When considering starting an online business, you've many questions to answer. One question that seems to come up a lot is, "Do I need an LLC or corporation for my online business?" You might be surprised by the answer.
A Limited Liability Company (LLC) is a type of company that offers limited liability to its owners. However, creating an LLC in most states is easy, and requirements vary by state.
Besides, there are many pros and cons to using an LLC for your online business. So, it's essential to consider all options before making a decision. In this article, I'll discuss everything about LLC for an online business.
How LLCs are taxed
LLCs are not taxed like corporations. The income and losses of an LLC are passed through to the members or shareholders, who are taxed on it as if it were their income or loss.
So, you can write off your expenses for running your LLC as business taxes before you pay any other taxes. However, a few things to keep in mind when forming an LLC.
- You must have at least one member.
- Members must be individuals who are United States or Canada residents.
- You cannot have more than 100 members.
- Your LLC must be registered with the state in which it is located.
Pros of an LLC For Online Business
There are pros to having an LLC for your online business. So, let’s check a few crucial pros.
1. Increased Flexibility
An LLC allows you more control over your online business structure and operations. It can be beneficial if you need more flexibility in how your business is run or if you want to avoid certain taxes that would apply to a regular corporation.
2. Reduced Legal Costs
By forming an LLC, you'll save on legal costs related to owning and running your business. It includes attorney fees, filing fees, and other associated costs.
3. More Distinctive Branding
When forming an LLC, you'll be able to create a more distinct brand for your business. It can be helpful if you want to make your business stand out from the competition or if you want to protect intellectual property rights.
4. Increased Secrecy
When forming an LLC, it will generally be more difficult for outsiders to access information about your company's finances and activities. It can help protect your company's privacy and confidentiality and may also offer some protection against lawsuits filed by disgruntled shareholders or employees.
Cons of an LLC For Online Business
An LLC may be a good option if you're considering starting an online business. However, it would be best if you considered the cons of LLC. So, let's explore a few of them.
1. Limited Liability
If something goes wrong with your LLC, meaning that you cannot repay your debts as planned, only the assets of the LLC will be protected from creditors (as opposed to the owner's assets). It means significant financial losses for you and your team.
2. Difficult to Merge or Sell
If you want to sell your online business or merge it with another company, it can be challenging to do so using an LLC because it's a complex entity structure.
You may wonder if you need an LLC as an online business owner. After all, LLCs offer many benefits, such as legal protection from creditors and the ability to operate with a smaller organizational structure.
However, weighing the pros and cons before jumping on the bandwagon and setting up an LLC is essential. If you decide that an LLC is right for your business, consult a lawyer to ensure everything is in order.