Starting an eCommerce company comes with a lot of planning and deliberation. In the modern age where the internet pretty much dominates the way we shop, it can be difficult to be successful with an eCommerce store.
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 smart 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, how you are taxed, and the likelihood of your company expanding and growing in any meaningful way. There are numerous different types of business entities out there, and they all come with their own 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 the taxation of a partnership with the limited liability of a corporation.
Let’s take a look at how this can be beneficial for your store:
Protection
The main purpose of the LLC type of business entity is to ensure maximum protection for the business owners in terms of their personal 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 who is 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 what your company’s setup is like, the managers of an LLC will only be personally liable for the amount of money that they put into the company. Owners will never have to worry about being liable to pay off company debt.
Similarly, if the company ends up getting sued for some reason, the owner’s personal assets will not be at risk. This is something that can be hugely beneficial when starting up 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 things don’t go so well with the business in the early days.
There is no other kind of business entity that will offer you the same kind of protection across the board. While it may not offer you as much opportunity for massive expansion as 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 and what that means for you is that you can avoid a common problem that many business owners face in double taxation. This is having to pay both your personal taxes and additional taxes for the business.
All of your business income and expenses you will instead post on your own 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 as it is and having to deal with high taxes is going to make it even more difficult to be successful. But 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, and if you want to take advantage of some of these then you can opt for corporate taxation for your LLC.
Otherwise, allowing for the standard LLC taxation system will work in the favor of 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 so it’s the perfect place to register a new business.
Simple Formation
eCommerce sites in general are among the less difficult 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 then 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 you’re registering a company that won’t be generating an extra tax funnel for you.
These kinds of businesses have significantly less paperwork than corporations, you have fewer guidelines you need to meet, you have to 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 the more desirable tax laws are not as strong and because LLCs are the most common kind of business in America right now, you also have more credibility.
So if you want to set up an eCommerce site, you can’t go wrong with choosing to operate as an LLC. It’s the best way to ensure that you are protected, that you won’t be eaten alive by taxes and you can get yourself off the ground very easily.
