November 1, 2023

Is an LLC the right business structure for your ecommerce business?

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When launching a US business, most founders opt for one of the two most common structures: LLCs and C-Corps. Each business type comes with its own pros and cons, from taxes and fees to compliance and equity issuance. It's crucial to choose the structure that best aligns with your business goals.

The right business structure depends on various factors such as your company's ownership, industry, and long-term trajectory. In this article, we'll walk through the most important considerations for ecommerce founders to help you decide whether an LLC is the right structure for your ecommerce business. Check out our LLC vs. C-Corp quiz for a personalized recommendation.

What is an LLC?

LLC stands for Limited Liability Company. LLCs are legal entities separate from the individual owners (known as members). They provide vital liability protection — while an LLC can be sued, the members are not personally responsible for the company's debts or other obligations. Without an LLC (or other businesss entity), there is no clear legal distinction between you and your business.

Unlike C-Corps, which pay corporate tax on profits, LLC revenues and losses are simply reported as the personal income of the members. The number of members is generally not restricted, so an LLC could have one member, 1,000, or anywhere in between. They are often called "pass-through entities" since no taxation occurs at the corporate level.

Forming an LLC is the easiest and cheapest way to register your business while protect your personal assets. You'll also get great privacy protections if you incorporate your LLC in Wyoming. Click here for details about limited liability companies.

LLCs for ecommerce

If you're selling products to customers, you need liability protection. While you can get this protection through a C-Corp, LLCs are simpler to set up and come with fewer fees.

On top of liability protection, an LLC will also help build and preserve your reputation and that of your company. Rather than being associated with you personally, the business will stand on its own. Customers and business partners will see your company as a legitimate operation rather than a hobby or personal project. This is critical for entering the US market, gaining trust from US customers, increasing your US revenue, and other aspects of business development.

Finally, LLCs offer powerful privacy safeguards — reporting and disclosure requirements are fairly limited, and company ownership is not available to the public. You won't have to publish your name, address, or any other sensitive information. Check out these stories to see how two founders incorporated LLCs with Firstbase to achieve their US business goals:

  1. How Nuport Industrial Automation, Inc. incorporated in the US effortlessly
  2. How a Bangladeshi eCommerce Company incorporated an LLC in the US and kicked off its success with customers

What about C-Corps?

While LLCs offer the benefits most ecommerce founders are looking for, you may also be thinking about launching a C-Corp. C-Corps have to pay corporate tax, are subject to additional regulatory requirements, and usually pay higher fees for incorporation and compliance. However, they also come with some advantages:

  • C-Corps can authorize and issue shares to investors, employees, and other stakeholders
  • C-Corps can minimize corporate tax by reinvesting income back into the business
  • C-Corps have a clear division between ownership and management

We typically recommend C-Corps for companies that plan to get funding from outside investors, but there are other good reasons to consider a C-Corp over an LLC. Again, we advise taking our LLC vs. C-Corp quiz if you're still unsure. Either way, hit the link below to start your incorporation today.

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