U.S. LLCs are one of the most popular business structures for digital business owners, especially in e-commerce and dropshipping.
This is due to the many advantages an LLC offers this type of business: limiting the partners' personal liability, selling anywhere in the world, accessing a U.S. bank account, projecting a professional image and being easy to manage, and more.
In this article, we'll walk you through these benefits in detail, what taxes you would pay with an LLC and how to open one quickly and launch your online business. Let's get started!
What is an LLC?
First of all, you should know that an LLC or limited liability company is a U.S. business structure that:
- limits the personal liability of its owners,
- offers tax transparency (the company itself does not pay taxes; instead, each member pays taxes in their country of residence).
In addition, they are really simple to manage, and the costs and red tape are low. Finally, LLCs can be single-member or multi-member, and they can be opened by U.S. residents or non-residents.
The advantages of an LLC for your e-commerce business
LLCs make life easier for entrepreneurs who want to go all in on e-commerce. Let's look at these points in detail!
Your personal liability is protected
When selling products or services, a dissatisfied customer or supplier may decide to file a claim through a lawsuit. In this unfortunate scenario, thanks to the corporate veil that protects the members' personal liability, only the company's assets would be at stake, not those of its members.You can easily sell anywhere in the world
Opening an LLC in the United States will let you sell products on Amazon, eBay, Alibaba or Walmart, and probably any other marketplace in the world.
You can also use payment processors such as Stripe, PayPal, Payoneer and Shopify, and transfer your earnings directly to your business bank account, which we'll cover next.
You can access a U.S. bank account
On the other hand, opening an LLC in the USA will let you open business accounts dedicated to your company. Keep in mind that doing this, and not mixing it with your personal transactions, is essential to maintaining your corporate veil.
Having a U.S. business bank account will let you receive and send international payments in the currency of your choice, without any difficulty.
This way, transactions will not only be cheaper, faster and simpler, but also more profitable, because you won't have to deal with currency conversions that can often be unfavorable.
It projects a professional image
In e-commerce, online reputation is essential. Customers and suppliers won't take you seriously if you don't project a professional image.
As the owner of a U.S. LLC, you will have a legal structure that inspires trust. This way, you increase your chances of attracting new customers, negotiating with better suppliers and even bringing on powerful new partners.
The LLC can be anonymous and keep your name private
In addition, in some states (Delaware, Nevada, New Mexico and Wyoming), you can register a limited liability company anonymously.
That way, you can run your e-commerce or dropshipping business without revealing your name publicly, protecting your privacy and your personal life and keeping it separate from your business.
Access to credit
Finally, if you sell on Amazon and use an LLC to do so, you can access solid financing through the Amazon Lending program.
Active for more than a decade, this service offered by the tech giant provides loans of between USD 1,000 and USD 750,000, depending on your credit profile.
And in the case of Alibaba, Amazon's Chinese counterpart, you can finance purchases of up to USD 150,000 if you trade through a company registered in the United States using the Pay Later solution.
Meanwhile, some U.S. banks offer low-cost lines of credit for doing business if you have a company in the country, that is, if you have an LLC.
What taxes does an e-commerce LLC pay?
When you create a U.S. LLC to get into e-commerce or dropshipping, you need to be very clear about how these companies are taxed.
LLCs are pass-through entities
First, it is essential to understand that limited liability companies are pass-through entities, also known as “pass-through” or “tax-transparent” organizations.
This means that LLC taxes flow through to its members, with no obligation to pay corporate taxes, unlike other structures such as C-Corps, which are subject to “double taxation” (both individual and corporate taxes).
Does your e-commerce business qualify as ETBUS?
“ETBUS” stands for “engaged in a trade or business within the United States”. In principle, your e-commerce business should not be considered ETBUS if:
- It does not provide physical services on U.S. soil.
- It has no office in the country and does not store the products it sells in its own warehouse there.
If your company is not considered ETBUS, you would be exempt from paying taxes to the U.S. government. You would only need to file the annual tax return with the IRS to keep the LLC in good standing and pay the corresponding taxes in your country of residence.
If your e-commerce activity qualifies as ETBUS, you will have to pay taxes in the U.S.
You can be taxed as an S-Corp or C-Corp
In any case, even though your LLC operates as a pass-through entity, the organization can also elect to be taxed as an S-Corp or C-Corp.
- an S-Corp taxes salary and dividend distributions differently for members.
- A C-Corp pays corporate taxes (21% of its income) and then distributes dividends to shareholders, who must pay personal taxes on that amount. C-Corps are subject to double taxation.
Changing your LLC's tax status will not affect its legal status, only the way it is taxed. The business will still be a limited liability company.
How to open your LLC and launch your e-commerce business
Opening your LLC to launch an e-commerce or dropshipping business is really very simple, since the process involves just a few steps:
- Choose your LLC's state: you must choose the state where you want to register your company based on your needs and goals.
- Choose your LLC's name: think about a marketing strategy and pick a name that will attract customers.
- Choose a registered agent: select a registered agent, who will be responsible for receiving your official and tax documents on behalf of the company.
- Complete the "Articles of Organization" form: file the document with all the key business information with the state agency.
- Create your operating agreement: set out in writing how the LLC will function and operate among its members.
- Get an EIN: obtain your employer identification number from the IRS to access various benefits.
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Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, founder of Start Companies and a specialist in U.S. companies for entrepreneurs, freelancers and digital businesses in Latin America. With training in international taxation and studies at UCEMA, he advises non-resident clients on forming and maintaining LLCs, opening bank accounts, invoicing, accounting and taxes. His experience combines tax strategy, compliance and practical vision for operating in the U.S. in a simple, organized and professional way.
