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Choosing the Right Business Structure for eCommerce; Guide
Incorporating your eCommerce business is a step in the right direction. Choosing the right company structure will make your taxes less of a pain, and it will give you the protection you might need should something go wrong with your business.
Read this guide to find out which legal structure is the best for eCommerce.
Should You Incorporate an eCommerce Business?
The short answer is yes.
If you’re serious about running your eCommerce business, scaling it, and keeping it long term; then you should incorporate it.
Incorporating your business carries many benefits, from tax savings to credibility.
What Is a Legal Structure?
A legal structure, also known as a business structure, is the organizational structure of your business.
The legal structure governs the possibilities of your business.
It’ll determine whether you can raise capital, have more decision makers, or sell your business. It’ll also determine the amount of tax you and your business will pay.
When choosing a legal structure for your business, you need to think about the goals of your business, who is involved in the business, and the financing behind the business.
What Is the Best Legal Structure for eCommerce?
Most people start their eCommerce business using the sole proprietorship structure because the paperwork is easy and the tax rates are good.
This business structure is ok while you’re figuring things out, but it’s better to officially incorporate your business in the long run.
The main reason to do so is to separate yourself from your business.
If you’re running your eCommerce business under the sole proprietorship structure, you’re personally responsible for your business. When you incorporate, your business is treated as separate entity.
What Does This Mean?
‘Imagine this scenario; you’re dropshipping from China. You scale quickly and get $1000s worth of products to customers all over the US. All of a sudden all your customers start getting back to you asking for refunds. Turns out the batch from the manufacturer was faulty.
Your payment processor freezes your account. There isn’t enough money to cover all your refunds. You end up owing money to the payment processor/ bank.
The debt and legal proceedings will be on you.
This is because a sole proprietorship doesn’t offer limited liability.
Limited liability means that your business is treated as a separate entity and it doesn’t affect your personal credit, assets, etc.’
If you incorporated as an LLC, your assets would be protected in this scenario.
What Is an LLC?
An LLC stands for Limited Liability Company.
An LLC is the best structure for eCommerce because it’s tax-efficient, simple to incorporate and run, and offers limited liability. It’s the perfect hybrid of sole proprietorship and corporation business structures.
What Other Legal Structures Are There?
The most popular business structures in the US are sole proprietorship, partnership, LLC, and corporation.
Sole proprietorship and partnership are very similar, the only difference is that the partnership involves ‘partners’ in the business. For example, when you’re running your eCommerce business with a friend; you’re business partners. Sole proprietorships and partnerships don’t separate the business from its’ owners. You and your partners will be liable.
A corporation is a complex legal structure. The taxation and paperwork are different from a sole proprietorship or an LLC. A corporation is for businesses that want to attract outside investors. It can sell and transfer shares. A corporation is treated as a separate legal entity, just like an LLC, but it’s much more difficult to run.
An LLC is the middle ground between a sole proprietorship and a corporation. It offers limited liability like a corporation, but it keeps the simplicity of a sole proprietorship.
The Benefits of LLC Formation for an Ecommerce Business
To recap; when you incorporate an LLC for your eCommerce business you’ll benefit from liability protection.
You can also take advantage of things like no income tax if you incorporate in Florida, for example.
Is LLC Formation Difficult?
LLC formation is really easy when done through a specialist service like this. All you have to do is fill out a simple form, pay the fee, and your business will be officially incorporated in just a few days.
Remote company formation is available to citizens, residents, and non-resident aliens of the USA.
How Much Does LLC Formation Cost?
The cost of company formation varies from state to state, and from service provider to service provider. Businessanywhere.io has the best rates and the best packages for remote company formation.
Click Here to Register Your LLC Today!