Drop-Shipping : Is It Legal?

DROP-SHIPPING : IS IT LEGAL?

Is drop-shipping legal? The simple answer is YES.

Drop-shipping is a legitimate business model many entrepreneurs have used to build successful eCommerce stores. However, there are some legal requirements and considerations you need to know before launching your website.

 

WHAT IS DROP-SHIPPING?

Drop-shipping is an arrangement whereby a supplier agrees to sell goods to a retailer, who sells the goods to customers. The retailer does not take possession of the goods but acts as an intermediary between the supplier and the customer. This type of arrangement is not specifically addressed by any law but is governed by general principles of contract law, agency law, and logistics.

A contract or agreement binds the supplier and the seller in a typical drop-shipping arrangement. Many major eCommerce platforms, such as AliExpress, Amazon, eBay, and others, have recognised and allowed drop-shipping, but with strict terms and conditions that the seller must follow. For example, Amazon does not allow a drop-shipping seller to sell items from suppliers like Amazon itself or suppliers already selling on the platform.

Singapore has no specific regulations or laws governing the drop-shipping industry, and this freedom and discretion allow sellers and suppliers to regulate their relationships as they see fit. While this lack of regulation may seem chaotic, it allows for a great deal of creativity and innovation within the industry.

 

KEY CLAUSES FOR DROP-SHIPPING CONTRACTS

When working with a drop-shipping supplier, you’ll need to pay attention to the following 3 key clauses.

1.  Delivery – You must be clear about the delivery terms. This means that you will need to agree on the delivery date and time, and you will also need to agree on who will be responsible for the delivery costs.

2.  Payment Terms – You must agree on the payment terms. This means you must agree on when and how the supplier will pay for the goods they provide.

3.  Refund and Cancellations – You must agree to the return policy. This means that you will need to agree on what will happen if the delivered goods are not as described or if they are damaged.

Like any other business, drop-shipping businesses are also susceptible to legal risks if they do not take the proper precautions. 

To reduce legal risk, you should take note of the following steps to protect yourself from legal liabilities:-

A.  Obtain A Business Licence

This goes a long way regarding taxation on your products and profits and limits your liability if an issue arises. In addition, it helps improve the legitimacy of your store in the eyes of consumers and suppliers.

B.  Create Documents That Outline Your Business Practices

This includes having a refund policy, outlining your legal agreements, website terms and conditions, privacy policy, and any product and practice disclaimers you may require.

C.  Follow Ethical ‘Best Practices’ In Marketing

Utilise eCommerce and social media platforms without manipulating the rules. Don’t be deceptive in your advertising; follow all email marketing rules and regulations.

D.  Sell Safe And Appropriate Products

Work with reputable drop-shipping suppliers. Only sell genuine products which you are authorized to do so, particularly those trademarked or branded.

Despite what some YouTube experts assert, drop-shipping is not a get-rich-quick scheme. Because of the low entry hurdles in drop-shipping, the market can be very competitive. You should do your homework before starting a drop-shipping business. An effective company strategy must include securing your earnings when purchasing and selling goods or services in/from other countries.

Every business is different. As such, the difficulties that you face will vary. We offer video consultation via Lawyer Anywhere and can help you navigate the ups and downs of starting and running your own company.

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Susan Tan

Senior Legal Executive

Qualifications:

With more than 10 years of experience in the financial industry, Susan Tan, who joined us from one of the leading corporate and investment banks in Singapore, provides invaluable expertise and knowledge in corporate secretarial.

She is conversant and familiar with the local regulations and requirements for business entities in Singapore.

As a member of our team, Susan is responsible for maintaining and updating the Company’s statutory registers and records, filing all necessary documents and forms with the Accounting & Corporate Regulatory Authority (ACRA), Ad-hoc assignments such as allotment and transfer of shares, amendment of Company’s Constitution and submission of Annual Return to ACRA.

Apart from corporate secretarial work, Susan has considerable experience and expertise in compliance advisory matters, making her a valuable member of our firm.