If you are a seller on Amazon, eBay, Walmart, or any other online marketplace, you may have considered opening an LLC (Limited Liability Company). An LLC is a business structure and legal entity used to own and operate a business. It provides the owner(s) with personal liability protection while retaining the benefits of a sole proprietorship or partnership.
Is opening an LLC the right choice for your e-commerce business?
Having an LLC for your e-commerce business can bring many advantages. One of the biggest advantages is that you can separate your personal and business finances by creating a legally separate entity for your business. This means that your personal assets are protected from any liabilities or legal issues, such as lawsuits or outstanding debts, that may arise from your business.
Additionally, an LLC can help with taxes, as it offers more flexibility in terms of how the business is taxed and keeping your money in your pocket. LLCs are automatically taxed as either a sole proprietor or a partnership (if there are multiple owners). As an LLC owner, you can also choose to be taxed as an S-Corp. We recommend speaking with our partners if you are unsure what would be best for your business.
Do you need an LLC to sell on an online marketplace?
As an entrepreneur looking to sell products online, it is important to understand the different requirements of each marketplace. Platforms like Amazon allow you to trade as a sole proprietor, meaning you can sell your products without registering a business entity like an LLC or Corporation.
However, other marketplaces like Walmart have a minimum requirement of having an LLC or Corporation to start selling. So it would be worth registering an LLC early on if you plan to expand to other marketplaces in the future.
Why forming an LLC can benefit non-US citizens selling online?
If you are not a US citizen and looking to sell products in USD, opening an LLC can allow you to open a US bank account. This may be challenging to do without a US business, but having a US bank account can save you money on exchange rates in the long run.
Are there any disadvantages to opening an LLC for your business?
The main disadvantage of opening an LLC is the upfront and hidden costs.
The cost of LLC formation
The cost of forming an LLC depends on the state where it is registered. It is done at the state level, so the charges vary from state to state. Registration fees range from $45 to $450 depending on the state. You also need to be aware of state taxes, such as income and corporate taxes. It is important to seek the advice of professionals who understand the requirements of the chosen state before going ahead with an LLC formation.
The cost of filing an annual report
Another hidden cost is the requirement to file an annual report in most states, and the fees for this range from $10 to $800 depending on the state your business is formed in.
The cost of having a registered agent
Finally, you will need to make sure that you have a registered agent. A registered agent is a person or business that you hire to handle your tax, legal and government correspondence regarding your business. They will also make sure you receive any important information and legal documents on time. You can pay a person or business to be your registered agent for an annual fee, which typically ranges from $50-300. Although it is possible to be your own registered agent, this is only recommended if you (the business owner) are present at the physical location of the business during business hours.
What happens if I fail to maintain my business?
As you begin your journey as an e-commerce seller, it is essential to remember that your LLC comes with significant responsibilities that cannot be overlooked. A lack of attention to detail and compliance requirements can have severe consequences, ranging from steep penalties to losing your business entirely.
If you have an active LLC and fail to file your annual report or do not keep and pay a registered agent, you can expect significant fines. Even worse, some states will administratively dissolve your LLC and charge you steep penalties when you try to reopen your business.
Not having a registered agent can leave you vulnerable to lawsuits being filed against you without your knowledge. Legal documents won't be provided to you, and the lawsuit can progress, resulting in financial losses without the opportunity to defend yourself. Hiring a registered agent ensures that legal documents are delivered to you in a timely and secure manner, allowing you to protect yourself and your interests. States can also remove your business from good standing, which could make life very difficult for you.
Starting an LLC for your e-commerce business has several advantages, but it also comes with responsibilities. To safeguard your business, we recommend that you research individual state tax implications, the requirements of annual report filing, and keeping a registered agent, before opening an LLC. If you are unsure, RJM offers comprehensive services in forming a new LLC, filing annual reports on your behalf, and getting your business a registered agent. For any questions, reach out to us at email@example.com.