Are you planning to start a Shopify dropshipping store? Or expand your business in different regions? Joining Shopify as a seller is easy, but the management at times can be confusing. As a result, you may need various certifications and permits to run a dropshipping business.
For instance, do you need a business license to dropship on Shopify? If it’s required, how do you get one? These are the questions we will answer in this article.
What Is a Business License?
A business license is an official document that permits sellers or merchants to sell their goods or services in a specific location. The sold products or services are explicitly registered in most cases. Companies or individuals with a business license have to maintain the government’s jurisdiction.
If you are wondering if business licenses only apply for retail stores, then the answer is NO. You need to have the license to sell firearms, alcohol, and FDA-regulated products online. In addition to brick-and-mortar stores, services such as real estate, insurance, construction, etc., also require a business operation license.
Types Of Business for Online Store
No matter what type of products you sell online, chances are you follow a particular business structure. There are mainly four types of online business, and each of them has diverse characteristics. Knowing what type you fit into can help you understand the industry better and make room for creativity.
Business to Consumer (B2C)
B2C is the most common and popular business model online marketplaces use. A great example of a B2C transaction is when a customer buys a product from Amazon, Shopify, or Walmart for personal use.
Business to Business (B2B)
Business to business model is, as the name suggests- the transaction of product or service between two businesses. The buyer may be the end-user or resell the goods or services to consumers for a higher price.
Consumer to Business (C2B)
The consumer-to-business model allows individuals to sell their service, expertise, and produced goods to business owners. Affiliate marketing, freelance marketplace, and social media influencers fall under this type of online business.
Consumer to Consumer (C2C)
Online marketplaces such as eBay, Amazon, Alibaba, and even Shopify is a great model of C2C business. In this model, two individuals trade products or services through a third-party eCommerce platform such as eBay.
Dropshipping
Although it is not a typical business model, dropshipping is one of the fastest-growing online businesses. A dropship vendor is a middleman who sells items fulfilled by a third-party supplier or manufacturer. As a result, dropshipping is an excellent business strategy that doesn’t necessarily need storage or inventory.
Do You Need A Business License To Dropship On Shopify?
The short answer is no, but there’s a lot more to it.
A business license is not among the legal requirements for dropshipping on Shopify. So, you do not need a license to dropship regular home products or digital goods. However, you may need to own a business license based on where you live, your business type, and the products you sell.
Here’s a list of products that require a business license to dropship on Shopify:
- Federally regulated products
- Firearms
- Automotive mechanics
- Electonic parts
- Plumbing supplies
- Commercial fishing and hunting equipment
- FDA-regulated products such as food (human or animal), medicine, etc.
- Radiation emitting mechanical device
- Alcoholic beverages
- Others
In addition, you may need a license for your Shopify dropshipping stores, depending on where you live. Government agencies distribute these licenses based on city, county, federal, or state. So, it’s better to get in touch with the county clerk, city council, or a brief visit on the Secretary of State website. You should also check in with the local Small Busine Administration.
So, what license do you need to start a Shopify dropshipping business?
The few necessary documents every Shopify dropshipping startup may require are-
- Seller’s Permit or Sales Tax Permit
- Resale Certificate
- EIN (Employer Identification Number)
- Sales Tax ID
- Social Security Number (for sole proprietorship)
Remember that these requirements may vary in different states. It’s better to check with the city hall before you create a Shopify store.
How To Get A Business License To Dropship On Shopify
As we mentioned earlier, whether you need a business license depends on where you live and the products you want to sell. Let’s say you already contacted your local authority and found out you need one. This U.S. Small Business Administration guide can help you determine where to apply depending on the dropshipping products.
Not having the proper business licensing is a common mistake entrepreneurs make. so, here are some things you may need first-
- A detailed description of your business and contact information
- EIN or Sales Tax license
- Inspection and other required permits
- Incorporation fees (depend on location and merchandise)
- Additional filing requirements
Conclusion
A federal business license is not always required, but it can help you establish your business as a legal entity. But the success of your legitimate business ultimately relies on you. Having all the required permits is just a start. You need a tremendous amount of time, effort, and expertise to flourish a Shopify business. For that reason, managing a Shopify store can get really overwhelming. But you are more than welcome to use Shopify dropshipping automation services in that case. Automation services will take care of the dropshipping process and increase the profit margin more effectively.
