sell the products to wholesalers and retailers. In some cases, manufacturers also supply. However, in this case, you need to buy wholesale.
3. Wholesaler
They buy wholesale products from manufacturers and sell to retailers at a profit. Generally, they do not sell to consumers. In some cases, they also provide dropshipping services.
Pros And Cons Of Dropshipping
The following are some of the major pros and cons of dropshipping:
Pros Of Dropshipping
Here are the pros of dropshipping that you will benefit from:
- You can lower the overhead costs of maintaining products.
- The cost of starting a business is minimal.
- You have less risk of losing money.
- You can easily start selling on a popular domain.
- You can fulfill orders from a remote location.
- You can choose by testing which goods best work for you.
Cons Of Dropshipping
Here are a few cons of dropshipping that you need to be aware of:
- There is high competition in the market.
- You cannot ensure the quality of products every time since you cannot test the product.
- There are chances of duplicity or products.
- You have limited control over fulfillment. Supplier errors can make things worse
Summing Up
Hope this article was helpful for you in clearing doubts on your question, “Is dropshipping legal?” You can see from this article that this is a popular business model and is surely legal. However, it is important for owners of dropshipping businesses to have legal protection. This legal protection helps a lot against illegal suppliers or various legal business problems one might face.
Before you start your dropshipping business, make sure you have a business license. You can get it from your local government. To learn about specific legal requirements, you can check online or consult an attorney. Do you have more suggestions to add? Please share them with us in the comments section below.
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