I get this question from a lot of readers. The short answer is: If you are selling more than $20,000 a year online – Yes.
First of all let me make clear that I am not a lawyer, accountant or CPA and I am not giving legal advice as I am not qualified to do so. This is just the opinion of someone who has been involved in online business for over 12 years and offline businesses for over 30 years.
Also there are several types of corporations including S-corp, C-Corp and LLC. When I use the word corporation I am referring to all of these in general.
There are several advantages of incorporating:
- Limited Liability – Limiting your liability is number one in my book. If you do all of your business under your corporate shell, then if someone sues you, they can’t sue you –they sue the corporation. That means that all of your personal assets are protected. Losing a lawsuit won’t cost you your home, car and savings.
- Credibility – When you deal with wholesale vendors and other companies and your are incorporated you will be taken more seriously.
- Business Name Flexibility – you can have an unlimited number of DBAs (Doing Business As) under one corporation. Say that you sell jewelry on eBay and clothing on Amazon. Well you can have one name for eBay such as “Betty’s Jewelry Box” and another for Amazon such as “Betty’s Boutique”. both names can be under the same corporation or LLC.
- Taxes – the topic of taxes is too complex to address here, but take it from me, when you incorporate you can save a lot of money in taxes as there are things in the tax code for corporations that are not available to sole proprietorship’s. Talk to your accountant or tax preparer for the details.
Many people incorporate for the last reason – tax savings, but believe me the other reasons are just as important. I was once the subject of a frivolous lawsuit. Although I had plenty of personal assets, I keep my corporate assets lean and never keep big balances in my corporate account. I just called up the lawyer who filed the suit and told him what my corporate assets were and he dropped the suit when he realized there was no big money to get. I didn’t even need to hire a lawyer.
The easiest and fastest way to incorporate is right online. I use My Corporation. I used to recommend Legal Zoom, but a couple of my readers reported a bad experience. I used My Corporation to start my latest venture and it went smooth as silk. If you want more info on incorporating, I have a longer, much more detailed article on my website – https://www.skipmcgrath.com/articles/incorporate-ebay-business.shtml