Everyone wants their E-commerce brand to be recognized these days. However, the challenging part is creating a perfect branding strategy for it. It’s not as difficult as it sounds. With just the right tactics, your E-commerce brand can be a well-known name in your industry.
One critical factor to consider when creating the branding strategy is deciding the legal structure of your E-commerce business. This dictates how you will run your business and how this will affect the course of your business in the long run. The business structures you can choose from are-
- Limited Liability Company
- Sole Proprietorship
- Partnership
- Corporation
Each business structure has its own advantages and disadvantages. You have to select the one that caters to your business needs. If branding and credibility are a major factor for your business, opt for an LLC business structure. Whereas, if you are not interested in separating your business and personal finances, opt for sole proprietorship.
Let us first get a quick overview of what E-commerce branding is and why it is necessary for your business.
What is E-commerce Branding?
Branding is creating an identity for your E-commerce business in the minds of the public. Branding can include your Ecommerce store’s unique name, logo, design, visuals, mission, and your even the tone of voice. Strong branding indicates that your customers will pick you over your competition, giving you a competitive advantage.
The Rise of E-commerce
According to Statista, the E-commerce retail sales amounted to approx 5.2 trillion dollars worldwide, and is estimated to grow by 56%, reaching 8.1 trillion dollars by 2026. Since the past few years, endless websites have been launched to sell everything from books to confectionery products, to movies and flight tickets.
A major drawback of this is the rise in competition between E-commerce stores. Therefore, to sustain and thrive in this competitive market, it is important that your brand gets recognized. Having an LLC business structure helps scale your E-commerce business effectively.
What is an LLC?
LLC is the abbreviation for “Limited Liability Company”. An LLC is a hybrid legal entity that provides the benefit of liability protection of a corporation and the pass-through taxation of a sole proprietorship. This legal structure is a separate entity and hence lets you easily separate your personal and business finances. This is extremely beneficial during legal disputes.
Let us look at the steps to form an LLC for your eC commerce store.
How to Form an LLC for E-commerce Stores?
To form an LLC for your E-commerce store follow the below-mentioned steps:
Select a State: Select your preferred state to form your LLC. We recommend forming an LLC in the state you reside in, to avoid paying double state filing fees.
Choose a Name: Choose a unique name for your LLC business. Add “LLC” at the end of your name.
Hire a Registered Agent: You can always hire a registered agent or a company like LegalZoom to help you form your LLC and also handle all your taxes.
Create LLC Operating Agreement: An LLC operating agreement will consist of details regarding how your business will operate, its ownership structure, any more.
File Articles of Organization: Articles of Organization is a document that will comprise of your business name, its address, purpose, any more.
Obtain EIN: “Employer Identification Number” also known as EIn is a 9-digit number that is required to open your business bank account anf\d file your taxes. You can obtain EIN online easily through the IRS.
What Benefits Does an LLC Provide to E-commerce Merchants?
An LLC provides you the following benefits for your E-commerce store-
– Personal asset protection:
LLC provides the benefit of limited liability protection. This means that your personal assets and finances will remain safe even if your business gets sued. Your personal and business accounts are separated while forming an LLC. Even if your company is held liable for damages or penalties, you will not have to compensate using your private finances.
Example-1:
One of your developers is constantly missing his deadlines and your work is getting delayed. You fire him for this reason. He believes that firing him was an unfair action taken by you. He instead sues you for his loss. Even if you are held liable, you will not be required to pay the compensation amount using your personal finances.
Example-2:
One of the products you shipped to your customer was a fragile glass item. The item was broken in transit. When the customer opened the parcel, he got a minor cut from the broken glass pieces. The customer sues you for this negligence. An LLC business structure will ensure that your personal finances are not affected.
– Pass-through taxation:
Forming an LLC gives you the flexibility to select whether you want your business to be taxed as a pass-through entity or a corporation.
For instance, if you choose to be taxed as a pass-through taxation, you can avoid paying double taxes. Double taxation occurs when you choose to be taxed as a corporation, where the company pays taxes on its income and the owners and shareholders also pay taxes on the personal returns on the dividend they receive.
Also, an LLC business structure can write-off a number of expenses as business tax deductions to lower your tax paying amount. Common deductible business expenses include education expenses, home office expenses, bank and interest fees, health insurance, travel expenses, internet expenses, charitable donations, and more.
Claiming these deductions depends upon how you want your Ecommerce store to be taxed. If taxed as a pass-through entity, the deductions are claimed at personal level. Whereas, if your LLC is taxed as a corporation, the deductions are claimed at a business level. This flexibility lets you choose the best tax approach specifically suitable for your E-commerce store.
– Easy to form and setup:
Forming an LLC is relatively easy and simple as compared to the other business structures. If your business operates as an LLC, you don’t have to go through business formalities like a corporation. You won’t be required to hold regular shareholder meetings, record meeting minutes, etc.
– Flexibility in Management:
An LLC business structure offers flexibility in terms of management structure and ownership. You get the option of either a member-managed structure or a manager-managed structure. In a member-managed LLC, every owner has a say in the day-to-day operations, whereas, in a manager-managed LLC, the members appoint one member to handle their daily operations.
Also, transferring of ownership is easily feasible with an LLC business structure, with no restrictions on the number of types of members.
– Build trust and credibility:
Gaining trust and credibility in your industry is such a factor that cannot be overlooked. A business formed under LLC legal structure has to get registered under the state. Therefore, forming an LLC helps build trust among the public and increases the credibility of your brand.
Bottom Line
Establishing trust and credibility among your customers is not just a one-time effort, but an ongoing process. An LLC’s flexible and adaptable business structure is perfect for building trust and credibility for your E-commerce store due to the various benefits it provides. As your E-commerce business continues to grow, the LLC structure will play a major role in establishing your brand’s credit.