Do You Need An LLC to Sell on Shopify? (2023 Update)

Do you need an LLC to start a Shopify store?

No, you do not need an LLC to build a Shopify store. There is no legal requirement for you to have an LLC in order to open a Shopify merchant account as the company does not require you to have proof of business registration. However, it can be advantageous for you to set up an LLC, which we explain later in this article.

What Is an LLC?

An LLC is an acronym for Limited Liability Company — 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.

Is an LLC different from a sole proprietorship?

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. A sole proprietorship makes no distinction between an owner and the business, meaning that the owners are 100% responsible for any disputes or fines. 

Benefits of an LLC when selling on Shopify

When you're just starting out, your store isn't generating enough revenue to seriously take advantage of tax breaks. But as your store scales, an LLC will help you write off business expenses, hire staff, pay yourself a salary, and set some money aside in your firm's cash reserves.

An LLC helps protect your personal assets from being seized if your business is sued. So a Shopify store in the healthcare or personal care niche should definitely stand up and take notice.  

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 essential to remember that your country, state, or city might require you to form an LLC by law; you also legally need an LLC for dropshipping.

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 essential to research the licensing requirements for your business and budget for Shopify costs associated with obtaining these licenses. 

Final thoughts

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.