How to Start an LLC for Shopify Business (Step-by-Step Guide)

LLC FOR SHOPIFY BUSINESS

Starting a Shopify business is exciting, but is forming an LLC necessary for your e-commerce operation?

The short answer is yes. It is vital if you operate on a large scale; else, it’s not necessary.

And the good news? Creating one is not as complex as you think.

This article will guide you through the step-by-step process of creating an LLC for a Shopify store.

Should I Start an LLC for My Shopify Business?

Starting an LLC or Limited Liability Company can be smart for your Shopify business.

An LLC is a business structure offering personal liability protection for its owners. It combines the liability protection of a corporation with the tax benefits and flexibility of a partnership.

Your personal savings and properties are generally safe if your business faces legal issues.

Another reason an LLC is suitable is if you have plans to expand your Shopify store.

If your business is just a hobby, the costs and paperwork involved in forming may not be necessary. However, if you see your store as a full-time hustle and intend to expand, an LLC will protect your personal belongings from all possible legal wars you may face.

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Why form an LLC for a Shopify Business?

An LLC can greatly benefit your Shopify business. It provides various advantages, from protecting your personal assets to offering tax benefits.

Personal Asset Protection

With an LLC, your liability is limited to the business itself. This means your personal assets are usually protected from business debts and lawsuits. If things go sour, the LLC shields you from losing everything you’ve worked for in your personal life.

This protection is crucial in e-commerce, as you might face risks from customer disputes or product issues.

For example, if your Shopify business is in the healthcare niche, you may handle sensitive customer data or medical records. This means you are more at risk if your products or recommendations cause harm to any customer. Without an LLC, you risk losing everything you own, down to your last penny.

Taxation Benefits and Compliance

By default, LLCs are treated as pass-through entities, meaning profits and losses go directly to your tax return. This can simplify your tax situation compared to a corporation taxed separately.

Capital Acquisition

Operating an LLC for your Shopify business can make it easier to secure funding. Banks and investors are often more willing to lend money to businesses with a formal structure, like an LLC.

The credibility that comes with an LLC can help you appear more established. This is crucial when approaching lenders or investors for capital to grow your e-commerce venture.

Enhanced Credibility and Professionalism

Having an LLC adds professionalism to your business. Customers, suppliers, and partners may take your Shopify store more seriously when you appear as a registered entity.

A formal structure can build trust with customers, who may feel more comfortable purchasing from an established and legitimate business.

Flexibility in Ownership or Management

LLCs offer considerable flexibility in both ownership and management structures.

You can have one owner or multiple owners, and the distribution of profits and responsibilities can be tailored to your specific needs.

This adaptability makes it easier to adjust your business structure as it grows.

For example, as your Shopify store increases in size and revenue, you can bring in partners or members to share the load and drive growth.

How to Start an LLC for Your Shopify Business

Follow these detailed guidelines to set up your LLC correctly:

1. Choose a State to Register Your Shopify Business LLC

Choosing the right state to register your Shopify LLC is essential, especially for non-U.S. residents running their e-commerce business outside the U.S.

The state you select impacts your taxes, filing fees, and legal requirements, so it’s important to make an informed decision.

For many U.S.-based entrepreneurs, registering in their home state (where they operate) offers simplicity and familiarity.

However, if you’re based outside the U.S. and running your Shopify store, you might want to explore states known for their business-friendly laws, such as Delaware, Nevada, or Wyoming.

2. Choose an LLC Business Name

When choosing a name for your Shopify store, you should select a unique, memorable, easy-to-spell, pronounced name.

The name should also be short and simple, reflecting your brand identity and products. Also, ensure it includes “LLC” or “Limited Liability Company” to meet state requirements.

It’s also crucial to ensure that the name isn’t already trademarked or used by another business and that the desired web domain is available.

You can check the state’s business registry to see if it is correct.

Best Registered Agent Service: Northwest

Our top recommendation is Northwest Registered Agent. Unlike other services charging $300/year, Northwest offers the first year FREE for new LLCs. Enjoy registered agent service for your Shopify business, email forwarding, privacy protection, free business address and expert support.

3. Designate a Registered Agent

A registered agent is a person or company authorized to receive legal documents for your LLC.

This person must have a physical address where you registered your LLC.

You can act as your own agent or hire a reliable registered agent service in your state. Hiring a service can offer privacy and ensure you never miss important documents. Make sure the agent is reliable and easily reachable.

4. File Articles of Organization or Certificate of Formation for Your Selected State

To create your LLC, you must file an Articles of Organization or a Certificate of Formation with your state’s Secretary of State. This document typically includes your LLC’s name, address, and registered agent details.

Prepare to pay a filing fee, which varies by state. Some states allow online filing, which speeds up the process.

5. Obtain an Employer Identification Number (EIN)

An EIN, or a Federal Tax Identification Number, is a unique number the IRS assigns for tax purposes. It allows the IRS to identify and monitor your LLC’s tax status.

Having an EIN is compulsory for your Shopify LLC.

You will need it to open a business bank account and to hire employees.

Applying for an EIN is free and can be done online through the IRS website. Fill out the necessary form and follow the instructions carefully.

6. Create an Operating Agreement (Optional)

While not legally required in every state, having an operating agreement is recommended. This document outlines the ownership and operating procedures of your LLC.

It can prevent disputes among members and clarify roles and responsibilities.

7. Obtain Business Permits and Licenses (If Necessary)

Depending on your location and the nature of your business, you may need specific permits or licenses.

Common types include business licenses, sales tax permits, and zoning permits.

Check with local, state, and federal regulations to determine what applies to your Shopify business. Failing to obtain necessary licenses can result in fines or business closure.

8. Open a Business Bank Account for Your Online Business LLC

Opening a dedicated business bank account is crucial for separating your personal and business finances. It simplifies bookkeeping and protects your personal assets.

To open a business bank account for a Shopify LLC, you would need:

  • EIN confirmation letter
  • Business license (if applicable)
  • LLC formation documents (Articles of Organization)
  • Photo ID (driver’s license or passport)

Some popular banks for business accounts include:

  • Chase Business Complete Checking
  • Bank of America Business Advantage Checking
  • Wells Fargo Business Choice Checking
  • Novo (online bank for small businesses)

Shopify also offers its own business banking solution, Shopify Balance, which integrates seamlessly with your Shopify account.

Additional Resources and Other Considerations for Shopify Business LLC Owners

Get an LLC Formation Service to Ease the Entire Process

Starting an LLC can be straightforward, especially with the right help. Northwest Registered Agent is considered one of the best services for forming an LLC for your Shopify business.

They save you time by handling your delicate tasks, ensuring you comply with state laws and meet deadlines.

Northwest offers a dedicated agent who assists you with filing and any questions. There are also no hidden fees, making it easier to budget for your business.

It doesn’t matter which state you choose; Northwest is available in all states in the U.S.

Best LLC Service: Northwest

We recommend Northwest for your online business LLC ($39 + State Fees) as the overall best Shopify business formation service because of its affordability, privacy and record-breaking customer support. The sweet part? Their registered agent service is free for the first year, saving you up to $300 in formation fees.

Understand maintenance requirements (annual reports, franchise taxes, etc.)

As a Shopify Business LLC owner, it’s essential to understand that keeping it active requires ongoing attention and regular maintenance to ensure compliance with state regulations. This means filing annual reports with the state to update your business information and paying franchise taxes to maintain your LLC’s legal status.

To maintain liability protection, you must keep accurate financial records, such as separate business and personal bank accounts.

Understanding and fulfilling these ongoing requirements ensures your LLC remains in good standing and avoids any potential legal or financial issues.

Tip

Set reminders for filing deadlines and tax payments. You might also consider professional services to help keep everything organized.

File a Beneficial Ownership Information Report (BOI)

When you start an LLC for your Shopify business, you may need to file a Beneficial Ownership Information Report (BOI). This report helps keep track of who owns and controls your company.

Get Insurance for Your Shopify LLC

Starting an LLC for your Shopify business can help protect your personal assets. However, it is also important to get insurance for your LLC.

Insurance helps protect your business from claims like injury or property damage. It safeguards your company’s assets, ensuring they are not at risk.

Certain types of insurance may be mandatory, depending on where you operate.

Types of Insurance to Consider:

  • General Liability Insurance: Covers claims of injury or damage caused by your business.
  • Professional Liability Insurance: Protects against claims related to your services.
  • Product Liability Insurance: Essential if you sell physical products. It covers claims related to product defects.
  • Business Property Insurance: Protects your business assets, like inventory and equipment.

LLC insurance can range from $700 to $3,800 per year. Your exact cost may vary based on your type of business, the number of employees in your Shopify store, and any business-owned delivery vehicles.

Get Expert Advice

Starting an LLC for your Shopify business can be complex. However, seeking expert advice can save you time and trouble.

Consider consulting with business attorneys, accountants, and business consultants.

Each expert brings valuable insights to ensure your LLC is set up correctly. They can help you avoid common mistakes that can be costly later.

What is the best state to open an LLC for Your Shopify Store?

If you live in the United States, forming a Shopify LLC in your home state is often the best option because you’re already familiar with the laws and regulations. It offers easier access to local courts, lower costs, simplified tax compliance, and less complexity overall. This allows you to focus on growing your business without unnecessary hassle.

Another advantage is that in most states, you can serve as your own registered agent, helping you save money and streamline the formation process.

However, suppose you are a non-resident or someone living in a different state but looking to register your Shopify LLC in a specific state. In that case, there are several business-friendly options to consider. States like Delaware, Wyoming, and Nevada are popular for their favorable business laws.

  • Delaware: Renowned for its well-established corporate law system, Delaware offers owners privacy and a robust legal framework that many businesses find appealing.
  • Nevada: Nevada is known for providing owner privacy, and Nevada also has no state income tax, making it an attractive option for business owners looking to maximize profits.
  • Wyoming: Like Nevada, Wyoming offers privacy for business owners, no state income tax, and a straightforward, low-cost registration process.

Additionally, states like Texas and New Mexico present great alternatives, offering unique business advantages.

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LLC, Sole Proprietorship, or Corporation for Shopify Businesses: What’s the Best Structure?

Choosing the right business structure for your Shopify store is essential, with three main options: LLC, sole proprietorship, and corporation, each offering unique benefits and drawbacks.

A sole proprietorship is the simplest to start, requiring minimal paperwork. Profits are taxed as personal income, but there’s no liability protection, leaving your personal assets at risk if legal issues arise.

In contrast, a Limited Liability Company (LLC) protects personal assets from business debts and lawsuits. LLCs benefit from pass-through taxation, meaning profits are reported on your personal tax return, avoiding double taxation. However, setting up an LLC requires some paperwork and fees.

Corporations also protect personal assets but come with double taxation—taxes are paid on both corporate profits and personal dividends. They also involve more regulations and formalities, making them harder to manage.

Overall, an LLC is often the best choice for Shopify businesses, offering personal liability protection, tax flexibility, and easier management than corporations.

If you’re looking for simplicity and cost-effectiveness, a sole proprietorship might work, but an LLC usually offers a good balance of liability protection and flexibility for most online businesses.

Can I live in a state different from my Shopify Business LLC?

Yes, you can live in a different state from where your LLC is formed. However, you’ll have to register as a foreign LLC.

A foreign LLC is an LLC registered in a state other than the one where you are physically located or operated. In the context of your Shopify business, you can form an LLC in a state different from where you live.

For example, you might live in California but register your LLC in Delaware or Wyoming. This is common, as some states have more business-friendly laws or lower taxes.

It’s always a good idea to consult an attorney or tax professional to determine the best approach for your situation and ensure compliance with all applicable laws and regulations.

Frequently Asked Questions

Do I need an LLC for my Shopify store?

No, you do not need an LLC to start a Shopify store. You can operate as an individual or a sole proprietorship. However, forming an LLC can offer legal protections and credibility as your business grows.

What is the best LLC formation service for a Shopify Business?

Several popular services can help you form a Shopify LLC, such as Northwest and Doola. These services guide you through the registration process and help manage the paperwork.

Can my LLC name be different from my Shopify Business name?

Yes, your LLC name can be different from your Shopify business name. Many businesses choose a name that reflects their brand but might use a different legal name for the LLC.

What annual fees are associated with a Shopify LLC?

Annual fees can vary by state. You may have to pay a yearly franchise tax or a fee to maintain your LLC, ranging from $50 to several hundred dollars.

Can I form a Shopify LLC if I’m not a U.S. citizen?

Yes, non-U.S. citizens can form a Shopify LLC in the United States. However, they may need to meet additional requirements, such as obtaining an Employer Identification Number (EIN).

Can I use my personal bank account for my Shopify Business?

It is not recommended to use your personal bank account for your LLC. Keeping separate accounts helps maintain legal protections and simplifies bookkeeping for your business.

What are the tax benefits of forming an LLC for a Shopify Dropshipping Business?

An LLC can provide flexibility in tax treatment. You can be taxed as a sole proprietor or a corporation, which can help you save money depending on your profits and expenses.

Can I hire employees for my Shopify Business LLC?

Yes, you can hire employees for your LLC. They must complete the necessary payroll and tax forms, and you’ll need to follow local labor laws.

Can I serve as my LLC’s registered agent?

Yes, you can serve as your LLC’s registered agent if you have a physical address in the state where your LLC is formed. This agent receives legal documents on behalf of the business.

Why should I hire an LLC service when I can form LLC by myself?

Hiring an LLC service can save you time and reduce the chance of errors. These services ensure that all forms are completed correctly and submitted on time, providing peace of mind.

Are permits or licenses required for a Shopify Business?

Yes, some states and localities may require permits or licenses to operate your Shopify business. Requirements can vary based on your location and the type of products you sell. Be sure to check local regulations.

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