Do You Need an LLC For Shopify? A Business License Guide For Shopify Sellers

Have you been wondering “Do you need an LLC for Shopify?”

As you launch your ecommerce store, you’ll naturally feel excited over the sheer range of possibilities that are before you. But, amidst this initial rush, it’s important that you don’t neglect key business decisions.

For instance, what kind of legal structure is required for a Shopify store? More specifically, do you need an LLC for Shopify? 

The short answer is no, Shopify stores are not required to have LLC structures to sell products online. With that said, there are several key reasons why the LLC framework might be beneficial to your business (and your personal legal liabilities, too).

It’s worth exploring the ins and outs of what an LLC is, and how it benefits business owners. Knowing things like the best state to form an LLC, the cost of forming an LLC, and the tax implications of starting an LLC are also important. 

So with that in mind, let’s keep going.

What is an LLC? Do You Need an LLC for Shopify?

When starting a business, there are a number of legal structures you can choose from. Some of the most common options include a Corporation, Partnership, or Sole Proprietorship. Of course, there’s also the limited liability company, or LLC. The business structure you choose for your Shopify store will have big legal implications, as well as tax implications.

The LLC structure is popular among entrepreneurs because it provides a level of personal protection, separating your business assets from your personal assets. Maintaining this divide between the business entity and the business owner means (among other things) that if someone sues your business, they cannot seize your personal assets or your family finances.

Choosing the LLC structure allows you to combine the efficiency of a Corporation with the legal liability and tax flexibility of a Sole Proprietorship, meaning that, for many entrepreneurs, the LLC offers the best of both worlds.

What is the Difference Between Sole Proprietorships vs. LLCs?

When you are running a company on your own, you have the option of structuring it as a Sole Proprietorship. This option has a number of benefits, including the fact that filing your taxes is really easy: You simply claim business revenues on your personal tax returns, meaning you pay taxes on your business income just once.

However, it’s important to note that Sole Proprietorships have one major drawback, and it has to do with liability. Simply put, this business structure does not recognize any distinction between the business and the business owners. What this means is that all business debts and liabilities become the owner’s personal debts and liabilities. And, if a lawsuit is brought against the business, the person bringing the suit may end up claiming the business owner’s personal assets. 

It’s because of this one major drawback that many Shopify store owners gravitate toward the protections that an LLC provides.

Do You Need a Business License to Sell on Shopify?

A related question that many aspiring Shopify owners have is whether or not they need a business license ro sell on Shopify.

The short answer, again, is no. There is no federal law requiring Shopify store owners to have a business license, nor any official Shopify policy. 

However, it’s important to note that business licenses are approved at the state, county, and/or city level, and that some municipalities do require Shopify merchants to have a business license. As such, you’ll always want to check local regulations and ordinances.

If your municipality doesn’t require you to have a business license, then the only things you’ll need to legally establish your Shopify store are a tax identification number and a social security number. If you have questions about obtaining or using a tax identification number, reach out to the Internal Revenue Service (IRS).

How Can You Run Your Shopify Store as a Sole Proprietorship?

If you do choose to run your Shopify business as a Sole Proprietorship as opposed to an LLC, there are a few general tips you’ll want to keep in mind.

• On a general note, simply make sure you take some time to review both the self-employment tax implications as well as the legal risks of the Sole Proprietorship. It’s critical to be aware of what running a Sole Proprietorship really entails.
• You’ll probably want to do business under a name other than your own. This means registering a legal DBA, or “doing business as.” Basically, this is like a brand name; a name for your business other than its official, legal name. The only time you won’t need a DBA is if you choose a business name that incorporates your own name, e.g., Mary Johnson’s Handmade Crafts.
• Note also that, if you’re in one of those states that does require Shopify stores to have a business license, you’ll need to have that license in place before you start selling any products.

With these tips, you’ll be well on your way to success running your Shopify store as a Sole Proprietorship.

How Do You Get a Business License for Shopify?

Let’s say you do decide to get a business license before operating your Shopify store. What exactly does this process entail?

First and foremost, you’ll want to obtain an employer identification number, or EIN. You can register for an EIN quickly and easily at the IRS website, and it won’t cost you a thing. Having your EIN in place will streamline and accelerate your business license application process.

Beyond that, the process for obtaining a business license can vary from one municipality to the next. Generally speaking, you’ll need to furnish some basic information about the structure and nature of your business. You’ll probably also need to pay some nominal fees. 

Depending on the industry you’re in, you may also need to secure certain permits. You can also expect to fill out plenty of forms, and it may take a few weeks to have your application approved (though some states and municipalities offer expedited approval, even same-day approval).

What is an EIN? Do You Need an EIN to Sell on Shopify?

In the United States, citizens all have their own unique Social Security number (SSN), which is important for filing taxes (among other reasons). But what if you want to keep your personal identity and your business identity completely separate? After all, this is one of the primary benefits of running a business as an LLC.

That’s where the EIN comes into play. Simply put, obtaining this number allows you to file taxes for your Shopify store, keeping them separate from your personal identity. If you’re running your Shopify stores as LLCs then you’ll surely want to secure that EIN. Again, getting this number from the IRS is pretty easy, and it’s free.

How Do You Know If You Need a Business License to Sell on Shopify?

To zero in on the question, ‘do you need a business license for Shopify?’, let’s reiterate that there is no broad, federal requirement for merchants to have a business license. Shopify itself does not require you to have a business license, either.

Having said that, some states, counties, or cities may require you to have a business license before you can begin selling your products. And, there are also certain industries that require business licenses. This is especially true in heavily regulated industries. For example, merchants who sell CBD are mandated to have a business license. The same holds true for personal health and wellness products.

As such, there’s no easy answer here. To determine whether or not you need a business license, you need to investigate the specifications of your municipality and your industry.

Does Dropshipping on Shopify Require an EIN?

Shopify business owners may have some particular questions about Shopify dropshipping, specifically whether dropshipping requires an EIN.

First things first: What is dropshipping? It’s a business model, allowing sellers to have their products shipped directly from a manufacturer or supplier to the customer. 

As the merchant, you only have to pay for the orders you sell, and you don’t have to worry about maintaining a lot of inventory. Additionally, the dropshipping model helps you streamline the logistics of order fulfillment. In sum, dropshipping is a fulfilment method - used by businesses such as print on demand stores who sell t-shirts on Shopify, and a major element in the Shopify value proposition.

So do you need an EIN to get started with dropshipping? You don’t need one initially, but you’ll need to obtain one sooner or later for certain business purposes.

More specifically, you’ll need an EIN in order to complete the following tasks and processes:

• Paying federal income taxes online.
• Preparing and filing paper tax returns.
• Completing payroll (if you bring employees on board).

📚Suggested Reading: Is Dropshipping Legal? Everything You Need to Know (+6 Common Mistakes)

Does Dropshipping on Shopify Require a Business License?

Earlier in the article, we mentioned that certain industries and certain municipalities require a business license. Does dropshipping require you to have a business license in place?

Again, the answer is that it depends. Many cities and most states do require dropshipping businesses to have a business license. It’s likely that, if you grow your dropshipping business on Shopify, you’ll want to sign up for a license sooner or later. As always, though, you’ll want to check with state and local ordinances to learn more about your legal obligations and licensing requirements.

How Much Will it Cost to Get a Business License For Shopify?

One of the primary benefits to starting an LLC is that the annual cost of running an LLC is generally quite minor. The specific amount varies from state to state, but generally speaking you’re going to pay anywhere from $35 to $500 to file your LLC.

Business licenses will often involve separate expenses. There are many variables involved here, including your municipality; your industry; any special permits you need; and whether or not you need a federal license. For a business license, the total expense can be as low as $15 or in excess of $300.

Are There Any Other Considerations for Legally Establishing a Shopify Business?

There’s a lot to think about when it comes to the legal establishment of your Shopify business. Just to help keep some of the options straight, here are a few final pointers and reminders.

• Small and medium-sized businesses are not required to get an EIN, though doing so will be a useful way to distinguish your business entity from your personal identity.
• If you choose to run your Shopify store as a Sole Proprietorship, you’ll be able to do so using your SSN for tax identification purposes.
• The federal government does not require all business owners to have licenses, but you may need a business license depending on your industry or your location.
• If you’re looking for a way to run your Shopify business that allows you to safeguard your personal assets, keeping them distinct from your business entity, then you’ll want to consider establishing an LLC.
• An LLC allows you to avoid double taxation, e.g., you won’t have to pay taxes on business income and then pay it again as personal income.
• If you do establish an LLC, you’ll want to secure an EIN. This is an easy and free option available to you from the IRS.
• Dropshipping doesn’t necessarily require you to have a business license, though this can vary by city or by state.

Do You Need an LLC for Shopify? The Bottom Line.

The bottom line? Shopify offers a lot of flexibility for business owners, especially those who are in more creative fields. There is no legal requirement to set up an LLC for a Shopify store. However, doing so may provide you with various legal and financial benefits. Before you get your Shopify store up and running, you’ll want to think through the implications of different legal structures, including the LLC; and, you’ll want to consult local regulations to learn about your requirements for a business license or EIN.

Author Bio

Amanda E. Clark  is a contributing writer to LLC University. She is a graduate of Eastern Michigan University and holds degrees in Journalism, Political Science, and English. She became a professional writer in 2008 and has led marketing and advertising initiatives for several Fortune 500 companies. She has appeared as a subject matter expert on panels about content and social media marketing. She regularly leads seminars and training sessions on trends and tactics in professional writing.