What is an LLC?
This company type provides personal liability protection to business owners by separating the entity from the individual's ownership.
LLC stands for limited liability company.
Compared with a sole proprietorship, an LLC's structure and efficiency combine those of a corporation with the tax and liability benefits of a sole proprietorship.
What is The Difference Between Sole Proprietorships Vs. LLC?
For sole proprietorships versus LLCs, sole proprietorships have an advantage over other business structures in terms of tax filing – owners claim business taxes on their personal tax return, and income is only taxed once.
Having a sole proprietorship has the drawback that, since the business and its owner are technically the same entity, owners are 100% responsible for any liabilities or lawsuits incurred by the business.
Do I Need A Business License To Sell On Shopify?
Do you need an LLC for Shopify? No.
There is no requirement for having a business license to sell on Shopify.
However, there are certain circumstances where a license is essential.
For example, you might need one if the country/city/state or type of your business requires one.
Keep in mind that licenses are issued at the local, county, or state level.
Thus, even when Shopify does not require business licenses from its merchants, your country/city may.
Therefore we can say that Shopify stores can be run as sole proprietorships or LLCs. Although you might want to form an LLC or a corporation, it isn't required.
To set up all legal details of your Shopify store, you typically only need your social security number or tax identification number (TIN).
You can obtain more information about self-employment taxation by reading IRS guidance or contacting your local government agency.
How To Run Your Shopify Business As A Sole Proprietor?
It might be wise for you to register a business name or a DBA (doing business as) if you want to run your business as a sole proprietor.
You'll probably not run it under your own name, so choose a name for it.
Doing so is legal only if you obtain a DBA.
This isn't necessary if the name of the business combines your name with the service you offer, such as John Doe's Meats.
Important Note: In your state, is it mandatory for businesses to obtain a license? If yes, then you'll be required to obtain one before you can begin selling products or services.
How To Get A Business License?
As a part of the application process for a business license, you will need to obtain your EIN to streamline the process.
This will separate your business from you, the owner. A federal business license is necessary for certain industries, as well as any license required by local authorities.
In addition to your federal license, you will need to contact your state and municipality to find out what steps you should take for your state license.
For instance for WA State Licensing you can check their website.
If you are outside the U.S, you have to check your own country’s websites for licensing.
In general, each location has its own process and requirements. Usually you need to collect information about yourself and your business.
You will also have to pay any fees, fill out any forms, obtain permits, and submit it all to the appropriate individuals.
What is EIN?
You can distinguish your business identity and your personal identity by using your employer identification number (EIN).
A company's social security number (SSN) is a unique combination of digits that is used by the government to identify your LLC.
Who Needs A Business License?
There is no requirement that every business obtain a license.
A business license and permit are often required for regulated industries like food and beverage, CBD, health and wellness, or personal services.
Do I Need An EIN For Dropshipping on Shopify?
In the early stages of dropshipping, an Employer Identification Number (EIN) is not required, but it becomes necessary later for tax purposes.
EINs are needed for many tasks, including paying federal taxes online, preparing and submitting tax returns, and distributing payroll and tax documents.
Can I Start Dropshipping Without an LLC?
Business Licenses are necessary for dropshipping businesses, eventually. Most cities require business licenses yet this requirement may differ from state to state for dropshipping businesses.
Please review your local regulations to determine if you need an LLC for dropshipping on Shopify.
How Much Does It Cost To Have A Business License?
If you need a federal business license, you would need to pay fees depending on the type of business.
There are also state licenses and permit fees; they also vary depending on the state you are in. If you don’t have a federal business license you don’t need to pay fees to federal agencies.
For more information about the fees consult your state agencies.
Important Facts To Set Up A Legal Business On Shopify
- Registering a business and applying for an EIN is not required if you’re a small or medium-sized business.
- You can run your Shopify store as a sole proprietor and use your SSN (social security number) or SIN (social insurance number) for tax purposes.
- The federal government does not require business licenses for all types of businesses. Instead, it only requires them for businesses operating in certain industries. States that have their own set of requirements and steps to obtain a license.
Important Note: This guide is prepared mainly for the U.S Laws & restrictions. Each country & city has different rules and regulations. Please do your own research & take necessary steps based on your research.
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Frequently Asked Questions
Do I need to create an LLC for Shopify?
1. You don’t need to create an LLC to sell on Shopify because Shopify doesn’t require merchants to have a specific business structure or a business license just to open a store; many sellers start as sole proprietors using their Social Security Number or a Tax Identification Number (TIN). That said, forming an LLC can be a smart move once you’re making consistent sales or taking on more risk because an LLC separates you personally from the business, which can help protect your personal assets if the business faces debt, chargebacks, or lawsuits (for example, a product liability claim). Whether you “should” form an LLC often depends on your location, what you sell (regulated products may trigger licensing/insurance needs), whether you’re working with suppliers and contracts, and your comfort level with personal liability—so it’s common to start as a sole proprietor and upgrade to an LLC when revenue, risk, or complexity grows.
How much does Shopify take from a $100 sale?
2. Shopify doesn’t take a single flat amount from every $100 sale because the total cost depends on your plan, whether you use Shopify Payments, and your transaction/payment processing fees. If you use Shopify Payments, you’ll typically pay a credit card processing fee (which varies by plan and card type, and is often a percentage of the sale plus a small fixed amount), and Shopify generally does not add an extra “transaction fee” on top of that for Shopify Payments. If you use a third-party payment gateway instead (like PayPal through an external integration), Shopify may charge an additional transaction fee (again plan-dependent) on top of whatever your payment provider charges. Also remember that other costs can reduce what you keep from a $100 sale—like shipping labels, refunds/chargebacks, apps, taxes/VAT, and cost of goods—so the best way to estimate your true take-home is to check your plan’s fee table and run a simple margin calculation using your average product cost and shipping.
Can you sell products without an LLC?
3. Yes, you can sell products without an LLC, and many small online businesses begin as sole proprietorships because it’s the simplest structure—there’s typically no formal formation paperwork, and you report business income on your personal tax return. The tradeoff is that, as a sole proprietor, you and the business are legally the same entity, meaning you’re personally responsible for business debts and legal claims (for example, if a customer alleges harm from a product or you can’t pay a supplier). You may still need to register a business name (DBA) if you don’t sell under your legal name, and depending on your city/state/country and what you sell, you might need permits, sales tax registration, or other licenses even if you don’t have an LLC. In other words, an LLC isn’t required to start selling, but it can be beneficial for liability protection and credibility as your store grows.
Does Shopify report you to the IRS?
4. Shopify itself isn’t “reporting you for taxes” in a punitive sense, but payment processors connected to your Shopify store may report your payment activity to the IRS when required, and Shopify Payments is one of those processors. If you use Shopify Payments, the income is generally reported under the tax details you provided—such as your registered business name and EIN if you set it up as a business, or under your name/SSN if you operate as an individual/sole proprietor—using the applicable IRS information return (commonly Form 1099-K when thresholds and rules are met). If you use a third-party payment provider, that provider (not Shopify) typically handles any required IRS reporting. Regardless of reporting forms, you’re responsible for tracking revenue, refunds, fees, and expenses and reporting your taxable income accurately, so it’s wise to keep clean records and confirm the correct tax identity (name/EIN/SSN) is on file in your payments settings.
Do you need an LLC for Shopify dropshipping?
5. You don’t need an LLC specifically for Shopify dropshipping because Shopify doesn’t require it and dropshipping can be run as a sole proprietorship; however, dropshipping can carry unique risks that make an LLC worth considering sooner, such as product quality complaints, shipping delays, chargebacks, and potential consumer protection issues if customers claim misleading listings or defective products. Since the dropshipper is usually the “seller of record” to the customer, you’re the one facing disputes, refunds, and possible legal claims—even if a supplier caused the problem—so liability protection can matter. You may also need to comply with local business registration rules, collect and remit sales tax where applicable, and follow platform and advertising rules, especially if you sell regulated items (supplements, cosmetics, electronics, children’s products). Many dropshippers start as sole proprietors to validate demand, then form an LLC once sales volume increases, they begin running significant paid ads, or they want clearer separation between personal and business finances.
What is Shopify LLC or sole proprietorship?
6. “Shopify LLC or sole proprietorship” refers to the legal structure you choose for the business that operates your Shopify store—Shopify is the ecommerce platform, not the business entity itself. A sole proprietorship is the simplest setup where you and the business are legally the same, often letting you report income on your personal tax return, but it exposes you to personal liability for business obligations. An LLC (limited liability company) is a separate legal entity that can help protect your personal assets by separating them from the business, while still being relatively flexible and straightforward compared to a corporation; many LLCs are taxed in a pass-through manner by default, though options vary by jurisdiction. Practically, the choice affects how you register your business name (you may use a DBA as a sole proprietor), what tax ID you use (SSN vs EIN), how you open business bank accounts, and how you handle contracts and risk—so while Shopify lets you run a store either way, the “right” option depends on your risk level, growth plans, and local legal/tax requirements.
