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.
Need Help Starting Your LLC?If you want to make sure your LLC is formed correctly, hire an LLC service. Below are the top two that will take care of all the legal paperwork:
ZenBusiness – $39: If getting the most value out of an LLC service is your priority, choose ZenBusiness. They charge one of the lowest rates online and include all the most important features when starting a business. IncFile – $0: If you're on a strict budget and prefer using the cheapest LLC service, choose IncFile. They will form an LLC for free (plus state filing fee) and give you great features along the way.
ZenBusiness – $39: If getting the most value out of an LLC service is your priority, choose ZenBusiness. They charge one of the lowest rates online and include all the most important features when starting a business.
IncFile – $0: If you're on a strict budget and prefer using the cheapest LLC service, choose IncFile. They will form an LLC for free (plus state filing fee) and give you great features along the way.
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
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.
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.
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.
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
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:
The 3 Best LLC Websites
When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.
The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.
This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.
If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:
🥇 ZenBusiness – Best Overall Value
ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s the best LLC service online.
IncFile – Cheapest LLC Service
IncFile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent. Throw in their strong customer feedback, and IncFile is an excellent choice for LLC formations.
Northwest – Premium Support
Northwest is a bit more expensive, but their industry-best registered agent service includes local scanning of every document they receive on your behalf. They also have the best customer support for LLC services. If you’re looking for a premium service, Northwest is excellent.
Additional Resources for Starting a Blog or eCommerce Site
- ProBlogger: 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: 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.
- 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.
- 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 their blog daily, often with several posts per day, covering topics ranging from payment platforms to shipping options, business plan advice, and more.
- 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.