When launching an eCommerce business, one of the most crucial decisions to make is whether or not to form a limited liability corporation (LLC). This is a question we get asked a lot. In the past year alone, we established 5,038 LLCs, 1,000+ of which are all eCommerce businesses - and there's a reason for it. Let’s start by clarifying:
The first thing we need to do is define an LLC. The term LLC stands for Limited Liability Company (LLC). LLCs, like sole proprietorships and general partnerships, are legitimate legal entities whose revenues and losses are reported on the owner's personal tax returns (which makes taxes easier to file and understand). Also, LLCs do not owe income taxes.
Forming an LLC is the simplest way to register your business, and also protect your assets in the event that your firm gets sued.
As previously said, asset protection is one of the most significant advantages of an LLC. Aside from that, LLCs have a slew of other advantages:
Running an online business that has the potential to expand gradually and make profits, entails also a significant amount of risk, and you’ve got to be covered.
So, let’s dive in.
The first reason you should incorporate your eCommerce business is for legal protection. Every business owner should have a shield of protection for his assets and himself, and an LLC will easily provide that.
Tied to the first one, the second reason you need an LLC for your eCommerce business is to protect your reputation: if you are caught in a scam or sued, you may lose not only all of your money but also your reputation as an entrepreneur. An LLC will protect you and your assets because it is recognized as a separate legal entity with its own Federal tax ID number. The LLC is liable for its liabilities and debts, NOT the owner. For example, if creditors or people try to file a lawsuit against your company, they will not be able to collect money from your personal bank account or even take your car or home. Whatever happens, you as an entrepreneur will be fine.
The third reason for forming an LLC is to gain the trust within your network.Do you want to enter the US market, gain trust from US customers, increase your revenue, and maybe launch a Kickstarter campaign? An LLC can help with this by serving as a "trust badge" for both your employees, customers, investors, and network. They will all know who they are working with and that it is safe and legal to trust them. No matter where you are coming from, your network will know that yours is a ‘real’ business, and also you will have an official and registered business name to use.
Finally, as an LLC owner, you will have unparalleled security and privacy because:
Again, you will be safe in any scenario.
Are you still doubting if an LLC is the right choice for your eCommerce business? Read the stories of these two founders who have incorporated their eCommerce businesses as LLCs and succeeded: