E-commerce is growing rapidly. There are over 13,000,000 e-commerce websites in the United States alone (30% on Shopify) and online sales doubled from $540 billion in 2019 to $1.2 trillion in just six years. One of the reasons for this explosive growth is how easy it is to launch a dropshipping business — no inventory, employees, or building necessary. That said, before you cut the ribbon on opening day, it’s important to know if you need a business license to dropship on Shopify.
Do You Need To Get a Business License for Dropshipping on Shopify?
Shopify doesn’t require you to prove you have a business license when you sign up for an account. All you need to get a Shopify website plan are:
- Your full legal name
- Valid phone number
- Email address
- Your company’s legal name
- Address where you do business
A business license is a permit that authorizes you to operate a company in your city or state. The laws around business licenses vary considerably around the country.
In New Jersey, you only need one if you offer certain types of goods and services. Illinois doesn’t even issue business licenses. On the other hand, in Nevada and Delaware, every business needs a license.
When and Why Should You Get a Business License for Dropshipping?
Aside from complying with the law in states where business licenses are a must, there are several advantages to getting a business license before dropshipping.
Limited Liability Protection
You usually need a business license if you want to operate your dropshipping business as a limited liability company. LLCs can give you some legal protection by separating your personal and business finances.
We recommend thinking seriously about applying for an LLC business license if you plan on dropshipping any products that can potentially result in accidents or lawsuits:
- Candles
- Food items
- Children’s toys (potential choking hazards)
- Copyright-protected characters
- Glasses, glass products, and cutlery
- Smartphone chargers
The idea behind an LLC is that if someone sues you, your business may collapse, but you shouldn’t lose your private assets.
A Unique Name
When was the last time you saw a Shopify store called “John Elliot Dropshipping,” “Betty’s Custom T-Shirts” or “Laura Williams Online Clothing?” Probably never. For your Shopify store to stand out, it needs a unique, bold, and attention-grabbing name — and that goes triple for competitive markets like print-on-demand.
But you can’t just automatically decide to start calling your store “Blueberry Drop Company” or “Chill Products.” Unless you’re using your legal name as your store name, you have to register with your local Secretary of State. This process means registering a sole proprietorship with a “doing business as” name or an LLC.
Business Bank Account
You usually need a business license to open a separate bank account for your business. In addition to adding to your liability protection, having a business bank account can simplify accounting. This perk is more important for Shopify sellers with a high level of monthly revenue.
Regulated Products
Many dropshippers are surprised to learn how many requirements there are for food products, liquor, and cosmetics. States usually require business licenses for these regulated products. You also have to comply with FDA rules and liquor license requirements.
Don’t fall for the “It won’t happen to me” trap when it comes to potential legal risks. Even well-known cosmetics can trigger allergic reactions or skin irritation in some people. Do your research and take advantage of legal protections available in your state, such as LLC filings.
Is It Illegal To Dropship Without an LLC?
Many business professionals recommend getting an LLC for dropshipping because of the liability protections, but you aren’t legally required to do so. If you’re just starting out, you may want to get your feet wet and see if this business model is a good fit for you before plopping down hundreds of dollars on LLC registration. Of course, you do have to obtain other documents to sell products legally, such as a seller’s license for collecting sales tax.
How Can You Find Out If You Need a Business License To Dropship on Shopify?
At StayTuned Digital, we help businesses from all over the United States (and other countries). That’s why this article covers general guidelines. Many states and some cities have detailed requirements around business licenses, seller’s permits, and resale certificates. It’s a good idea to consult with a lawyer or tax professional in your area to make sure you do everything by the book.
Learn More About the Need for a Business License With Shopify Dropshipping
Getting started with dropshipping is easier with friendly professionals to talk to. We’re not lawyers or tax experts, but we know the ins and outs of Shopify. We’re happy to answer your questions, from business licensing needs for Shopify dropshipping to the best themes for print-on-demand businesses. Talk to us about dropshipping right away.