What to Know Before Starting an LLC for Your Online Business

Forming a limited liability company (LLC) is one of the smartest moves for your online or e-commerce business. These entities will help you streamline your operations and provide asset protection, a crucial shield against potential liabilities.

As your online business grows, it becomes more susceptible to risks such as debt and lawsuits. These threats could negatively impact your personal assets if no legal entity exists to separate you from your online business.

Creditors and potential complainants could go after your savings and home to satisfy debts or damages. So, to protect your hard-earned assets, you must establish an LLC for your online business.

What is A Limited Liability Company (LLC)?

A limited liability company (LLC) is a legal entity that operates independently of its owners. LLCs can own properties, enter contracts, and be sued, meaning their owners or LLC members will not be personally liable for any debts or liabilities the company incurs.

This concept, known as ‘limited liability ‘, ensures that your personal assets are protected from the company’s legal obligations. For instance, if your LLC faces a product liability lawsuit, the complainants can only target its assets, not yours.

Do I Need An LLC to Sell Online?

No, you don’t need an LLC to sell products or services online. Most states only require a business license before starting your operations.

However, forming an LLC for your online business comes with several benefits, such as:

Asset Protection

Asset protection is the primary benefit LLCs offer. These entities will shield your personal assets from any risk your online business faces.

However, as the name suggests, an LLC’s asset protection is limited. Courts can “pierce the corporate veil” and hold LLC members liable for the company’s legal obligations if they are found guilty of using it as an “alter-ego.”

Pass-through Taxation

Pass-through taxation is another feature LLCs are known for. By default, LLCs are taxed as pass-through entities, meaning they do not pay corporate income taxes.

Everything they earn and lose is passed through to their members, who report their share of these amounts on their tax returns. This setup allows them to avoid double taxation, where businesses are taxed at the individual and corporate levels.

The pass-through status will allow your business to reduce taxes and increase its tax savings.

Flexible Management Structure

Unlike corporations, LLCs are not required to follow one specific management structure. Instead, they can choose between a member-managed or manager-managed structure, depending on which best suits their needs.

In a member-managed structure, LLC members take full control of the company’s daily operations. In contrast, in a manager-managed structure, members appoint or hire managers to manage the company’s day-to-day.

Enhanced Credibility

Lastly, forming an LLC will enhance your online business’s credibility. Trust is far more difficult to establish through the Internet, and having a formal legal entity like an LLC can boost your brand’s credibility. Forming an LLC demonstrates to your potential customers that you’re committed to operating legally.

Ultimately, your e-commerce or online business will greatly benefit from an entity like an LLC.

How to Form An LLC For Your Online Business

The requirements and procedures for forming LLCs vary from state to state. But generally speaking, the process involves the following steps:

Choose a unique LLC name.

Your LLC’s name should be unique and not similar to any existing business within your state. It should also comply with the following general guidelines for LLC names:

• Must end with “limited liability company” or an abbreviation of its equivalent.
• Must not include terms that imply a connection with government agencies.
• Must not include restricted words without the approval of a licensing agency.

We recommend you use your state’s business entity search tool to check if the name you want to use is still available.

Designate a registered agent.

Most states require LLCs to have a registered agent, a person, or a company assigned to receive legal correspondence on their behalf. You can designate anyone to be your LLC’s registered agent so long as they meet the following criteria:

• Must be 18 years of age or older.
• Must have a physical street address within the state.
• Must be available during regular hours to receive legal correspondence.

You may be tempted to assign yourself as your LLC’s registered agent. However, it’s important to remember that the role requires commitment and time. Hiring a professional registered agent who will handle all your LLC’s important documents properly would be best.

File your articles of organization.

The articles of organization are the primary documents you’ll need to establish your online business’s LLC. They include basic information about your company, such as:

• Your LLC’s name.
• Your LLC’s principal place of business.
• Your LLC’s nature.
• The name and address of your LLC’s registered agent.
• The names and addresses of your LLC’s members and managers.

Once you’ve completed your articles of organization, you must file them with your Secretary of State and pay the associated filing fee. The formation fees for LLCs range from as low as $35 to $500.

Obtain an employer identification number (EIN).

Lastly, you must obtain an EIN from the IRS. EINs are unique nine-digit codes used to identify businesses for tax purposes.

Your LLC will need an EIN to file taxes, open business bank accounts, and hire employees.

You can get your EIN through the IRS website or via mail.

Take Your Online Business to The Next Level

Although you don’t need an LLC to sell products or services online, creating one will give your business the boost it needs to succeed.

Ready to take your online business to the next level? Let NCH assist you in establishing an LLC today.

NCH specializes in LLC formation for online or e-commerce businesses. Our team of business formation specialists in the Silver State will assist you in creating an LLC for your online business, from choosing a unique name to obtaining an EIN from the IRS.

We’ll ensure your LLC is structured for maximum asset protection and tax savings.

To learn more, visit our website here or call 1-800-508-1729 to schedule a complimentary consultation with one of your business formation specialists.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.