When launching an eCommerce business, thorough planning and careful consideration are essential.
In today’s digital era, where online shopping reigns supreme, achieving success with an eCommerce store can be a challenging endeavor.
You need to stand out from hundreds and hundreds of similar stores while ensuring that you are running your business in a way that isn’t driving you into financial ruin. Balancing every consideration is not an easy process.
Many eCommerce sites will fail very early because the business owners don’t enter into the venture having made intelligent decisions. One major thing you must keep in mind is the kind of business entity you choose to be.
This decision will determine things like ownership, management structure, taxation, and the likelihood of your company’s setup expanding meaningfully. There are numerous different types of business entities, and they all have advantages.
From solo ventures where you are in control of everything to large-scale corporations, which can expand into massive money-makers to limited companies, which allow for a reliable tax and investment structure.
This brings us to the Limited Liability Company, or LLC for short, which might be the most desirable choice for an eCommerce store. It’s a setup that combines a partnership’s taxation with a corporation’s limited liability.
Let’s take a look at how this can be beneficial for your store:
Protection
The primary purpose of the LLC type of business entity is to ensure maximum protection for business owners in terms of their liability. That’s where the term-limited liability company comes from.
The management structure of an LLC is quite flexible. You can have one person categorized as the manager, you can have a setup where multiple members will be considered managers, or you can have a third-party manager.
Regardless of your company’s setup, the managers of an LLC will only be personally liable for the amount of money they put into the company. Owners will never have to worry about being liable to pay off company debt.
Similarly, if the company is sued, the owner’s personal assets will not be at risk. This can be hugely beneficial when starting an eCommerce business.
Because it’s such a competitive market right now, you are much better off ensuring that your personal financial state won’t be affected if the business doesn’t go well in the early days.
No other kind of business entity will offer you the same type of protection across the board. While it may provide you with less opportunity for massive expansion than a corporation would, it is far safer for a small business to go the LLC route and start an LLC online.
Tax-Friendly
LLC companies will not be taxed as corporations, so you can avoid a common problem that many business owners face: double taxation. This means you must pay your personal and additional taxes for the business.
All of your business income and expenses you will instead post on your tax return. So, as an LLC company, your taxes will be significantly more manageable. Again, for an eCommerce company that is just getting started, less harsh taxes can help you a lot.
Starting the business and building it up will be expensive enough, and having to deal with high taxes will make it even more difficult to be successful. However, much like the management structure, this aspect of the business is flexible.
There are certain benefits to being taxed as a corporation, such as being able to deduct employees’ salaries, health benefits, and bonuses. If you want to take advantage of some of these, you can opt for corporate taxation for your LLC.
Otherwise, allowing for the standard LLC taxation system will favor an eCommerce site. If you’re in America, you can fully take advantage of this by registering through Harvard Business Services.
This service operates out of Delaware, which has the most business-friendly tax laws in the country, making it the perfect place to register a new business.
Simple Formation
eCommerce sites, in general, are among the less complicated kinds of business to set up. It’s all about having a product that fills a niche, setting up your website and marketing strategy, and implementing a reliable payment service.
Opting for an LLC as the business entity behind it simplifies the process even more. There are fewer hoops to jump through when registering a company that won’t generate an extra tax funnel for you.
These businesses have significantly less paperwork than corporations; you have fewer guidelines to meet, and you must establish a board of directors and create formal financial statements.
LLCs require none of that. A sole proprietor would be similar in its ease of formation, but the protection and more desirable tax laws are not as strong. Because LLCs are the most common business in America, you also have more credibility.
So, if you want to set up an eCommerce site, you can’t go wrong with operating as an LLC. It’s the best way to ensure that you are protected, that you won’t be eaten alive by taxes, and that you can quickly get yourself off the ground.
