In this digital age, many e-Commerce businesses are most likely similar to yours. The challenge lies in making your business stand out for it to succeed. A reason why so many business ventures fail is that the owners lack the skills to make crucial marketing decisions. One important decision that needs to be made is deciding what kind of entity you want your business to be.
There are many different entities you can choose from. For example, you can either go solo or form a corporation. However, many e-Commerce business owners choose to go for the Limited Liability Company route. The question then is whether an LLC is suitable for your eCommerce business. Should you set up an LLC simply because it’s what most people chose or are there actual meaningful benefits you can gain from an LLC?
To answer that concern, here is how an LLC can benefit your store.
Setting up an e-Commerce site is already simple enough. All you need is a product in a particular niche, build your website and marketing strategy, and then set up a reliable payment method. Choosing an LLC as the entity for your business only simplifies this process even more. Compared to corporations, there are less paperwork to fill up and fewer guidelines to be met when setting up an LLC. With online legal services such as LegalZoom or Swyft Filings, it has become very affordable as well. It also doesn’t require establishing a board of directors or making formal financial statements.
LLCs do not pay any taxes. Instead, they are ‘pass-through entities,’ meaning that any profits or losses earned by the LLC are ‘passed through the LLC to the owners’ tax returns. Single person-LLCs are taxed similarly to a sole proprietorship. Your tax return lists the income of the business and any deductible expenses and is filed under IRS Schedule C, Profit or Loss from Business. Income tax is then paid based on your individual tax rates.
This type of tax return is the simplest you can have when running a business. Hiring a professional to do your taxes also costs cheaper than if your business entity was a corporation. On the other hand, LLCs that are made up of multiple members have the same tax treatment as a partnership. Every member reports on their tax return and their share of the company’s net profit or loss. They then pay income tax at their respective rates on any profit the business earns.
LLCs can choose whether to be taxed as a C corporation or an S corporation. However, experts recommend opting for the S Corp structure as this allows the owners to be considered employees for tax purposes, reducing self-employment taxes and contributing pre-tax dollars to health insurance premiums.
Protection of Assets
This is the main reason why people would prefer to structure their business as an LLC. Maximum protection of the owner’s personal assets is basically guaranteed in an LLC. This is where the name ‘limited liability comes in.
With an LLC, you can have a flexible management structure. For example, you can either have one person be the manager, multiple people take up the managerial role, or hire a third-party manager.
Regardless of your management structure, one thing stays the same: the manager is only liable for the value of assets they invested into the company. As a result, LLC owners will never have to worry about being personally liable for any debt incurred by the company.
If the company ends up in legal trouble, the owner’s possession will not be at risk. This is what mainly makes an LLC beneficial for those starting up an e-Commerce business. It’s always better to guarantee your financial security, especially with how uncertain the market can be and how your business can only go one of two ways.
No other business entity can offer this type of protection of your assets. Although it doesn’t leave much room for expansion like a corporation would, LLCs are still a good choice for those setting up a smaller business.
One thing that e-Commerce stores rely on is the trust of their customers. If you want to maintain a good relationship with your customers, then you need to maintain credibility.
Since LLCs are considered more formal than sole proprietorships, setting up your e-Commerce business as an LLC grants you more credibility. That credibility can especially come in handy when applying for any loan, credit, or grant.
You can’t go wrong with choosing the LLC route for your e-Commerce business. Although it also has its risks, its benefits far outweigh them. It’s also the best way to guarantee asset protection and tax flexibility and an easy way to kickstart your business.