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Protecting Your Passion: Safeguarding Your E-commerce Business with an LLC
April 24, 2024

Launching your own e-commerce business can be a true labor of love. The last thing you want is to see your hard work threatened by a lawsuit or aggressive creditors. Thankfully, there are some prudent steps you can take toward safeguarding your passion project. One such step is registering the business as an LLC.

The LLC, or Limited Liability Company, is a popular structure for small businesses, widely used by entrepreneurs across the country. Among its many advantages, it can provide e-commerce stores with some important long-term protections. Simply put, registering as an LLC is one of the best things you can do to verify that your passion project is secure.

Explaining the LLC Format

Before you begin the process to register your business as an LLC, it’s important to have a little bit more information on exactly what an LLC is.

Think about it this way. When you start generating any kind of revenues on the basis of self-employment, the government automatically considers you to be a Sole Proprietor. In this legal arrangement, there is nothing you can do to separate your business assets and liabilities from your personal ones. What this means is that, if you face litigation or intense creditors, all of your personal assets are on the table: Your family’s bank account, your retirement nest egg… it’s all up for grabs.

But when you register your business as an LLC, you actually create a new legal entity. You’re able to maintain a distinction between business finances and personal finances. So when someone brings a lawsuit against your e-commerce company, or you face some other type of financial friction, you can rest assured that your personal wealth is safe and secure. And, you can experience a little more peace of mind while investing in your business.

The Benefits of the LLC

The main benefit of the LLC format is that it allows you to enjoy personal wealth protections. However, there are plenty of other reasons why the LLC structure might make sense for your e-commerce business. Consider:

  • When you register your business as an LLC, it confers a lot of professional credibility. Not just any company can gain LLC status, and taking this step shows that what you’re building is more than just a personal passion project or a side hustle. This added credibility can be important when you seek a business loan or an investor.
  • LLCs also enjoy a lot of flexibility when it comes to taxation. You can pay your taxes on a pass-through basis, simply declaring profits and losses on your personal tax return, but you can also opt into corporate tax status as you see fit.
  • When you establish your business as an LLC, you can choose how you want to manage it: Run the business solo, bring in partners, even outsource responsibilities to a third-party management team. You don’t have to deal with the same rigid governance requirements that you would if you set up a Corporation.

These are just a few of the reasons why so many e-commerce entrepreneurs gravitate toward the LLC format. Now the question is, how do you actually start an LLC?

How to Register Your E-Commerce Company as an LLC

While the process for LLC formation can vary from state to state, the process usually unfolds like this.

1) Choose which state to register in.

You’re technically allowed to set up your e-commerce store in any state, but for financial planning, it’s usually best to just choose the state where you’re setting up shop. Check the LLC laws in your home state for more information; for example, if you’re in the Sunshine State, it’s wise to seek specific tips to start an LLC in Florida.

2) Pick a name.

It’s legally required that every LLC have a unique name. In other words, you have to pick a name that isn’t already in use by another LLC in your state. Fortunately, most states provide easy-to-use online directories, making it pretty simple to determine whether the name you want can still be claimed.

3) Select a Registered Agent.

Another legal requirement for LLCs is to pick a person or an organization to serve as your Registered Agent. Your Agent’s job is to receive and maintain legal correspondence on the business’ behalf. The simplest option is usually to hire a third-party Registered Agent service.

4) File your paperwork.

You’ll need to create an Operating Agreement, which outlines how you structure the business, as well as Articles of Organization. The latter document must be filed with the state in order to officially establish your LLC. You’ll also need to pay the state filing fee, often under $100.

5) Claim an Employer Identification Number.

Your EIN will enable you to administer payroll and file your taxes. You can claim one for free from the IRS.

6) Set up a bank account.

Make sure your e-commerce store has a bank account that’s for business purposes only, separate from any personal checking or savings accounts. This is a critical step as you seek to uphold those core legal protections.

Safeguard Your E-Commerce Business by Registering as an LLC

The bottom line: We live in an increasingly litigious world, and all business owners need to be thinking about what they can do to secure their assets. Online retailers are no exception. Think about registering as an LLC, and enjoying all the protections that come with it.

Author Bio

Amanda E. Clark  is a contributing writer to LLC University. She has appeared as a subject matter expert on panels about digital marketing.

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