It’s easy to assume today that simply setting up an Etsy online storefront or Amazon seller profile that the website you’re working as a seller under has got your business’s back, but in the event that the products and services you’re offering take off, it may be time to switch over to forming an LLC.
Why form an LLC for your business instead of staying a sole proprietor? Not only are LLC’s easy to manage and set up, they provide you and your business the following valuable assets that a larger website you’re setting up camp at cannot in the long run.
1) As a sole proprietor, what affects you may affect the business. If you have personal debt or liabilities, creditors are allowed to pursue the assets of the business even if the liabilities are unrelated to the business itself. By forming an LLC, this ensures that the owner’s personal finances are kept separate from those of their company and business may continue without disruption.
2) LLCs allow you to save more money on taxes. Filing for an LLC allows for taxable income to flow directly to the company’s shareholders or members without being taxed twice. Sole proprietorships have the taxable income of the business flowing directly to its owner and partners with the tax based on the individual’s income tax bracket. With the company considered a separate entity, the taxable income there is taxed first under a corporate tax and if any remaining income is distributed from the corporation to the shareholders, that income is taxed again based on each individual’s tax bracket.
3) There’s much smaller chance of being audited. Sole proprietors often self-prep their tax returns which are more likely to be incorrect and under report revenue or over report deductions which means that they’re a lot more at risk of being audited.
4) There’s an added level of legitimacy added to your business as well. Eventually, you may come to want to have your own website to sell your goods and products on and to further branch out your offerings and find sites like Etsy to be something you’re growing out of. By filing an LLC, you’ll also get to add “LLC” after your business name, giving it the kind of credibility and professionalism that many customers and suppliers are looking for. Be sure that once you decide to move on with your business that you purchase your website URL and make it as close to the name of your business as possible while alerting your customer base about the big move and where they can go to find you.
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.