Whether you're just starting out or are already selling products on Shopify, it's essential to stay mindful of legalities–there are several laws that come into play when operating an online business, such as those regarding Shopify cookies and business licensing.
In this article, we'll discuss the legal requirements surrounding company structure and business licensing when using Shopify, as well as what LLCs are, why you might need one, and how they differ from other business structures.
What Is an LLC?
A Limited Liability Company is a business structure that offers personal liability protection and tax benefits to owners. LLCs basically separate company owners from their business entities, which means they won't be held responsible if their business violates a law.
LLCs are popular among small business owners because they offer some of the same protections as corporations, but with less paperwork and fewer restrictions.
How Does An LLC Work?
An LLC is a business entity created by state statute. LLCs are governed by an operating agreement, which is a contract between the LLC's members that outlines how the LLC will be run.
An LLC can be formed by one or more individuals, corporations, or other LLCs. There is no minimum number of members required to form an LLC, and it can engage in any lawful business activity, including online businesses such as Shopify stores.
Do You Need to Form an LLC For Selling on Shopify?
The short answer is: it depends.
If you're just starting out and your Shopify store is generating low revenue, you probably don't yet need to form an LLC. However, if your store is doing well and generating a significant amount of revenue, it's a good idea to consider forming an LLC. This is especially true if you're selling products that could potentially be harmful, such as food or cosmetics–the main reason to form an LLC is to protect your personal assets from being seized if your business is sued.
If you're doing business as a sole proprietor, your personal assets–such as your home and your savings account–could be at risk if your business is sued. However, if you form an LLC, your personal assets will be protected from creditors.
Another reason to form an LLC is to save on taxes: LLCs allow for pass-through taxation, which means that the LLC's income is taxed at the individual owner's tax rate. This can save you money if your business is generating a significant amount of revenue.
Lastly, forming an LLC can help you build credibility with customers and suppliers. Many people feel more comfortable doing business with an LLC because it shows that your business is legitimate and willing to follow the law.
It's important to keep in mind that your country, state, or city might require you to form an LLC by law; you also legally need an LLC for dropshipping.
Is an LLC the Same as a Business License?
No, an LLC is not the same as a business license. A business license is a document issued by the government that allows you to operate your business.
LLCs, on the other hand, are legal entities created by state statute. LLCs offer personal liability protection and tax benefits, but they are not required in order to operate your business.
Do You Need a Business License to Run a Shopify Store?
No, you don't need a business license to run a Shopify store. However, depending on where your business is located and what products or services you're selling, you may need to obtain a business license or permit.
For example, if you're selling alcohol, tobacco, or food products, you'll need to comply with specific regulations, and if you're running a dropshipping business, you may need to get a resale license. Ultimately, it's important to research the licensing requirements for your business and budget for Shopify costs associated with obtaining these licenses.
An LLC is a business structure that separates business owners from business entities, and obtaining one is a good way to protect your personal assets against lawsuits and to save money on taxes. While you don't always need an LLC, it’s often a good idea to get one.