3p1.pdf

Module 3: Setting Up Your Business

Manual 1: Business Entities

Contents:

Overview

Creating

Entity

is Optional

Accounts

With

Suppliers

Protection

Business

Entities

Overview

The mere mention of the words “business entity” scares a lot of people. Our goal is to eliminate the fear

and confusion surrounding the subject. We’ll make it as simple and straightforward as we possibly can,

while still making this manual informative and useful.

Creating a Business Entity is Optional

for operating an e-commerce website. Thousands and

thousands of businesses out there (many of which are Internet-based businesses) are operated by

individuals who do NOT have a business entity.

REQUIRED

So if creating a legal business entity is optional, why are we even covering the subject in this course?

There are 3 reasons:

1. If we didn’t cover it, a lot of people would ask us why we didn’t cover it! :-)

2. Operating your store through a business entity does make it easier to set up accounts

with suppliers.

3. A legal business entity gives you an added layer of liability protection.

a Business

Setting

Liability

Types

Having a business entity is NOT

We’ll talk more about these reasons in more detail below, but again we want to emphasize that creating a

business entity is optional.

Setting Up Accounts With Suppliers

Put yourself in the shoes of your potential supplier on the other end of the phone. Which sounds more

professional to you?...

a) “Hi, this is John Smith. I’m interested in becoming an authorized dealer and selling your

products on my website... No, there’s no business name, it’s just a website I’m building... Right,

my name is John Smith...”

b) “Hi, this is John Smith with Omni Trading Company . Our company is interested in becoming an

authorized dealer and selling your products... That’s correct, I’m with Omni Trading Company ...

Sure, I’d be glad to send you a copy of Omni ’s seller’s permit...”

As you can see, it seems a lot more official to be calling potential suppliers as a representative of a

business, rather than as some guy who built a website.

More importantly, only established business entities are able to get a seller’s permit (sometimes called

“sales tax ID” or “seller’s permit number”) from the state in which they are organized. Many suppliers

require a seller’s permit in order to set you up with an account. Thus, not having a business entity can

become a road block in some markets. We’ll talk more about this topic in Module 4.

Liability Protection

One reason a lot of folks operating businesses decide to create a business entity is to get the added layer

of legal liability protection that a business entity provides. In lay man’s terms, this basically means that if

someone wanted to take action against you, they’d be taking action against the business entity and its

assets (not against you and your personal assets).

Now, don’t get too worked up about the mention of “legal liability.” We’ve operated dozens of e-commerce

stores over almost a decade without any liability issues whatsoever. The chance of legal liability ever

becoming an issue for you is pretty remote. But we wanted to at least mention it as a consideration to

think about as you decide whether to create a business entity or not.

Types of Business Entities

There are several different types of business entities in the United States. We’ll give you a brief synopsis

of each entity type in Manual 2 for US citizens. As you’ll see, a lot of your options (including the ones we

recommend) are really quite simple to set up and don’t require much “governmental red tape” at all.

If you live OUTSIDE the United States, please see either Manual 3 if you plan to sell within the USA or

Manual 4 if you plan to sell outside the USA. (There is no reason for US citizens to read through either of

these two manuals.)

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