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Shopify is an amazing tool for businesses. Perhaps that is why you are looking to have your business start using the platform. But before you start to use Shopify, do you need an LLC?
In general, you do not need an LLC to use Shopify. You are able to have an account with them as a sole proprietor. An LLC provides you with some protections, however, so it may be a good idea to consider getting one before you make your Shopify account.
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Read on to learn more about Shopify, LLCs, and whether or not you need one to use the other.
What is Shopify?
If you are new to the business world, you may be wondering what Shopify is and why you would be concerned with it.
Shopify is the largest and most popular platform for managing your online store. Think of it as WordPress, but it manages a shop instead of your blog. While market giants aren’t going to use it, most small and medium size businesses find it an economically friendly method of creating and managing a store.
Shopify allows you to create pages for all of your products and even provides a payment processor to allow customers to check out. It only takes about 30 minutes to set up from start to finish, and it is considered extremely affordable.
Shopify runs on a subscription plan, meaning you will pay monthly to use its services. There are many packages to choose from, and you can choose the one that best suits your business.
Do You Need an LLC to Use Shopify?
If all of the above sounds great, you now may be wondering if you can just list your products or if you need to go through the process of registering your business as an LLC first. The answer to this depends on your business.
When you sell items on Shopify, you have to provide some method for them to report your earnings to the IRS. If your business is just you and some products you have handmade, then you are a sole proprietorship, and your social security number will do.
If you have a larger business that has employees, you need an LLC to operate legally. In this case, you must register your business as an LLC prior to using Shopify.
Should You Use an LLC on Shopify?
So, while the answer is that you don’t need an LLC to operate on Shopify, the next question you are asking is whether or not you should use an LLC on Shopify. The answer depends on how much risk you are willing to expose yourself to.
Whenever you enter the business world to sell a product, you are exposing yourself to risk. If something with your product goes wrong, harming or even killing someone, then it is likely that you could be sued. If you are ever sued (hopefully, you won’t be!), it is much safer to have an LLC than a sole proprietorship.
This is because an LLC makes you and your business separate entities. Therefore while an angry customer can sue your LLC, they can’t touch the money you’ve been putting into savings since before your LLC existed. This gives you an extra layer of protection in case anything goes wrong.
Many business owners aren’t good at evaluating their risk. For example, Mary might set up a Shopify to sell the handmade oven mitts she knits. Because she is just one person, she decides there is little risk (since she can guarantee the quality of all the mitts,) so she registers as a sole proprietorship.
Unfortunately for Mary, one of her customers uses a mitt to pull something out of the oven and burns herself. She then wants to sue Mary because she assumed the product labeled oven mitt would be safe to use with pans coming out of the oven. Because Mary doesn’t have an LLC, she could be in trouble financially, especially if the disgruntled customer comes after her savings account.
This is why, even though an LLC isn’t required for a Shopify account, it is highly recommended that you get one before you open your store. An LLC will help protect you should anything go wrong with one of your products.
Keep in mind that if you are a company with multiple employees, you must have an LLC in order to operate legally in the United States.
What is an LLC?
An LLC is a Limited Liability Corporation, and opening one is basically the same as making your business its own separate entity. You will give it a name and likely its own bank account as well.
An LLC protects its owners from the more dangerous parts of owning a business. It also separates income from that of the owner. It is a bit more complicated to run than a sole proprietorship but can typically be figured out by almost any business owner.
It is Hard to Open an LLC?
It is not difficult to open an LLC, but it will take a little bit of time, and money, depending on the state you live in. Opening an LLC is different in every state, and you will need to look at the specific regulations for your state.
In general, to open an LLC, you need a name for your business, an address, and then some personal information about yourself (like your social security number). The name you pick can’t be currently used by any other business, which can take a bit to figure out if all the names you want to choose are taken.
You’ll then fill out some paperwork and either submit it online or via mail. Within a few days or weeks, you will hear back as to whether or not your LLC is approved, and then you will receive a certificate.
Before you can head back to start your Shopify account, you will also want to request an EIN. An EIN is your tax number when it comes to paying taxes on the profits of your business. You can request this quickly and easily once you have your LLC in hand.
It is also recommended that you set up a separate bank account for your LLC before you make your Shopify store. This way, you can attach the Shopify to the business bank account and streamline your accounting for your LLC from the very beginning.
Which Type of Companies Need an LLC?
Maybe you are still on the fence about opening an LLC. One way to decide is by thinking about the products your company sells and the potential risk involved with selling these items.
For example, an electronics company that sells products that catch fire, or die before their warranty, is much less likely to have a lawsuit than someone who is selling homemade socks.
Additionally, opening an LLC makes it easier to expand your business in the future and can make it more simple to file your taxes come tax season. Depending on your business, you may even receive tax benefits for registering as an LLC.
While it is good practice to always open an LLC, if you are short on funds, it may be better to skip it for now. You can always make an LLC for your company later, it may just be a bit difficult to switch everything over.
It is always a good idea to speak with a lawyer about your risk and whether or not you should open an LLC before disregarding the idea entirely.
How Much Does it Cost to Open an LLC?
The cost of registering an LLC will vary based on the state you live in. While some states report fees as low as $150, some states, like California, charge $800 or more. But, before you panic, know that you can get most of this money returned to you when it comes to tax season as a write-off.
Besides just the LLC cost, know that Shopify is not free either. Shopify offers a wide array of plans that you pay for on a monthly basis. You will need to be prepared to pay between $30 and $300, depending on the needs of your company.
Final Thoughts on Do You Need an LLC for Shopify
Overall, having an LLC for Shopify certainly isn’t necessary if you are the sole employee of your business. That being said, having an LLC does make it safer to operate an online store.
Having an LLC helps lower your risk in the case that something happens to a customer while they are using one of your products. Not to mention that it makes the process of expansion easier. Therefore, you should definitely look into getting an LLC before you make a Shopify store.
Reference Legal Explanations
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"Do You Need an LLC for Shopify?". Legal Explanations. Accessed on November 30, 2023. https://legal-explanations.com/blog/do-you-need-an-llc-for-shopify/.
"Do You Need an LLC for Shopify?". Legal Explanations, https://legal-explanations.com/blog/do-you-need-an-llc-for-shopify/. Accessed 30 November, 2023
Do You Need an LLC for Shopify?. Legal Explanations. Retrieved from https://legal-explanations.com/blog/do-you-need-an-llc-for-shopify/.