Business Structure 101
Deciding on A business Structure
If you’re serious about your venture, you’ll want to set up a legitimate business entity. We’re not lawyers and can’t offer legal advice but we can give you a rundown of three commonly used business structures:
This is the simplest business structure to implement but also offers no personal liability protection. So if your business is sued, your personal assets also may be in jeopardy. Filing requirements are minimal, and you simply report your business’s earnings on your personal taxes. No other state or federal business filings are required.
Limited Liability Company (LLC)
An LLC offers increased protection of your personal assets by establishing your business as a separate legal entity. While the liability protection isn’t foolproof, it does offer more protection than a sole proprietorship. You may need to comply with additional filing requirements and will need to pay both incorporation and ongoing fees.
Most major corporations are set up as C corporations which, when done properly, offer the most liability protection. They are likely to be more expensive to incorporate and are subject to double taxation, as income doesn’t pass directly to the shareholders.
So which structure to choose? Again, we’re not lawyers and would advise you to consult with one before making any incorporation decisions. Most small entrepreneurs tend to go with either a sole proprietorship or an LLC. Personally, we’ve used an LLC for all of our dropshipping businesses because we feel it offers the best trade-off regarding liability protection, autonomy from personal finances and costs.
Note: The business structure and EIN (employer identification number) information discussed above is applicable for entrepreneurs in the United States and won’t apply to other countries.
Requesting an EIN number for your business
The IRS requires all businesses to have an employer identification number (EIN), which acts as a Social Security number for your business. You’ll need this number to file your taxes, apply for wholesale dropshipping accounts, open a bank account and pretty much do anything related to your business.
Fortunately, getting an EIN number is easy and free. You can easily apply for an EIN number online.
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