Is dropshipping illegal? Honestly, I get this question almost every day. The quick is answer is no, dropshipping is not illegal. But it’s also not that simple. This article should clear up any doubts you have about starting a dropshipping business.
Why dropshipping is not illegal
Before I tell you why dropshipping as a business model cannot be illegal, I first need you to understand exactly what dropshipping is.
Dropshipping is a business model where you sell goods online that someone else (a supplier) ships out for you. This is great for entrepreneurs with limited funds, this way, they can start a business with very little risk and upfront costs. Only once someone buys from their Shopify store, do they need to purchase the product from the supplier who will deliver it straight to the customer.
The supplier is happy, the seller is happy and the customer is (hopefully) happy.
Legally, dropshipping is the same as purchasing bulk stock and storing it in your own house. In both business-models, you are the middle man who is in charge of selling the product.
Let’s look at some examples: your local supermarket isn’t the supplier of the goods they sell, they are merely the middle man who sells the product directly to the customers. They get daily shipments with new goods from their own suppliers.
The local bar isn’t the supplier of the drinks they serve, they are merely the establishment that serves them to the customer for a profit.
Are all these businesses illegal? No, they are middlemen in charge of selling the product to the customer. Dropshipping does exactly that, but instead of having the product shipped from their own address, they use a dropshipping supplier to do this for them.
Now just because dropshipping as a business model is not illegal, doesn’t mean that every dropshipping business is completely legal. There are many cases where drop shippers are breaking the law. In many of these cases, the seller often doesn’t even know they are breaking the law, which brings me to my next point:
Why dropshipping can be dangerous
Dropshipping is a very easy business model to get into. I already explained it requires very little funds and in some cases, it can even be done completely for free.
While I love how dropshipping has given anyone a chance to make some money in this online world, it is also a very easy way to get sued.
The simplicity of this business model and the availability of free Shopify stores has resulted in millions of entrepreneurs from all over the world taking a shot at dropshipping.
While many of these entrepreneurs will do their due diligence before stepping into a business, many also do not. If you are reading this article, luckily, you belong to the group that does their due dilligence.
Many also don’t. At all.
I often get asked by others to create a Shopify store to sell a certain item. Most commonly (I kid you not) item requests are the following: Nike shoes and Apple AirPods.
What happens next is they send me links of these products on Aliexpress. And yes, these products are available on Aliexpress. Look here:
But guess what? You cannot legally sell these products. They are counterfeit (aka fake) versions of the products which is highly illegal but on top of that, you also do not have a license to sell these products.
What happens once Apple or Nike lawyers get wind of your store? That’s right, you get sued.
Before that, your Facebook ad account will get disabled for violating policies.
Dropshipping counterfeit, trademarked, or copyrighted items is 100% illegal.
Here are some examples of copyrighted or trademarked items that you cannot dropship:
- Celebrity pictures/print (on t-shirts, phone cases, etc)
- Counterfeit products (fake apple AirPods)
- Unlicensed products (Nike shoes)
The list goes on. You should only ever dropship items that does not infringe any copyright or trademark laws.
Continue Reading: Why dropshipping Nike products is illegal
Other illegal mistakes dropshippers make
Besides selling copyrighted, trademarked, or even counterfeit products, dropshippers make some other mistakes as well.
Using copyrighted content that does not belong to them
A big mistake made by new dropshippers is using product pictures that do not belong to them. This mistake is easily made as these dropshippers often take the product images directly from the supplier, which in most cases is Aliexpress. Aliexpress suppliers are known to use images that belong to actual brands, which could get you into legal trouble if you wind up using them on your own store.
An easy way to counter this is to ask your supplier directly if they own the images and whether you are allowed to use them. On top of that, you can reverse google image search the image to check whether it leads to any real brands.
Not registering a business
Another big mistake is starting a dropshipping business without registering as a business or sole proprietorship first. In most countries, it’s not legal for you to start dropshipping (or any other) business without registering as a business or a sole proprietor.
Next, I will sum up some common mistakes dropshippers make that aren’t necessarily illegal but could still harm your dropshipping business.
Common grey-area mistakes dropshippers make
Mistake #1: Not having a Refund Policy
Not having a Refund Policy on your dropshipping store isn’t illegal, but it will do you more harm than good.
First of all, a business without a refund policy, does not look like a real business. If customers cannot find at least a refund policy in the footer (it should be on the cart and product page!) they will likely think you are a fake business and leave your store instantly.
Second, once a damaged or wrong item arrives at the customers address what do you think they will do? They will look for your refund policy, once they can’t find it they will confront you about it.
In this case, you have absolutely no rights as you did not set up a refund policy and you should refund the order. If you don’t, the customer will likely dispute the transaction with their bank or PayPal, or worse, report your business.
Every store should have a refund policy. This way your customers know exactly what kind of service they can expect and you have some leverage once a customer breaks your refund policy.
I would also like to note that stores based in European countries HAVE to legally offer a 14-day return policy.
Mistake #2: Not specifying shipping times
While this is false, many new dropshippers fear that the long shipping times offered from Chinese suppliers like Aliexpress will result in no one buying their product.
They “fix” this issue by hiding their delivery times completely from their Shopify store. This practise isn’t exactly “illegal” but it is very bad for business.
Once a customer doesn’t get a shipping notification within 24 hours of ordering, they will instantly think your store is a scam which can again result in order disputes and chargebacks that you definitely want to avoid.
You should always display your shipping times on at least one page on your website but ideally also on your product page. This way, your customer will never feel deceived by your store and send you angry emails.
Mistake #3: Not having a Privacy Policy and Terms of Service
If your store is collecting personal information (which they always do), you must include a privacy policy on your website by law. You can easily generate one within Shopify under Settings > Legal. You can also generate your Terms of Service here.
Both of these will legally protect you so they should always be included in the footer of your store.
How to avoid making illegal dropshipping mistakes
Register your Dropshipping business
First of all, you should have a registered business before starting a dropshipping store. This way you can report your income, pay your taxes and you will limit your liability in case of legal actions against your store.
Have all legal pages set up
The following pages should be set up and easy to find on your store:
- Privacy Policy
- Terms of Service
- Refund and return policy
- Shipping Policy
Not all of these pages are required by law (except the privacy policy) but they will limit the number of disputes, chargebacks, and angry customers.
Drop Ship legal products only
With legal products I mean anything that is unlicensed, not trademarked, copyrighted or counterfeit in any way.
Focus on products that solve a problem for your customer or have a certain wow factor.
Don’t resort to selling fake apple AirPods or Sports Jerseys because you think those will sell better. This is illegal and will get you in trouble.
So there you have it, dropshipping in itself is not illegal but it is often made illegal by dropshippers who sell products that do not belong to them.
Legal Dropshipping: FAQs
Is it legal to drop ship branded products?
No, it is not legal to dropship branded products. At least, it’s illegal to do so without permission from the brand itself.
While you might find products from Disney, Nike, Adidas, Pokémon, and other brands on AliExpress, this doesn’t mean you can sell them on your own Shopify dropshipping store.
Technically, the AliExpress sellers aren’t allowed to sell them either, but because AliExpress is a marketplace with individual sellers and these sellers are based in China, brands’ lawyers won’t usually follow up with them.
This is not the case when YOU start dropshipping these items.
When you start dropshipping these items to European or North American countries, you are putting yourself up for serious legal actions by these companies.
These companies will go after every dime you’ve made through their trademark or copyright and more.
Stay away from dropshipping branded products.
How do I get permission from brands to drop ship their products?
You will need written permission from the brand itself. You can only obtain this by speaking to them directly.
Note though that it’s highly unlikely a big brand will allow an individual to drop ship their products.
How do I set up my privacy policy?
Shopify has a built-in tool to generate your privacy policy for you.
This is your best bet if you can’t hire a lawyer to write it for you.