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How To Start An LLC For Retail Businesses
Online shopping is on the rise, which means plenty of opportunities for retailers to make a living. But before you start your venture, you first need to register your business. Even vendors need to abide by federal law, including consumer protection, data protection, and tax filing. By registering your business, you demonstrate your commitment to operating legally and ensuring full compliance.
If you are a solo retailer or a new business owner, LLC is the structure to choose. Here, we have outlined what an LLC is, its advantages, and why your retail business needs to be one.
Definition
What Is An LLC?
A Limited Liability Corporation (LLC) is a business structure that safeguards its owner’s personal assets from corporate liabilities, legal disputes, and financial obligations. This means that in the event of a customer lawsuit or bankruptcy, your personal belongings, such as your car and bank accounts, remain protected and separate from the company’s liabilities.
Additionally, an LLC offers a more streamlined and flexible management structure than a corporation. If you’re forming your retail business as a group or with a partner, an LLC will grant you all equal ownership.
Advantages
What Are The Advantages Of A Retail LLC?
Every business structure possesses distinct advantages. But, an LLC stands out by offering unparalleled flexibility, security, and fantastic tax benefits, among others. Below are some of the key ones offered by LLCs:
Asset protection
A key advantage of establishing an LLC is the safeguarding of personal assets. Suppose you get a customer complaint that ends with them threatening to sue you for damages. By establishing a retail LLC, any negative decision made by the court will not impact your personal assets.
Inexpensive to make
Creating a retail LLC is neither complicated nor expensive. You can allocate money for other things that can help your retail business succeed, like the procurement of materials or goods and digital marketing.
Tax benefits
Forming an LLC offers much flexibility in taxes. For example, LLCs have a tax option that lets you bypass state taxes. Many states also provide tax benefits and incentives specifically for LLCs, resulting in a ton of potential annual savings for your business.
Flexible structure
LLCs are never burdened with frivolous business formalities. There is no need to hold shareholder meetings, keep detailed minutes, or strictly adhere to the operating agreement. Additionally, LLCs have fewer IRS requirements, resulting in less paperwork. This will enable you to concentrate more on your retail operations.
Credibility
By adopting an LLC structure, your retail business gains a professional reputation that can leave a positive impression on customers and help you stand out from the competition. You can even set up a Google Business Profile after and use its features to host reviews and attract local customers to your location.
Disadvantages
What Are The Disadvantages Of A Retail LLC?
LLCs are not for everyone, especially if you intend to earn a lot of money or scale in the future. The following are some drawbacks of filing your retail business as an LLC:
Careful investors
Investors are cautious of LLCs because the structure is often associated with new business owners. If you’re forming an LLC, you must be prepared to pull capital out of your pocket.
Difficulty scaling
LLCs are great if you’re not planning on opening up a second retail branch. Otherwise, it’ll be tricky to scale up.
Unanimous decisions
If there is more than one LLC owner, every member must concur for a major decision to be made. If the decision is not unanimous, it could cause conflict in your business. When a co-owner is unhappy and wants to leave, it could cause legal problems.
Still, the benefits of establishing a retail LLC surpass any drawbacks associated with it. Creating an LLC is the most practical choice, especially for solopreneurs.
LLC Formation
How To Form A Retail LLC
Forming an LLC may seem overwhelming, but it only involves a few easy steps. These include:
- Choosing a name
- Appoint a Registered Agent
- Create an Article Of Organization
- Form An Operating Agreement
- Obtain your EIN and permits
- Get all the necessary permits
Choosing a name
The first step is to choose a business name. Just be sure to choose one that hasn’t been taken. It is not allowed. You can check your state’s database to verify your name’s availability. If you’re not ready to form your LLC immediately, you can reserve the name for around two months.
Appoint a Registered Agent
Next, appoint a registered agent to handle all the legalities for you. A registered agent’s job is to receive all the essential legal documents from the state on behalf of the LLC. You can choose to be the registered agent for your own company, or you can also choose a different entity/business to represent it. We at StartGlobal offer LLC formation services for startups and new business owners.
Create an Article Of Organization
The Article Of Organization is a legal document that contains all the necessary information about your business. This will establish your LLC as a legal entity. It is filed and submitted to your local Secretary of State.
After you have completed and submitted your articles of organization, they will be reviewed by the Secretary of State. Once approved, you will receive a certificate confirming the establishment and registration of your LLC. This certificate will allow you to open a business bank account and apply for an Employer Identification Number (EIN).
Form an Operating Agreement
After you have your Article Of Organization and EIN, it’s time to draft your Operating Agreement. This is optional for solopreneurs but recommended for co-owners. An operating agreement highlights how your company operates and can be very useful in solving disputes and lawsuits. The operating agreement will also specify what happens if you dissolve the LLC or move it to another state.
Obtain an EIN
An EIN is a nine-digit number the IRS issues to your company. It will help you open a dedicated corporate bank account, ensuring smooth tax filing and management at the federal level. Moreover, it will allow you to hire retail employees if you eventually need to.
LLC Taxes
How Are Retail LLCs Taxed?
Various taxes apply to retail LLCs, including taxes on merchandise and the rental of their outlet or store. However, the specific tax rates and regulations vary depending on the state where you have chosen to form your LLC.
LLCs also enjoy a lot of tax flexibility during their formation. In fact, you can choose the way your LLC is taxed.
Single owner
You can be taxed as a sole proprietor, which only involves reporting your LLC’s earnings as your personal income. Sole proprietor LLCs only need to file a tax return form annually.
Multiple members
The business is taxed like a partnership. All owners of the company share tax responsibility. You file taxes individually.
You can also choose to tax your LLC like a corporation by filing Form 8832 with the IRS. This allows you to enjoy the benefits and tax structures of a corporation. Corporation LLCs have the advantage of selling company stocks and attracting more investors. However, they are subject to double taxation and have additional document requirements and IRS regulations to follow.
Costs
What Are The Costs Of Starting A Retail LLC?
Various costs are associated with forming a retail LLC, such as registered agent fees and the fees required to file the Articles of Organization. These can vary depending on your state but know that it can cost anywhere from $100 to $1,000.
LLC Costs
State filing fee
$50+
Registered agent service
$100+
LLC formation service
$50+
Operating agreement
$200+
Business license and permits
$50+
Employer Identification Number (EIN)
Varies
Initial legal and accounting fees
$200+
Insurance (annual)
$500+
Equipment and supplies
$500+
Marketing and advertising
$500+
LLCs offer retailers a ton of benefits, from lower taxes to a flexible management structure. Setting up a retail LLC is a straightforward process, and its costs are fixed. You just have to check your state for the specifics. However, if you are franchising eventually, additional documents will be required by the Secretary of State.
With the right partner, you can file for lower taxes and file them quickly. At StartGlobal, we provide services to help startups and aspiring business owners with the formation of their LLCs.
Comparisons
Is LLC The Best Entity For Me?
Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.
LLC vs Corporation (C-Corp)
Sole proprietorships and Limited Liability Companies (LLCs) are two of the most common business entities for individuals and small businesses. Learn what differentiates the two today.
LLC vs S-Corp
Not sure what business structure to choose? Learn about the key differences between LLC and S-Corp today.