Sunday, August 18, 2019

Do I Need To Register A Business To Dropship?

When thinking about starting up a business, you need a structured plan to keep track of the progress of the business according to the timeline.  Cost, marketing, manpower, location are among the things to consider. Some of these does not apply in dropshipping. Is business registration part of the things to consider when putting up a dropshipping business? 

Before I answer the question, I just want to give a disclaimer that I am not a lawyer or a CPA of any sort.  I do not have the legal capacity to provide legal advice. The information that I will be sharing is to guide those who are looking forward to starting their own dropshipping business.   

This is based on collective research, and experiences shared by other people who had first-hand experience.  

So, the question now is, “Do I need to register a business to dropship?”  Yes, generally speaking any business needs to be registered depending on the applicable laws in your location.  While some might say it is an online business and does not require a space, it is however, a requirement to declare your income.  Hence you need to report your finances for tax purposes. 

There were two different opinions given when it comes to the question of whether to register a dropshipping business or not.  Some say, it has to be registered. Others say it is not necessary. Now let us explain both sides to understand their perspective.
Why You Need To Register a Dropshipping Business Explained
First on the list of reasons why we register a dropshipping business is because of tax purposes.  As previously mentioned, all business need to be declared for tax purposes. Regardless of the type of business you have: a sole proprietorship, a limited liability company, corporation.  

If you are selling taxable products, your business needs a Sales Tax ID depending on your country or location.  If you are making money out of the sales and is not an employee of a business, then you are considered a business and you need a license to operate.  You are required by law to declare your finances as the income of the business. Otherwise, you will be facing serious problems in the future. 

This does not discount the fact that you do not have a physical store or you operate the business online.  Of course, each city and country of your location has different laws. As stated earlier, you may need to contact the business office at your place to discuss the scope of your business, and the process you need to go about registering your dropshipping business. 

Another advantage of having a business license for your dropshipping business is that you are giving your customers assurance that you have a legitimate business.  This is important in dropshipping. You will also have leverage and be able to negotiate with more suppliers because some suppliers will ask for a business license to deal with you. 
Why It Is Okay Not To Register a Dropshipping Business Explained
On the contrary, many dropshippers say that you can still operate your dropshipping business without having to register the business.  The first thing to ask is if you have on-hand inventory. Since dropshipping does not hold inventory, and the majority of the transactions are happening online, then you are not required to register the business.  

Another thing to think about is the level and scope of dropshipping business you consider to run.  Because dropshipping has been in the market for years, and more and more people continue to start their own, you have to understand that some of them do not use this as a full-time business, but it is more of a hobby.

A hobby considering the minimal margin you get from selling merchandise from dropshipping.  And also, not being able to generate enough to consider this a full-time business. If you read through this post What Is The Average Margin In Dropshipping, you would have an idea on the price margin you can set per product.  

This limits you not make enough in the beginning because there is only a limit you can use as a margin.  Now, as part of starting your dropshipping business is to ensure that you can legally operate as a business owner.  Previously I wrote about What Is The Cost Of Launching A Dropshipping Store.  

Here you will gain information on the initial set up for the dropshipping business you want to put up.  Although it was not discussed if you need to register the dropshipping business, at least it will give you an idea as to how much you need if you have decided to start your own. 

I would have to reiterate that the process may vary depending on where you are at. Some locations, cities or a country,  anyone that conducts the business of any kind, online or not, is required to have a business license. Primarily, this is the reason why there are two different opinions when it comes to deciding whether or not to register the business. 

It is always best to consult your local business office for assistance as to how you can go about the process of registering your dropshipping business, should they advise you that it is required.  One thing is for sure though, it is required for you to declare your income to your taxes to avoid having problems in the future.  

At the end of the day, you have an idea of how you want to run your dropshipping business.  You decide how big your goals are in dropshipping. At which we consider the budget, the scope of the business and how many customers you aim to target to earn money.  So I guess, the question is, “Would You Register Your Dropshipping Business?”

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