A business in dropshipping can be extremely profitable. So when things go wrong, whether it is your business’ fault or not, you can be faulted for these wrongdoings.  

For this reason, and considering that your company is liable for the debts it incurs, even if you are never sued, it is important to protect your dropshipping business with limited liability protection. 


How Dropshipping Works

A dropshipper is a vendor who facilitates the sale of products that are usually purchased at wholesale and then sold at a markup. A dropshipper is considered to be a liaison between the third party and the customer who wants to use the product. The dropshipper would receive the sales order, process and handle the product, and then fulfill the order on the seller’s behalf. 

One reason why dropshippers are used is so that the business owner or stores do not need to handle order fulfillment, customer service, or returns. Instead, this part of the process can be outsourced completely with a company or an automated service.

In general, the dropshipping business can incur liabilities and debts just like any other business. A dropshipping business might be sued for copyright infringement, faulty or malfunctioning products, among other things. Other liabilities might occur in the warehouse that stores the products. Products or property could be damaged at any time, and your workers might sustain injuries. 

Therefore, since there is a higher level of risk in operating a dropshipping business, a company that does not have any liability protection will not likely last long as the business owners’ personal assets would be attacked when a debt or liability is incurred. 


Why You Should Register Your Dropshipping Business as an LLC

In general, registering your business as an LLC provides a limited liability protection blanket over your business. This does not mean that your business will be protected from incurring liability, but it instead protects your personal assets from being a part of any liabilities that your business incurs. 

Therefore, with any business, especially one that involves a lot of moving parts like a dropshipping business, registering your business as an LLC is simply a smart move

On top of this protection, registering as an LLC allows your business to seek a tax break. An LLC can file as an S Corporation, which allows it to operate under the looser LLC guidelines while taking advantage of the corporate tax breaks that incorporated business can utilize. 

It’s best to consult your legal counsel, including an accountant or registered agent if you aren’t sure about whether or not you need to become a registered LLC. While you might not believe that your business is likely to incur liabilities, it is important to realize that nearly every business faces that risk.

And if you operate a dropshipping business, you are likely handling a lot of cash; if anything were to happen to your business, registering as an LLC ensures that the personal assets of business owners are protected. 


Benefits of Registering Your Dropshipping Business as an LLC

Registering your Dropshipping business as an LLC can protect your business from incurring debts and liabilities. Considering that a dropshipping company can profit immensely, it is likely that a business of this kind can be held liable for product issues, policy-related behavior, copyright infringement, and other potential liabilities. 

Registering your business as an LLC is extremely easy and affordable and it is usually worthwhile to do so. 

Another perk of registering as an LLC is the ability to file taxes as S Corp. This tax category allows a business with certain eligibility requirements to seek the same corporate tax breaks enjoyed by corporations. Not only will this improve your company’s image, but it will save you time and money!

If you do not register your business as an LLC, you’ll most likely be operating as a sole proprietorship or partnership. While this can be easier when it comes to taxes and business structure, it also means that any business owners’ assets are exposed if a dispute arises!

 

How to Get an LLC For Dropshipping

Registering your business as an LLC is simple with a registered agent service. A registered agent service will be able to fill out the paperwork, file it, pay fees, and receive paperwork on behalf of your company. They will also be able to navigate the different state laws around registering as an LLC; if you have multiple business locations this can be tricky to manage on your own. 

You can also register your business as an LLC yourself. All you need to do is look up the states in which you intend to register, fill out the requisite paperwork, file it, and pay the fees. Be sure to look up all the regulations around being an LLC, such as whether or not an annual report is required and when it should be submitted. 

You should have the following information on hand when registering your business as an LLC:

Note that if you register in a state where you do not reside, you need to have someone located in that state available during normal business hours. This is where a registered agent can come in handy, especially if you are operating a business like dropshipping with warehouses all over the country. 

In addition to filing a state LLC registration form, be sure to prepare an Articles of Organization. You will then be able to obtain an Employer Identification Number (EIN) from the IRS. 

If you would like more information on the process, visit our step by step guide or speak to a tax specialist or registered agent service today!