If you are running a dropshipping business or plan to start dropshipping, Congratulation you are on the right track. Dropshippers earn an average of 20% to 30% profit on their sales. That can add up to a profit of between $1,000 and $5,000 per month.

As a dropshipping business owner, you have to look at many factors, and one of the biggest factors is to consider the type of business entity that will protect your dropshipping business and personal assets. 

In this guide, I will explain why you need an LLC for dropshipping and which is the best time when you should get one.

What is dropshipping?

Dropshipping is a retail business model that lets you offer products for sale without worrying about stocking, storage, or shipping. You simply place an order for a product to be delivered directly to a customer who buys it from you.

For instance, you start a dropshipping store of healthcare products, and you pick products from AliExpress to sell. So when customers order on your site, AliExpress will deliver the ordered product directly to them.

Dropshipping is an inclusive approach for those who want to start their ecommerce store but do not have much money to invest or have no facility for warehousing products.

Which is the Best Business Structure for dropshipping?

If you are starting a dropshipping business, you should form your business as a legal entity to protect it. If you’re running a profitable dropshipping business, you should consider forming your business as a legal entity.

For a small business, a Limited Liability Company (LLC) provides the optimal structure for your startup. It allows high-level protection of your business assets, minimizes taxes, is manageable and inexpensive to maintain, and most importantly, is easy to form.

Why do you need an LLC for dropshipping?

Let’s talk about a crucial topic of this guide, Why do you need an LLC for dropshipping.

Limited liability companies protect their owners’ assets if the company incurs a liability like debt. They do this by creating a sort of shell or barrier between owner assets and business liabilities.

As such, when it comes to any business, especially one with a lot of working like a dropshipping business, registering your business as a Limited Liability Company is simply the smartest thing you can do.

Benefits of forming an LLC for dropshipping business

Limited Liability Company (LLC) offers many features that are beneficial to a drop-shipping business, such as:

Limited Liability Protection: Limited liability protection is one of many benefits of forming an LLC for your dropshipping business.

If you are concerned that a business failure could compromise your assets, an LLC is a safeguard that helps ensure that your creditors or legal pursuers cannot enjoy any compensation from your personal property if things go wrong. 

Tax Flexibility: LLC is a pass-through entity, meaning you don’t have to pay corporate income taxes on dropshipping business earnings instead of this you have to pay taxes on individual tax codes.

Boost Consumer Trust: Having an LLC can give you credibility and make your dropshipping business appear more serious. This can create customer trust and build brand visibility.

LLC for Dropshipping

Which is the best time to form an LLC for your dropshipping business?

It’s best to register for an LLC once your business has been operating for several months and you’re confident it will continue to grow. This protects you should your company falter.

How to form an LLC for dropshipping business

There are two ways to form your LLC in the United States: Do it yourself or get a professional formation service to do it for you.

For forming an LLC yourself, you have to follow these steps:

  1. Pick a Name for your LLC 
  2. Appoint a registered agent
  3. File your Article of Organization (Certificate of Formation)
  4. Decide on member vs. manager management
  5. Draft your Operating Agreement
  6. Apply for Business Tax ID

It is not easy, if you are unfamiliar with the system, to avoid making an error that could cost you a lot of money. It is better to hire a professional company to handle your paperwork.

If you are interested in forming an LLC for your dropshipping business, visit micahguru.com and use the code “Blogreaders” to get a special discount.