Do I need an LLC to sell online in 2024?

Are you a budding entrepreneur wanting to start your own online business? Perhaps it’s time to make your online hobby an official source of income? Forming an LLC is a strategic business decision that protects your personal assets from liability while transforming your entrepreneurial dream into a reality.

Our friendly and professional team at doola has helped thousands of global founders form LLCs, taking care of the complicated administrative steps. If you’re planning to start an online business in the coming year, then an LLC offers many benefits and advantages.

Let’s discuss the benefits of forming an LLC to sell online and how to get started!

Should I form an LLC to sell online in 2023?

A limited liability company (LLC) is a popular US-based business structure that offers business owners increased protection from legal and financial complications. Forming an LLC is a popular option among small to medium size businesses where business owners are heavily invested in the business’s success.

With the event of the pandemic, the world saw a surge of new businesses, start-ups, and the digitalization of existing organizations. The e-commerce retail industry made up the vast majority of new businesses that started in 2020, and online retail continues to be a viable choice for entrepreneurs today.

Whether you’ve started making (and selling) linen clothing, handmade ceramic vases, or drop-shipping aluminum water bottles — you can benefit from forming an LLC.

You don’t need to have a formal business entity to start running an online business, but as the business grows, all companies require a business license to sell online. This allows the government to track enterprises operating within an area for tax revenues.

When faced with a choice of business structures, an LLC offers many benefits, making it a preferred option for many.

What does an LLC protect?

Incorporating a business transforms an online sales project into a legal business entity that is separate from its owners.

Incorporating an online business is achieved in the following steps.

• Choose a legal structure for your business (we recommend an LLC)
• Select a registered agent (we recommend our expert team at doola)
• Apply for an employer identification number (EIN)
• File the paperwork in your chosen state of incorporation

So, why choose an LLC over a sole proprietorship, partnership, or corporation?

An LLC offers many benefits, most notably the legal and financial protection it offers the owner (or LLC owners). Offering limited liability protection, the LLC separates the owner’s personal assets from the business.

If the LLC can’t pay its debts, then the creditors will make up the difference from the LLC’s bank accounts and assets. The owner’s personal assets and bank account is protected from paying the credit.

For example, imagine that you buy T-shirts in bulk and sell them as customized, branded items. If you buy too much stock and can’t move the stock in time to pay the bills, then creditors will revert to the LLC’s assets to settle. The owner’s personal assets and properties will not be liable to cover the debt.

Advantages of owning an LLC

Why choose an LLC over other business structure options when starting your online store? Let’s explore the advantageous reasons why small businesses choose LLC as their preferred option.

Personal liability protection

An LLC limits personal liability by treating the business as a separate legal entity from the owners. When you consider how small business owners invest wholeheartedly into their company, the remaining personal assets must be kept separate.

As an entity, the LLC is responsible for settling all debts and obligations through business assets and bank accounts. While your business investment may be at risk, your personal assets, such as your bank account, house, savings, etc. are protected and exempt from paying the business debt. The same protection is offered in an LLC if an employee or business partner is sued for negligence.

In contrast, the business owner and the business are considered the same legal entity in a sole proprietorship or partnership. If the business incurs debt, then the owner’s personal assets may be at risk of settling the outstanding debt.

Even if you trust your own business decisions, your partner may be negligent and put the business in a risky position, once again exposing your personal assets.

Less paperwork

Forming an LLC is a quick and easy process with limited paperwork. With the help of a registered agent, you can have an operational LLC in a week to 10 days (depending on how the state processes business filings). The initial paperwork and fees for an LLC are manageable, making it an attractive option for a new business owner.

Once registered and operating, an LLC is free to operate without administrative requirements. Rather than hold annual meetings and maintain extensive records, LLC business owners can focus on building client relations, expanding their online inventory, and more.

It’s important to note that corporations also offer limited liability, but certain requirements must be maintained. For example, corporations must hold annual shareholder meetings, make annual reports, and pay annual filing fees to the state. These substantial recordkeeping commitments can put a lot of strain on the company and distract from growth.

Tax benefits

The tax benefits offered to an LLC make the business structure a popular choice among small businesses. Consider the following as a starting point.

Pass-through taxation

The business arrangement puts an LLC in a unique position to benefit from pass-through taxation. Essentially, this means that the LLC does not have to pay any LLC taxes or corporate taxes. Instead, the owner pays personal income tax on any profits as the business income and expenses pass through the owner’s personal tax returns.

LLC tax benefits are a lot more appealing than a traditional C corporation, which is taxed twice on distributions to shareholders, and a traditional S corporation, where only eligible corporations avoid double taxation.

Choose how to get taxed

Registering as an LLC doesn’t only offer pass-through taxation benefits but also the chance to choose how to get taxed. The true impact of taxes on an LLC depends on various factors, such as the following.

• Single-member LLC — IRS taxes the company as a sole proprietorship, and the filer can deduct business losses from their tax bill (reducing the amount of money owed to the government)
• Multi-member LLC — IRS taxes the company as a partnership, allowing each member to deduct business losses from their personal tax bill
• Corporation LLC — filing Form 2553 presents your LLC as an S-Corp, allowing members to save money on self-employment taxes by only taxing the business owner’s salary

Tax deductions for business expenses

By deducting business expenses when filing your tax returns, you’re able to lower the amount that you pay in taxes each year.

When selling online, you can save on the following common expenses.

• Rent of a storage facility for inventory
• Home office costs
• Utilities such as electricity, water, and gas
• Furniture and equipment such as laptops, desks, and chairs
• Office supplies such as stationery and printing paper
• Advertising and marketing costs, including social media
• Website and software expenses, including security systems and payment software
• Payroll, including wages, bonuses, and commission
• Employee benefits, such as retirement plans

Other tax deductibles that can be applied in different industries include professional fees and business services, training and education, membership fees, business travel expenses, and vehicle expenses. When selling online, these saved funds can be allocated toward a storage facility, better marketing, and expanding inventory.

No taxes for non-US trades or businesses

Non-US trades or businesses have the added benefit of not paying any business taxes at all. As long as you don’t hire any US citizens or earn money in the US, then you don’t have to pay US taxes.

Management flexibility

Different corporation structures offer specific benefits to owners, and by forming an LLC, you can choose the management structure that best suits your business. There is no formal structure associated with an LLC, allowing for flexibility.

In contrast, corporations have a fixed management structure which includes a board of directors and strict company policies.

The concept of flexibility continues in the manner of profit distributions. LLCs have flexibility in how they choose to distribute profits to the owners. For example, it’s not required that profit distribution matches the number of shares that each owner holds.

By offering a simple and adaptable business structure, an LLC provides the flexibility needed for small businesses to grow and adapt as needed.

How to set up an LLC from anywhere

Imagine that you’ve chosen the perfect product to sell online, developed a strong business plan, and started conducting market research — now, all you’ve got to do is form your business.  

Many start-ups and small businesses choose to form an LLC for the above benefits. So, how do you get started? The excitement of starting a business can be overwhelming, but a registered agent, such as doola, can help you get started.

Registering an LLC in the United States

In most instances, starting an LLC in the US is achieved in the following steps.

• Choose a state to form your LLC

While most business owners choose to register their LLCs in the state where they plan to operate, there is no obligation to choose a specific state when choosing where to register your LLC. When running an online shop, this is particularly useful as your business will not be limited to a single state.

Forming an LLC in Delaware is a popular option, offering simple and low-cost formation, taxation benefits, and confidentiality protection, among other advantages.

• Choose a company name for your LLC

Consult the Secretary of State’s records to confirm that there is no existing business entity operating with the name you chose. It’s advised that you include LLC (or limited liability corporation) in your business name and register a “doing business as” name for trade.

• Choose a registered agent

A registered agent takes over the responsibility of filing your articles of organization. They also receive important legal notices and tax documents on behalf of the LLC and help aspiring entrepreneurs start their businesses on a smooth and positive note.

At doola, our friendly team is experienced in helping businesses in a variety of different niches, helping thousands of founders to start, run, and grow their businesses!

• File articles of organization and draft operating agreement

Completing this step in the process gives your LLC life, documenting basic information as well as operational details. The LLC operating agreement is required to separate the entity’s existence from the owner. An operating agreement is especially important for multi-member LLCs, helping to define ownership, labor, and profit agreements. The LLC must then be filed with the state of choice.

• Get an employer identification number (EIN)

The IRS demands an EIN for tax purposes. The nine-digit number is used to complete income and employment tax filings.

• Open a business bank account

The EIN is also used to open a bank account. While it’s not a legal requirement, it is a best practice for businesses that plan to use dollars. It also helps separate personal finances from business finances.

Registering an LLC from abroad

You don’t need to be an American citizen to open (and successfully operate) an LLC. Using a registered agent, international founders can start a US business with ease and convenience.

Whether you want to set up an LLC in Australia, India, or the UK, it’s possible with the help and guidance of an experienced registered agent.

At doola, we offer the following assistance to help get your online shop off the ground, regardless of where you call home.

• Help you come up with your own name for your LLC
• Form your company
• Provide a physical mailing address in the US
• Get your EIN
• Assist with opening a US business bank account
• Help set up payment processors (such as Stripe, PayPal, etc.)

Are you ready to get started? We’re ready to help you! Contact our team today and start setting up your US LLC. It’s only a matter of time before you’re counting your sales, expanding your offerings, and growing your online shop.