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Do You Need an LLC To Start an Online Business?

08/17/2022 16:49:01 +0000
Do You Need an LLC To Start an Online Business
A question many people ask is whether they need to have an LLC to start an online business. The simple answer is that you don't need to have one, but there might be benefits to having an LLC. However, certain costs involved in forming an LLC might or might not be worth it when you just started your online business.

Next, we look at the dos and don'ts regarding an LLC and the benefits of having one. Read on and find out whether having an LLC for your newly created online business is better.
What Is an LLC?
Most people know what it is, but we will take a quick look to ensure everyone knows what it is and how it works. LLC stands for limited liability company, meaning your assets are separated from the business to protect it.

This type of business is a hybrid or combination of a standard corporation, sole proprietorship, and a partnership in one business. It is also much easier to start this business than any other so that you can focus on important things.

We know you don't need to form an LLC or any other company to run your online business. But let's consider why you should have an LLC for your new online business.
Why an LLC?
An LLC will provide benefits you would not have if you don't have one. It is also much easier to form this business type while delivering more flexible management options and other benefits.

You can form a single-member LLC or multi-member LLC. Speak to an expert, such as an accountant or a business lawyer, if you are unsure which type will be best for your business.
Benefits of an LLC
The following are some benefits of having an LLC for your online business.
Protection

The first and foremost reason people would start an LLC is to provide protection for their assets. How does it work? If something goes wrong and somebody wants to sue you, they cannot sue you for your personal property and other assets.
This means that everything that doesn't have anything to do with your business is separate, so no one can touch it. Other businesses, such as a sole proprietorship, don't give you the same protection.

This is also the case when there's more than one partner in the business, and one gets sued.

Flexibility

The founders can decide what management structure they want in their business. There are two basic options: a management-manager structure or a member-management structure; this is not an issue with a small online business.

The first option is where the members decide to hire someone who may or not be a member to manage the company. In the other option, the member is more active in managing the business, which would be better for a small online business.

In the case of the manager-management structure, members will be passive investors in the company.

However, an LLC will allow you to form a better and more formal business structure, whether alone or with business partners.

Trust and Credibility

This is one of the main reasons you want to form an LLC for your new online business, even if it is small. The first part—trust—is very important for your customers. They will trust and support you if your business is legit.

This is the case with anything else; customers will feel better knowing they pay their money to a business. The credibility part is also essential; having a registered business will allow you to have a bank account in the business's name.

You can also build your business's credit score with banks and financial institutes if you have a legally registered company. This means you may get credit or even a business loan when you need one.

Another critical thing is that large businesses will not invest or even give grants to an unregistered small business. So if you have a registered LLC, people will know that you are taking your business seriously.

When you form an LLC, you also get an employer identification number (EIN) required by the banks you do business with. It is also required by other companies investing in and providing grants for those businesses.

Easy and Cheap to Start

Any new business starting up will want to keep the cost of getting it up and running to the bare minimum. Forming an LLC costs less than any other type of business; the main expense is the state filing fee, which differs from state to state.

Forming it is also easy, and you don't need the services of a lawyer, but it is better to use their expertise. Compared to any other business type you want to form, such as a corporation, sole proprietorship, or even a partnership, this is the easiest.


If you want to know how much it costs in your state, click here. In addition, many companies can help you start your LLC as soon as you are ready.

The only problem you may have will be to keep your personal and business matters separated, such as bank accounts and more. So there will be a learning curve as you learn how to operate and manage the business.

Even if you are still an employee in another company when you start your online business, you can still form an LLC. Remember that you don't violate your employee contract agreement if the online business is a side hustle.

Do You Need an LLC For Your Online Business?
Regardless of the benefits, do you really need to go through the trouble and cost of an LLC? You need to ask yourself a few questions when considering registering your small business.

Are There Any Risks?

Getting started on the right track for your new online business is essential. First, however, you should ask yourself whether there is any risk involved where someone might sue you or try to take your personal assets.

If you don't yet have any tangible assets accumulated, there is nothing to protect, so an LLC would not be necessary. On the other hand, if you already have insurance that can help you when you get sued, you don't need an LLC.

You want to form an LLC if there is a possibility that you may get involved in a lawsuit, for instance, if you sell information.
 
Are You Making Any Money?

If you did not start making any money from your business, and it may take a while, you might want to wait before you jump in and form an LLC for your online business.
This means you cannot yet afford to lay out the money for a legal business. However, as soon as you start making money, which means you have a steady income, you can consider forming an LLC.

You don't need an LLC when you are just beginning your new online business. But, when things start happening, and you start making money, you can talk to an expert on the best options.

You can start an LLC at any point, but it is good risk management to eventually have an LLC in place.

Are There Really Tax Benefits?

Multi-member LLC companies are treated by the IRS the same as a sole proprietorship, so every member pays tax on their income. Business profits are not considered separate entities that need to be taxed.

When forming an LLC with a single member, you will receive the same benefits as a sole proprietor regarding taxes. Running your business as a sole proprietor, you can file a Schedule C with your 1040 and get the same benefits as an LLC.

So, tax benefits should not be your sole purpose for forming an LLC for your online business. You can start any business to save on taxes but forming an LLC has little to do with saving taxes.
Conclusion
We determined that you don't need an LLC for your newly formed online business, depending on your circumstances.
 
Moreover, we discussed that for most people starting a new online business, it is the safest option to have an LLC in place. In addition, an LLC is an easy and affordable way to improve your business.

Hopefully, this will help you on your way to becoming a successful online business.
About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
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