If you’re a blogger or eCommerce business owner, you’ve probably at least considered forming a limited liability company (LLC) for your business. The LLC is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.
Of course, forming an LLC isn’t the only option for your blog or eCommerce shop, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for your online business, so let’s dive into the details of the LLC to figure out if you should form one for your shop.
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What Is an LLC?
First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
Why Starting an LLC for an Online Business Is Important
Personal Asset Protection
The top reason to form an LLC for an online business is to gain access to the personal asset protection provided by this business structure. Whether you operate a simple monetized blog or a large eCommerce site with a wide variety of products and services, you need the limited liability protections that an LLC can provide.
Even with a basic blog site, you run the risk of (either knowingly or unknowingly) violating copyright laws, or committing libel or slander. If you find yourself on the business end of a defamation lawsuit or copyright claim, a sole proprietorship or general partnership will not provide the asset protection you need.
On the other hand, if you form an LLC for your online business, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
However, this is just the tip of the iceberg when it comes to the advantages of the LLC for a blog or eCommerce site. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.
Sole Proprietorship/General Partnership
Your blog or eCommerce site’s LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your online business itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.
You can also choose for your business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.
The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most U.S.-based online businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.
S corp taxation can help your online business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
Compared to operating a sole proprietorship or general partnership online business, the S corp taxation model can save you quite a bit of cash that you can use to buy an upgraded website and/or make other improvements to your eCommerce site, rather than writing a big check to Uncle Sam.
Enhanced Credibility and Name Uniqueness
Finally, an LLC structure can enhance the credibility of your web-based business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a sole proprietorship for your online business, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for a blog or an eCommerce site.
In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states. This means that if another eCommerce site wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.
How to Start an LLC for an Online Business
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The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:
1) Choose an LLC name
Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.
2) Designate a registered agent
Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.
3) File your formation documents with the state
The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.
4) Acquire an EIN
The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.
5) Create an LLC operating agreement
Most states don’t require operating agreements but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.
6) Create a financial infrastructure
You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.
7) Handle taxes, licenses, and permits
Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. There aren’t any specific licenses required for bloggers or eCommerce businesses, but keep in mind that you may have other licensing requirements. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.
8) Understand maintenance requirements (annual reports, franchise taxes, etc.)
Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.
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For most people, LegalZoom is the first name that comes to mind for LLC services due to their massive advertising budget. LegalZoom’s pricing and features may not compete on an equal playing field with ZenBusiness, but its brand power is notable and it receives good customer reviews.
For a side by side comparison, check out our LegalZoom vs ZenBusiness review.
Additional Resources for Starting a Blog or eCommerce Site
One of the best tools for any blogger is the resource section on ProBlogger’s site. Here, you can find their picks for the best website platforms and hosting sites, along with advice about web design, graphic design, email marketing, social media management, productivity, and much more.
QuickSprout can analyze your website or blog’s performance on a page-by-page basis, making it easier to craft content around the areas of your site that perform the best. You can even use their social media review tools to see which posts on your blog have been shared the most frequently and effectively.
3) A Better Lemonade Stand
This admittedly awkwardly named site has a ton of resources for eCommerce entrepreneurs. They have a helpful blog with a wide variety of topics, and they also offer video training exercises, case studies, guides and PDFs, articles, and product recommendations.
4) Shopify Blog
Most eCommerce business owners are well aware of what Shopify can do for their businesses, but it’s also worth mentioning how incredibly valuable their blog is. Shopify updates its blog daily, often with several posts per day, covering topics ranging from payment platforms to shipping options, business plan advice, and more.
5) Digital Commerce 360
Digital Commerce 360 has a news section for internet retail on their website, and it’s a great resource. The news on this site typically discusses high-profile eCommerce sites, digging into the details of why these sites are so popular and offering tips and tricks to help your business experience similar growth.
Frequently Asked Questions
What liability risks do bloggers and eCommerce businesses face?
Depending on the exact nature of your business, there could be several different liability issues. Bloggers run the risk of lawsuits for libel or slander if you (knowingly or unknowingly) post any untrue claims about others.
In addition, if you plagiarize work from another blog, you could be sued. For eCommerce businesses, selling knockoff or counterfeit products is a liability risk. For either type of business, you’ll need to avoid data breaches that jeopardize your customers’ private information. In short, you should not operate a blog or eCommerce website as an informal business entity.
Why should I form an LLC instead of a corporation?
Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses.
Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.
Can I serve as my LLC’s registered agent?
You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.
For instance, you would need to be present and available at your business location during all standard business hours. In addition, if you serve as your LLC’s registered agent, you may need to make your home address a matter of public record. Not only does this have privacy concerns, but there’s also the matter of unwanted junk mail as well.
Why should I hire an LLC service when I can form my own LLC?
The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.
Should I form my LLC in my home state, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.
How much does it cost to form an LLC?
The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our comprehensive guide to state-by-state expenses.
Start an LLC For Your Business
We break down the LLC formation process in detail for different types of businesses. View all of our guides below.
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