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Do You Need an LLC for Dropshipping?
Last modified: December 27, 2021
When you’re starting a dropshipping business, you might want to think about your company structure. One of the most common questions asked is ‘do you need an LLC for dropshipping?’. This is a very reasonable question and one that can be ambiguous. So we look at the question down below.
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What Types of Business Structure are There?
There are several different types of structures for your business. These are listed as:
Sole Proprietorship
This is the most basic business structure that you can register as. This is very simple to set up and there are few requirements to get going. However, there are some problems, you don’t have any liability protection. Therefore, if you get sued by a customer, you might lose your personal assets. However, one of the best advantages is that you have easier tax reporting.
Limited Liability Company (LLC)
This is a legal entity that is separate from you. This ensures that your personal assets are protected should the business be sued. And therefore it is a very safe option. However, there are some additional costs and regulations that you must follow. The changes to setting up and registering will depend on your location and you should check with the local authorities before proceeding.
C Corporation
This is when you really want to have a big business and want to have huge investments in your business. This offers the most liability protection for personal assets, but there is more expense in establishing these and the tax filing is double. Therefore, many small-time businesses don’t use this business model.
Is it Worth Using LLC as your Business Model?
There are some advantages to using the LLC model over other options on the list. The first is that it is more cost-effective than the C corporation, although the C corporation does offer you better personal protection., At the same time, there is more protection than being a sole proprietor.
Another thing to think about is the scale of your business. If you’re really small, then registering your business can be frustrating as all your profits can be spent registering. So side projects or those who are just starting don’t tend to get registered. In addition, you might not know if your business is going to be successful, so registering is really a good option.
However, if you’re building a successful business, then registering your business as an LLC might be worth the effort. But this is a personal choice, there is no legal requirement. Though it is always best to check the local laws on what you do need to register as. These can be different from state to state.
Final Word: Do You Need an LLC for Dropshipping?
Do you need an LLC for dropshipping? This is a good question that can sometimes be a personal choice. You don’t need to be an LLC, but it can offer you lots of great benefits that can make running your Shopify business more efficient. However, there are additional costs and it takes more time for tax purposes.
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