So you’re thinking about starting your Ecom empire, but you’re wondering, “do you need a business license for dropshipping?” The answer is yes, you should.
What is a Business License?
A business license grants individuals or companies to conduct business is a specific geographical region. Acquiring a business license will vary by country, but government agencies often issue it.
Why You Need a Business a License
You become a serious business owner
If you take the time to form a legal entity and acquire a business license, you will commit to making your business successful. This isn’t just a hobby you’re doing, but a business that you plan on sticking around for many years.
Tax Benefits
When you form a legal entity, you are creating a business that is separate from yourself. When filing taxes, you will need to do a separate filing for your company’s taxes. Although it takes additional work, you have the opportunity to deduct business expenses. You can write off your home office that you pay rent for, your internet bill, laptop purchase, and more.
Record Keeping
Ever heard of the phrase, “never mix business with personal?” Record keeping is essential when doing your business finances. Although it can be a pain to track all of your numbers, such as revenue, cost of goods, marketing expenses, operational costs, and virtual assistant payroll, it is totally worth it later. First off, you’ll be required to create a separate business checking account. Then when it comes time to do taxes, you will have everything organized rather than having to sift through all your personal receipts.
Personal Protection
Depending on the legal entity you form, your personal assets are protected. So let’s say you sold a product that accidentally caused harm or injury to a customer. That customer may sue your business and take away business assets, but not your personal assets like your house or car.
Business Credit
Having a business entity allows you to apply for business credit cards or obtain business loans. If you ever wanted to brand your products, such as add a logo or specific features, you may need a business loan or business credit card. There are many reasons to have business credit, such as excellent cash back, travel rewards, and more.
Sure, you could use personal credit, but business credit typically provides larger credit limits, and more lucrative rewards and perks. For example, the Chase Ink Preferred rewards 100,000 points after spending $15,000 in the first three months. And the Business Platinum Card from AMEX gives ten inflight Wi-Fi Passes. We’ve seen drop shippers fly around the world due to their enormous credit rewards earned over time by using their card on all business expenses such as ad spend and cost of goods sold.
Personal Privacy
When you operate under a business entity, it protects your personal information from getting out in public. If your business is under your name, then it’s easy to access a portion of your personal information.
Choosing a Business Structure
Sole Proprietorship
A sole proprietorship has the least filing requirements. However, they do not provide any personal liability protection. Therefore, if your business is sued, then your personal assets may be endangered. In regards to taxes, you will file your business earnings under your personal tax filings.
Limited Liability Company
An LLC provides additional protection to your personal assets since you are creating a separate legal entity. There is additional paperwork needed for filing and ongoing fees to maintain your LLC status.
C Corporation
C Corporation offers the most liability protection against your personal assets. They can be more expensive to maintain with annual fees and double taxation. The double taxation occurs because earnings don’t pass directly to shareholders.
Which Structure Should You Choose?
Personally, we’ve used an LLC to run a dropshipping business. Most small entrepreneurs use a sole proprietorship or LLC for their businesses. We do recommend LLC because this allows you to create a separate tax filing all together to take advantage of the tax benefits. You’d be surprised that you could save thousands of dollars by simply writing off benefits. Just make sure to keep track of them. Obviously, you want to speak with an accountant and lawyer for tax and legal advice that is personalized to your situation.
Do You Need a Business License for Dropshipping – Conclusion
Well, I hope that answers of a few of your questions regarding do you need a business license for dropshipping. There are plenty of opportunities to make a substantial amount of money online with dropshipping, so it’s important you cover yourself legally with your finances.
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