This post is in direct response to a forum question on Shopster.com concerning legal liability as a drop shipper. Shopster is an interesting company that combines drop shipping and a shopping cart. I’ll post a full review in a few days.

First some preliminaries. I am not a lawyer and don’t even play one on TV. I have spoken to a few lawyers about this and nobody really wants to go “on the record” as every case is different. This is really a technical legal term called money grubbing. The material below is from my own limited research. So basically you this advice as a general guide, but consult with an attorney about your specific situation. Second, you really should consider incorporating. Talk with your accountant about the possible tax advantages. In addition, real wholesale drop shippers will not deal with you unless you have an employee ID number.

So, now the legal stuff. In general you can be held liable for the content on your site. For example, you sell nutritional supplements and state on your site that vitamin C cures cancer. You can expect a call from the Federal Trade Commission and possibily a lawsuit from someone who was not cured. You might also get into trouble if, for example, you stated on your site that the recommended dose for a certain supplement was dangerously high.

Another way you can get into legal trouble is by selling products to people who legally cannot purchase them. The obvious example is selling pornography to a minor. Certain states may regulate particular items. For instance, various states allow different formulations of pepper spray.

You can insulate your personal assets, from lawsuits, to some extent by incorporating properly. Again, check with your accountant and/or lawyer. If you decide to incorporate, I recommend the company I personally use, The Company Corporation.

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