Should I Form An LLC for an Online Business?

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online businessIt has now become much easier to set up an online business that best fits your talents and selling the stuff you love thanks to platforms like Etsy, eBay, Shopify, and Amazon Dropshipping. These platforms are helping to create new entrepreneurs every day. Still, they should you form an LLC even for a small online business? Forming an LLC is more comfortable and more affordable than ever before with online LLC formation sites like Incfile and ZenBusiness.

And thanks to social media platforms like Facebook, Twitter, Pinterest, and YouTube, it’s become much more comfortable and less expensive to promote your small business. With that, the brave and the bold who decide to take advantage will find that success is not far off.

However, success comes at a price because when a small business grows, people take notice, and there will be requirements to legally and effectively run it and to make it develop further. Your now more significant business will need to conform to local and state laws and will need to pay taxes.

Do I Need An LLC Even for a Small Online Business

There’s also the question of possible legal entanglements should there be a problem somewhere. And some plaintiffs often sue for an arm and a leg. Therefore you would need legal protection. The question of business registration might rear its ugly head the moment you make your first hundred orders, and that uncomfortable feeling will only grow as your earnings do. So perhaps, there are questions that might need answering the moment you decide to set up. Do I need to apply for a business license, and should I register an LLC (Limited Liability Company) for my small business?

Do I Need A Business License?

The answer to the business license question is a resounding YES, that is if you want to sell legally and expect your venture to go on for a long time. As mentioned, the government could notice, and you’ll be slapped with hefty fines if you’re discovered selling without a license (depending on local and state laws), especially if it’s food or federally regulated items. But before you do get your business license and everything else that follows, there’s no harm in checking out if your little eCommerce Site gains traction. If it does, and you do obtain your first hundred orders, most business consultants would agree to do so asap.

You will also need a federal license if your online store (even if it’s via platforms like Etsy, eBay, and Shopify) sells federally-regulated items. The minimum license required to sell online is a called General License, which will allow your business to operate wherever you are located.

If your business is home-based, meaning if you fulfill your sales online or offline and keep your inventory at home, you may need a home occupation permit. It’s only logical that you’d start from home, the same as about 70% of online business entrepreneurs unless you or your partners have a different idea. The home occupation permit depends on the state, though if you decide to engage in Amazon Dropshipping, the home occupation permit might not be necessary.

The state may also require you to get a seller’s permit, which will you to collect sales tax or a resale permit if the items are drop shipped from a wholesale distributor. A seller’s permit is optional, depending on the state and the product, whether it’s federally regulated or not. In the case of Amazon Dropshipping, for instance, you won’t need a seller’s permit (Amazon does not deal in Federally regulated items) though you might need a resale permit.

When it comes to business permits, several online companies can help you quickly deal with these requirements for surprisingly low amounts. They will also assist you with your LLC requirements.

An LLC For A Small e-Commerce Site

With regard to an LLC, the short answer is no. You don’t necessarily need to form an LLC if you want to sell stuff online through Etsy, eBay, Shopify, and Amazon Dropshipping. The long answer is, you should because it will become important in the long run, and if you don’t form your LLC soon, you’ll be missing out on the benefits which you might need if you’re too late in creating it. You can form an LLC at any time during your business’s lifespan, but it’s better if you do it soon, as soon as you find moderate success in your eCommerce venture.

Sole Proprietorship vs. LLC

 

The benefits of a sole proprietorship are in its simplicity and lower costs. Its weakness is liability exposures. The advantages of an LLC are it’s flexibility, including taxation and it’s limited liability protection. An LLC comes with added costs and regulations, but these are minimal compared to incorporating a business.

Here are the benefits of forming an LLC for your online business:

  • Provides limited liability protection – which protects the company’s owners from the company’s debts and claims, as well as from lawsuits in case the company tanks or runs into problems. Because LLCs are legally separate from the owners, the owners are not obligated to use personal assets in paying off business debts.
  • As a pass-through entity, LLC owners are considered self-employed and will be subject to self-employment tax. No corporate taxes required.
  • Profits and losses will be passed through to the owners’ personal income.
  • Whether you’re alone or partnered, LLC profits and losses are reported to your individual tax return. And if you’re partnered, there doesn’t necessarily have to be equal sharing in profits based on the management structure.
  • LLCs are also allowed to have a flexible management structure as long as it is reported when compliance is due. This means that ownership can shift from sole proprietorship to any number of partners.
  • As a pro and con of getting an LLC, you will need to hire a Registered Agent whose job is to receive correspondence or legal notices on behalf of your business and relay them to you. They will act as a permanent address for the state your business is located in, so your customers and vendors can easily reach you. They will also receive an embarrassing correspondence on your behalf.
  • Your business name will be protected and cannot be usurped by a competitor. If you have not filed yet, a competitor could possibly take your business name and litigate you into relinquishing it.
  • Speaking of your business name or brand, you would also need to protect your product if it’s unique and created by you, especially those you plan to sell on Etsy and Shopify. Etsy, of course, is known for the sale of crafts.

So if you do decide to form an LLC, there are many companies out there that can help, but there are two highly recommended for the job. They are Zenbusiness and Incfile. Zenbusiness and Incfile are known as online business formation companies, and they will help your small business legally get off the ground. They will also be able to help you get your business license aside from forming an LLC, and both are relatively fast, inexpensive, and easy.

Below are the pros and cons of the two companies:

ZenBusiness

Zenbusiness is one of many several legal business formation services available out there and is one of the best when it comes to pricing and catering to small entrepreneurs. The company is out to impress, given they just started in 2015. As part of its basic package, Zenbusiness will file your LLC for free, and for a small regular fee, Zenbusiness will hook you up with a good Registered Agent.

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Zenbusiness can do the process of forming your LLC quickly, efficiently, and best of all, affordably. You can then concentrate more on ironing out your ideas and pitching your company to investors should your business grow as well as other important matters.

  • Their business filing service which can be done online, for an affordable $49-dollar fee plus state fees which are usually around $50-$350. The process can be finished in as short as a week.
  • EIN – Zenbusiness can do this task and pay a visit to the IRS on your behalf for a small price of just $70
  • Compliance Deadlines – Zenbusiness will be on top of compliance requirements so you could concentrate more on your business for a small amount of $110 annually.
  • Business License Reports
  • Name Reservation – is like a pre-order for a business name. Zenbusiness will reserve your chosen business name (if it’s still available) while you iron out your idea and prepare to do business.
  • Registered Agent – Zenbusiness will hook you up with a partnered registered agent as part of its starter package of $49.

Incfile

 

Incfile is a Texas-based business formation company was founded in 2004, and since that time, they already helped over 250,000 entrepreneurs start their companies. That large customer base makes Incfile a company that can be trusted to help build your company.

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Through Incfile, legal assistance to start your company could cost just as little as 49 dollars plus whatever amount your state charges or state fee. Incfile is well known for fast, inexpensive, and easy LLC formation. Incfile can:

  • Also, check for company name availability if it’s already been taken within the state.
  • Preparation and Filing of Articles of Incorporation
  • Online Access to Incorporation Documents
  • Free Business Tax Consultation – a free hour-long professional business tax consultation.
  • Next Business Day Processing – Incfile will immediately process your applications just a day after your order.
  • Online Order Status Tracking
  • Registered Agent Service – free for the first year but costs a still affordable 119 dollars for every succeeding year.
  • Lifetime Company Alerts
  • Lifetime Customer Support

As for Your Online Business

Like any other business, you will still need a business plan. It’s safe to assume you plan to go into business because you’re confident with your talents and that you love your products. You’re also under the assumption that there will be a good market for them.

With good marketing talents and product quality, you could be surprised to know that the chances of success can be pretty high despite the fact that about one-third of Americans are now somehow involved in an online business, whether it’s sales or services.

When it comes to sales, there’s a greater demand for products delivered online and is only expected to grow. Therefore, it would make sense to smart a small online business through ecommerce platforms such as Etsy, Shopify, and eBay or engage in Amazon Dropshipping. Therefore, you will need a business plan not just as a requirement for a business license and LLC, but for yourself, so you’ll know what to do should your business suddenly grow or falter.

Your Platform

There are several platforms to choose from, depending on what you intend to sell. You could choose one or several, including Craigslist, Facebook Market, Etsy, Shopify, eBay, and Amazon. You can choose one or several simultaneously to gain maximum coverage unless of course you want to concentrate or there’s a significant monthly store fee. Below are online eCommerce platforms you can use depending on what you want to sell. You can create your online store, but you could be in for an uphill battle.

What can be sold on Etsy? 

Etsy is a store that made its name through the sale of custom and handmade items. Stuff you wouldn’t find anywhere else. Sellers often sell handmade jewelry, customized or handmade clothing, leather goods, art, vintage goods, and craft supplies. If you’re a talented artist or craftsman, then Etsy is your platform. Now, if Etsy is only a hobby or side income, you may not need to get a business license, though should your business grow, it should be easy enough to get one.

What can be sold on Shopify?

Basically, anything that’s not illegal. It can be a physical product such as shirts, mugs, books, and electronic gadgets or digital products like eBooks. You can also sell services on Shopify. It’s not mandatory to have a business license to sell on Shopify though it is recommended if you start earning over 20,000 a month. It depends on your State’s laws on how much product you push or what services you perform.

What can be sold on eBay?

eBay made its name from selling second-hand or rare items, but even new products can be sold here for those used to using the platform for their eCommerce needs. Things that typically sell on eBay include consumer electronics, collectibles, crafts, clothing and accessories, toys, and sporting goods. You can sell services on eBay, but in general, people don’t visit eBay for services. Craigslist would be more recommended. If you set up an eBay Store, you will likely need to have a business license.

What can be Dropshipped on Amazon?

Almost anything except for federally-regulated items. When choosing this platform, you will likely need a business license as well as form an LLC.

When dealing with products and services online or offline, especially when the scale of the business grows to warrant taxation, then you should always get a business license as well as form an LLC. The license permits you to run your business, while your LLC becomes your additional layer of protection. When doing business, the only way to go is up or to become self-sustaining with a modest profit. The internet may be a gray market, but it’s still a great idea to be validated and protected.

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