Running a dropshipping business is a great way to make money online. You don’t have to carry any inventory, you can start quickly and cheaply, and many tools and resources make it easy to get started.
But before you think it’s all smooth sailing from here, a dropshipping business is still a business. Compliance with the law is mandatory if you want your business entity to be seen as genuine.
Legal protection can also protect your personal assets and ensure that your business won’t face severe fines for breaking the law. Feigning ignorance won’t stand in court, even if you acted in good faith.
Here are four legal implications to consider before starting a dropshipping business.
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Dropshippers rely heavily on the products and services of the suppliers they partner with. If the quality of your products is subpar, it will reflect poorly on your business and brand. If your customer is particularly litigious, you may even be held liable for selling bogus or falsely-advertised products.
To avoid any legal implications, take the time to vet your suppliers thoroughly. Don’t just go for the most cost-effective supplier and assume they’re the best. If you want to run a sustainable business, you’ll need to make sure that your supplier is trustworthy and reliable.
Another reason why choosing the right supplier is so important is because if the supplier ever gets sued by an outside company for say, copyright infringement, your business will end up liable as well—even if you didn’t know anything about it. Better to be safe than sorry.
Paper trails may seem like enough to protect your business in court, but that’s not always the case. If you don’t have contracts signed by both parties, your protection may be limited.
In today’s world, a contract is essential for any kind of business relationship. This is especially true for dropshippers because you can’t easily establish a physical presence with your suppliers.
If something goes wrong, it’ll be a more arduous task to file a dispute without a contract. You’ll be at the mercy of your supplier or third party, who could easily deny that you ever had an agreement or could change the terms on a whim.
To ensure that everyone holds up their side of the bargain, get contracts signed by both parties before dropshipping. This applies to anyone who influences the operations of your business, whether they’re suppliers, freelancers, or employees.
Learn more dropshipping laws with Legal Vision.
It’s easy to fly under the radar when you’re dropshipping. Shopify and other store-hosting platforms won’t stop you from setting up shop without a business license.
But just because it’s not required, that doesn’t mean you should forgo getting a business license altogether. Having a business license could mean the difference between losing just your company or your company and personal assets.
For most first-time dropshippers, an LLC (limited liability company) is the best way to go. As the name suggests, an LLC protects your personal valuables in case your business is sued. Corporations and sole proprietorships are also suitable options depending on your business model and planned trajectory.
Aside from the protection, taking the necessary steps to legitimize your business can come with a myriad of business benefits. This includes:
- Recognition from financial institutions
- The ability to provide worker benefits
- Easier taxation requirements
Of course, the process of getting a business license and setting up an LLC varies from place to place. Contact a lawyer or taxation professional in your area to see what’s required of you.
To avoid lawsuits from unhappy customers, it’s important to disclose information regarding your policies as well as any risks associated with your product.
While dropshipping can feel like a one-and-done ordeal, your customers will continue to have expectations of your product even after they’ve received their purchase.
As such, you need to make sure that your online store is properly set up to account for any inconveniences and risks that may arise. This not only protects you from legal action but also builds customer trust, which is essential for any kind of business.
Some things you’ll need to consider include:
- Disclaimers: If your product comes with certain risks (i.g. a choking hazard electrical hazard, etc.), you’ll need to post a disclaimer on your product page.
- Refunds and returns: What is your policy for handling refunds and returns? Give your customers a heads up by including this information on your product page as well.
- Terms and Conditions: This allows you to set the rules for using your website and protect you from litigation from customers.
In addition, it’s important to also advertise your products truthfully. This means avoiding false claims, bait-and-switch tactics, and other unethical marketing ploys.
By implementing the best dropshipping practices, you’ll reduce legal risk and boost customer satisfaction, which can pave the right conditions for a successful dropshipping business later on.