hmm, lets say we had a random joe become a reseller. All he does is sign up for an account with a company, and get his site. Right?
But this is the part that confuses me.
Would joe have to get legal documents done? could he get into legal trouble if he just went to work on this reseller, without any sort of confirmation with the governement?
cause i'm sure a lot of people do that, but is it illegal, since they dont pay taxes for the reseller account?

What resellers do and how they do it is of no concern to a hosting company - as far as the tax side of things goes - That's up to the reseller to ensure that they meet their tax obligations applicable to their country.