If you are in the initial stages of starting an online business, you might wonder whether you should set up a limited liability company (LLC). There are many advantages of forming an LLC for your business, especially in terms of legal obligations. No matter what online business type you want to start, an LLC might just be the right option for you.
This guide will go through how to set up an LLC for an online business, what setting up an LLC for an online business actually means, and why you should do it. We will also answer some general questions regarding limited liability companies.
Should I Form an LLC for My Online Business?
A limited liability company (LLC) is a type of business structure that integrates the features of a corporation and a partnership. In these types of business frameworks, potential financial issues, such as debts, loans, and legal matters, can’t affect the business owner’s assets and personal property. That’s what ‘limited liability’ stands for – only the company’s revenue can compensate for those expenses and not the business owner’s money.
LLCs are ideal for small online businesses and sole proprietors who have just started their company. It’s also a good option for businesses that have numerous owners and partners.
The most beneficial aspect of forming an LLC is the lower risk of financial problems. Aside from that factor, there aren’t many membership requirements for an LLC – online business owners, corporations, sole proprietors, individuals, foreign entities, and other LLC's can all be members of an LLC. Furthermore, each member of the LLC is considered to be the owner at the same time.
Another aspect to take into consideration is that when it comes to forming an LLC in Texas, Florida or any other US state, you'll find that the LLC requirements are relatively straightforward in every state and the formation process requires fewer steps than a corporation. Additionally, it costs around $100 to start an LLC. Your LLC also needs to have an official name and address, and then you’re good to go.
When it comes to taxes, an LLC is perceived as a sole proprietorship. Therefore, an LLC isn’t required to pay taxes. Instead, each LLC owner (if there are multiple owners) must deal with their individual tax returns.
How To Set Up an LLC
What an LLC Protects
Setting up an LLC for your business can be considered an extra layer of protection. This means that your personal property and assets will be protected should financial issues arise within the company. Personal property can include personal bank accounts, your house, car, or any other type of personal belongings.
In situations where your LLC is facing loans and debt, you don’t need to worry about your personal property. An LLC is perceived as an individual entity; therefore, if someone decides to take legal action against it, the business owner's personal property wouldn’t be affected.
This also means that you wouldn’t be held liable if another LLC member or partner is legally prosecuted.
What an LLC Allows You to Do
Setting up an LLC for an online business provides it with a formal business structure and legal identity. This refers to how you manage your business – making business decisions, dealing with revenue and expenditures, paying profits to partners and employees, bringing new people into your team, letting go of old ones, and many more factors. See this page on Wikipedia for more information.
As we mentioned before, an LLC is perceived as a separate entity. This means that it can be sued and that you can also use it to sue others. In addition, it can have its own bank account, assets, and property.
You also don’t need to pay federal income tax for your LLC since it’s treated as a sole proprietorship. However, sole LLC owners need to report all the profits and losses of that LLC. If an LLC has more than one owner, they are responsible for personal income tax returns. This means that they are responsible for paying taxes on individual shares of their profits.
FAQ
Forming an LLC for an Online Business: Worth the Cost?
The cost of forming an LLC for your online business varies depending on your location. However, the average price of the state filing fee is usually estimated at $100. The cost can range from $40 to even $500.
Forming an LLC is much more affordable and flexible than a corporation. What’s more, LLCs for online businesses are entitled to a 20% pass-through deduction, which lets business owners make a deduction for their income tax up to approximately 20% of the company’s net worth.
You can apply for an LLC for your online business by yourself, or you can hire an LLC formation service. If you are interested in the second option, don’t worry – we will get to it later.
Can One LLC Have Two Businesses?
One LLC can consist of two or more businesses. This type of LLC is also known as an ‘Umbrella LLC.’ Business owners have two options: They can run all those businesses under the same LLC name or register for a DBA (Doing business as) agreement.
However, this can come with its own set of risks. For example, if one of those businesses is losing money or is sued, other businesses can suffer financially. This means that if one business within the same LLC is in trouble, the whole LLC could be at stake.
Can You Do an LLC Online?
You can apply for an LLC online. These are the things you need to do to register for an LLC online:
- Think of a name for your LLC
- Register an address
- File articles of organization
- Pick a registered agent for your LLC
- File an LLC Operating Agreement
- Prepare the business' statement of purpose
- Apply for an employer identification number (EIN)
Can an LLC Sell Products?
Yes, you can sell products with your LLC. This type of LLC is also known as an ‘S corporation.’ According to a GovDocFiling post, you can start an S-Corp in Texas with GovDocFiling to avoid double taxation on business income & personal income. If you decide to sell products with your LLC, be mindful of credit, losses, corporate income, and tax deductions. It’s also always a wise option to develop a business plan for these LLC types, including marketing and sales strategies. You can find business plan templates on our Template Resource page.
Do I Need an LLC for Shopify?
If you want to sell goods on Shopify (or any other online shopping platform like Amazon or eBay), you aren’t technically required to have an LLC. However, it can be advantageous to have one in case something backfires. For example, if you sell expensive products like electronics, many things can go wrong during shipping. That’s why it’s recommended to have an LLC, just in case.
Recommendations – Best LLC Formation Services
If you need some help setting up an LLC for an online business, you can always get a legal-aid online service help you file an LLC. Here are some of our top recommendations:
This legal aid software is an excellent option for setting up an LLC for an online business. All you need to do is enter the LLC name you would like to register, and LegalZoom will compile all the paperwork and file the documents for you. It also offers some sample documents for you to go through before you decide anything.
This LLC formation software offers various legal aid services and document fillings. They also provide multiple templates for any type of legal documents. To get started on your LLC, all you need to do is type in the state of incorporation and business type. RocketLawyer will do the rest.
Another great option for LLC formation, LegalNature, offers templates and legal forms for any online business type. It also provides other business formation services, like LLC Operating Agreement, partnership agreements, business plans, and other documents you need to start an LLC.
Our Top Pick
All three LLC Formation service programs are top-notch, reliable, and easy to use. However, if we had to pick a winner, we would go with RocketLawyer. Apart from the diverse templates for legal documents it offers, it also has an impressive track history of 20 million clients. Furthermore, it makes the process of starting your online business easier.
Keep Your Online Business Safe and Risk-Free
We’ve presented you with all the reasons why you should apply for an LLC, and we’ve also given you some great options for how to set up an LLC and some LLC formation software option. Among other things, setting up an LLC for an online business gives you a sense of security. Now it’s up to you to decide what to do.
