How to Start an LLC for Shopify (Step-by-Step Guide)

Selecting a unique and compliant business name for your LLC is the first thing you will need to do before you can complete any paperwork. You will need to consider both of the following:

• Check availability: Ensure the name is not already in use by checking your state’s business name database. This avoids legal issues and confusion.
• Compliance: Verify that the name complies with your state’s LLC naming requirements, such as including “LLC” or “Limited Liability Company” in the name.

If you want to reserve your name, most states will let you do this for a period of time until you file for formation.

Your name does not have to be the same one you use for your storefront. However, if you are using different names for your paperwork and your customer-facing branding, you may consider a Doing-Business-As (DBA) name to show you are operating under two titles.

Depending on your location and the type of business you have on Shopify, you may need various permits and licenses. These can include:

• General business licenses: Required by some states to legally operate your business.
• Occupational licenses: Necessary if your business involves specific professions or trades that require special permits.
• Sales tax permits: If you sell taxable goods or services, you’ll need to collect sales tax and remit it to your state. A sales tax permit allows you to do this legally. Each state has different rules for e-commerce businesses, so pay special attention to those.
• Local permits: Depending on your city or county, you may need additional permits such as zoning permits or permits to allow production in your home.

Contact your local government offices or check online resources to determine the specific permits and licenses required for your business. Ensuring compliance helps avoid fines and legal issues.

The platform also has a number of tools in place to ensure safety and prevent legal issues. For example, they provide:

• Fraud analysis software and chargeback management services.
• Secure payment processing and integrated payments.
• Free SSL certification for data security.
• Regular security updates and content protection.

For LLC owners, these tools can be particularly beneficial in maintaining organized and efficient accounting. But they are not a substitute for your own accounting advice, legal counsel, or decision-making.

While Shopify provides a secure and reliable platform for running your online store, it does not offer insurance. As an LLC owner, it’s crucial to have the right insurance coverage to safeguard your business. Here are several types of insurance to consider:

• General liability insurance: Covers claims related to third-party bodily injury, property damage, and advertising injuries. Shopify’s terms of service typically do not cover these incidents, making this insurance essential for protecting your business from unexpected claims.
• Product liability insurance: Protects against claims arising from products that cause harm or injury to consumers. Although Shopify provides tools for managing and selling your products, it doesn’t cover liability for any issues resulting from product defects or safety concerns.
• Professional liability insurance: Also known as errors and omissions (E&O) insurance, this covers claims related to professional services or advice that result in financial loss for a client. If your Shopify store offers consulting or other services, this insurance is vital since Shopify’s platform does not cover professional liability.
• Commercial property insurance: Covers damage to your business property, including inventory and equipment. Shopify doesn’t provide protection for physical property damage, making this insurance important to ensure your assets are safeguarded against risks like fire, theft, or natural disasters.

If your Shopify store grows to the point where you need to hire employees, there are several important steps to follow:

• Obtain an EIN: Ensure you have an Employer Identification Number for tax purposes.
• Register with your state: Comply with state requirements for hiring employees, including unemployment insurance and workers’ compensation.
• Understand labor laws: Familiarize yourself with federal and state labor laws to ensure compliance with regulations related to wages, overtime, and workplace safety.

When starting a Shopify store, choosing the right business structure is a crucial decision that can impact your operations, taxes, and personal liability. While there are other options, here are the most common business structures for Shopify creators: sole proprietorships, corporations, and Limited Liability Companies (LLCs).

• A sole proprietorship is the simplest business structure where the owner and the business are considered the same legal entity.
• A corporation is a more complex business structure that creates a separate legal entity from its owners.
• An LLC minimizes personal risk and administrative overhead. It also offers flexibility in management and avoids double taxation, as profits and losses pass through to the owners’ personal tax returns.

While sole proprietorships offer simplicity and corporations provide robust protection, an LLC typically offers the best of both worlds for Shopify creators. This option allows you to focus on growing your online business, knowing that your personal assets are protected and your tax obligations are manageable.