This guest post is brought to you by our friends at MyCorporation. We’re so pleased they’ve provided simpler answers to a very common small business question!
Should I choose an LLC or Corporation? How about a sole proprietorship? And what’s an S-Corp, anyway? With so many legal structures available, it’s easy to feel stumped when trying to pick a formation to incorporate your eCommerce business. Your search for “the one” is now over — we’ve rounded up the most common entities, along with the ins and outs of what each one does, in our quick and painless guide to legitimizing your eCommerce business.
Sole Proprietorship
What it is and does: If you run a low-key eCommerce shop from home, like a niche store for handstitched toys, this affordable entity will suit you well because it is unlikely that your personal liability will be involved. However, incorporating as a sole proprietorship means that the owner is the business. You’re liable for anything that happens because there is no separation between personal and professional assets. If you lose valuable information or rack up debt, you are held completely liable on behalf of the business. Struggling to keep up or falling behind may do you a disservice later on if you decide to expand or reach out to potential investors.
This entity is perfect for: Solopreneurs who work from home and anyone who wants to be the sole owner of their business.
Partnership
What it is and does: This legal structure allows you to work alongside a partner (hence the name!) and share profits and losses as well as make decisions together. In a partnership, decisions can’t be made without the express consent of all other business partners. You, along with your partner, are liable for these actions and decisions — the responsibility isn’t placed solely on one person or the other.
This entity is perfect for: Entrepreneurs going into business with a friend, family member, or mentor.
LLC
What it is and does: One of the most common and popular entities for businesses, a Limited Liability Company (LLC) ensures your professional and personal assets are separated and protected with liability protection. LLCs offer more flexibility than Corporations, with no required meetings or minutes. They also provide major tax advantages including the ability to choose the tax entity you would like to have. This can be either an S-Corporation or C-Corporation — and if you qualify as an S-Corp, take care to use careful planning to avoid paying significant employment taxes.
This entity is perfect for: Entrepreneurs that want to keep their eCommerce business independent while protecting themselves from any unforeseen circumstances.
Corporation
What it is and does: This is the entity specifically designed for entrepreneurs that have big plans for their business. Just like LLCs, Corporations separate and protect your personal and professional assets. Unlike LLCs, Corporations are less flexible and set up a formal business structure that makes it possible to accept money through investors. This structure of this entity makes it possible to issue shares and also helps reduce the risk of a potential audit for the business.
This entity is perfect for: The eCommerce entrepreneur that wants to eventually take their store, raise capital, and take it public for worldwide expansion!
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 @mycorporation.
Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a sales tax expert.