Even as more vendors continue to adopt Shopify for their online stores, one question remains very common: Do I need an LLC for Shopify? This is a valid concern because it determines how you will be filing your tax returns and dealing with debts or lawsuits incurred by your business.
Whether you are using Shopify for a service business or selling physical products, you need to know how an LLC will affect your business in the long run. Continue reading to know if you need an LLC for your Shopify store.
What’s an LLC?
LLC denotes a Limited Liability Company and is a type of business that separates an individual from a business entity. With this separation, you, as the business owner, are protected against the liability of your business entity. This type of business puts together the tax and structure flexibility of a sole proprietorship with the liability and asset protection of a business entity.
Benefits of an LLC
The main benefit of creating an LLC is the legal separation between you and your business, giving you a layer of personal asset protection. As a sole proprietor, you are liable for every debt and legal liability your business incurs. Therefore, your personal assets like your home, bank accounts, cars, and properties could be sold to clear debts and settle damages related to your business. This also affects multiple owners of an online business who have formed a general partnership.
An LLC gives you limited liability so that you aren’t responsible for any LLC business debts that you haven’t personally guaranteed. Such debts can only be paid using the LLC’s assets and finances. Therefore, creditors won’t touch your personal assets to settle an LLC debt. However, an LLC usually limits your liability to regular bills for supplies and small equipment. Huge debts like business loans are likely to be attached to your personal assets.
An LLC Is Easy to Start and Run
Another common question that entrepreneurs ask is: Is Shopify good for small business? Fortunately, you can create a single-member LLC, which is almost similar to a sole proprietor business. One of the main differences between a single-member LLC and a sole proprietor business is that with a single-member LLC, you can hire employees.
Secondly, forming an LLC with Shopify is a very simple and low-cost process. You just need to work with one or two qualified Shopify developers. These are Shopify experts who understand the necessary steps that you need to take to make your online venture official with a reliable online store. An online store will validate and build trust in your brand. It will also improve your chances of securing outside funding like loans and investors.
How to Build an LLC for Shopify
There are important steps you need to take when building an LLC using Shopify. Here are the five main steps to take to have an LLC for Shopify:
- Choose a name: Every business needs a name. So, choose the right name for your LLC to help you make the right first impression of your brand. Finding a good name for your business may take some time, especially since you have to do a business name search to ensure no one else has claimed it. This includes checking your local business directories and scanning Google and social media.
- Get an EIN: EIN stands for an employer identification number, and it separates your personal identity from your business identity. This is your business’s social security number (SSN). To get this number, you have to fill out an online application form found on the IRS website. This process is free and takes less than 15 minutes.
- Register your LLC: You need to officially register your business name and EIN. This is a straightforward process. But there are some extra steps that vendors operating in certain industries, such as food and beverage, have to take. You will also need to obtain a business license from your local government.
- Open a business bank account: It’s always good to separate personal finances from business finances. This provides your personal assets with more protection against business liabilities.
- Develop your Shopify store: Hire professional Shopify developers to develop and launch your LLC store. You might also need to hire a Shopify expert to help you with marketing and inventory when you launch your online store.
Lastly, building an LLC helps to unlock immense financial and psychological benefits for your Shopify business because once you incorporate your LLC, you will have enough time to focus on other important aspects of your business.