SMALL BUSINESS TIP #16: Which Business Structures Are Best for Online Entrepreneurs?

By Published On: January 28th, 2021Categories: Business Advice, Tips

As more and more Americans choose to shop online, it makes sense to launch an online business to cater to their needs.

Indeed, a survey by Ware2Go notes that 87% of Americans have been shopping online, and at least 64% are deciding to swap their weekly physical trips to the store with virtual shopping.

If you run a shop online, you’re going to want to do everything in your power to ensure that your business grows and thrives in this ever-changing e-commerce landscape.

One aspect of your company or brand that helps dictate its success in such a competitive market is its business structure.

There are significant differences and guidelines in each state — so be sure to do your research. In this post, we’ll discuss the different business structures and figure out which one best suits your online presence.

Sole Proprietorship

If you own and run your online business alone, it might be tempting to stick to the default business structure, which is a sole proprietorship.

The great thing about sole proprietorships is that they don’t need you to file any paperwork to get started ⁠— simply forming the business creates this business structure.

If you’re just starting out and want to focus on the quality of your products and services, or if you want to file taxes the simplest way possible, a sole proprietorship might be for you.


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General Partnership

If you have a few business partners with whom you share your online business with, picking out a partnership business structure might serve you well.

Just like sole proprietorships, a general partnership is also very easy to start and doesn’t require a ton of paperwork. All you need to start operating are permits, which you can get from your local SBA or City Hall.

If you’re operating in California, you’ll have to equally split each member’s share in the general partnership. So, if not every member deserves an equal slice of the pie, it’s recommended that you create a formal partnership agreement that details the responsibility and shares of each member.

Additionally, your formal partnership agreement should also include details about business operations, dispute resolution, and ownership stake.

Be sure to hire legal counsel to check and review if a partnership agreement is fair first, before signing it.


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Limited Liability Company (LLC)

Transforming your business into an LLC can offer so much security for an online entrepreneur.

Despite requiring a bit more time and paperwork compared to setting up a sole proprietorship or partnership, forming an LLC is well worth the trouble. This is because it creates a clear separation between your personal and business assets.

Those who form an LLC in Delaware can simultaneously enjoy the benefits of a corporation and a partnership — namely, being able to maintain control over all of your business decisions while not being liable for any legal issues that your online business runs into.

In addition, forming your own LLC can be done in five easy steps, most of which can be done online:

  1. Choosing a state-approved name
  2. Appointing a registered agent
  3. Filing certificates of formation
  4. Creating an operating agreement
  5. Obtaining an EIN

Corporation

If your online business is already established, and you have plans of going public, it might be good for your business to choose this business structure.

Becoming a corporation means that you become a formal and fully-independent company. Just like with LLCs, corporation members also enjoy being protected from any personal liability.

What’s more is that corporations in states such as Florida have an overall low tax burden and have the benefit of only paying 5.5% on their corporate income tax return.

However, choosing this business structure entails extensive paperwork and many more legal requirements. The upkeep might be too much if you only have a small- or medium- sized online business.

To Sum It Up

Different business structures exist to address different needs. So, be sure to choose one that’ll benefit you and your online business the most.

For more information on how to handle your own online business, be sure to check our post entitled “The Three Stages of Business Growth.”

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Janet Doré is the CEO (Chief Everything Officer) of Scribaceous, Inc., and has been passionately supporting her clients since 2013. Learn more about her here and connect with her on Linkedin and Facebook!

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