Disclaimer: This article is not legal advice. You should contact a business attorney in your state for assistance.
Opening a print-on-demand store is one of the best business ideas around right now.
The market is exploding. Entry costs are low. Profit potential is huge. But there’s one critical thing most new business owners neglect…
Legal protection.
When you don’t set up the right business structure, you leave personal assets like savings accounts, real estate, and even cars vulnerable in the event of a lawsuit or accident. The solution? Forming an LLC.
What’s Covered:
- Why Print-on-Demand Needs Legal Protection
- What Is an LLC?
- Benefits of an LLC for Print-on-Demand
- How To Form Your LLC Step-by-Step
- Common LLC Mistakes To Avoid
Why Print-on-Demand Needs Legal Protection
Print-on-demand is a rapidly expanding business sector. In fact, it’s growing so fast that according to Precedence Research, the global market value is expected to balloon from $10.21 billion in 2024 all the way up to $102.99 billion by 2034.
That’s an annual growth rate of 26%. It’s the equivalent of doubling in size every three years.
Clothing and apparel are the hottest product category for print-on-demand sales right now. Entrepreneurs are quickly getting started and competing for their share of the market. When you start looking for quality wholesale blank apparel in good variety, it helps to have solid vendors like Shirtmax in your back pocket.
But as print-on-demand storefronts proliferate, risk increases.
Product liability issues, trademark and copyright infringement claims, and customer disputes are all threats to an unprepared and unprotected business owner. Running your print-on-demand company as a sole proprietor exposes every dollar of personal wealth to this level of legal risk.
Your home. Your car. Your retirement savings. Your family’s savings accounts.
All potentially at stake.
What Is an LLC?
An LLC stands for Limited Liability Company, which is a type of business structure.
An LLC basically provides a firewall around personal assets from business liabilities.
When an LLC is formed and operated properly, it creates a legal separation that keeps lawsuits, debts, and claims attached to the business. Personal assets and property are out of reach. This is important because LLCs account for 43% of all small businesses in the United States, which makes it by far the most popular business structure.
It’s not just popularity that makes LLCs dominant. There’s also a great flexibility built into the legal format. LLCs allow you to choose your management structure and taxation preference. This can be important for print-on-demand business owners selling t-shirts, mugs, and home goods. The next section dives deeper into these benefits.
Benefits of an LLC for Print-on-Demand
Personal Asset Protection
This is the big-ticket item. If a customer sues over an alleged injury caused by your product, or a supplier sues over payment terms, your personal property and wealth remain separate from the claim. Business creditors and legal claimants can only go after business assets.
Professional Credibility
Suppliers, wholesalers, banks, and business partners take LLC-registered businesses more seriously. Banks are more likely to offer credit lines. Wholesale vendors require business registration to process accounts and ship products.
Tax Flexibility
LLCs can choose how to be taxed. Options include sole proprietorship taxation, partnership taxation, S-corp taxation, and C-corp taxation. Each has it’s benefits based on revenue and business objectives.
Simpler Compliance
LLCs have lighter regulatory burdens than corporations. No mandatory board meetings or shareholder voting rules apply. An annual report and good record keeping is all that’s required.
How To Form Your LLC Step-by-Step
Forming an LLC is not a difficult process. Here’s how it works…
- Choose Your State of Formation
Most print-on-demand business owners form their LLC in the state of primary operations, which is typically their home state. Other entrepreneurs may choose Delaware or Wyoming for their favorable business laws, but that adds extra complexity and expense for a small operation.
- Pick a Name
Your name has to be unique and distinguishable from existing registered businesses in your state. All states require the official name to contain either “LLC” or “Limited Liability Company.” Conduct a business name search in your state before committing.
- File the Articles of Organization
Articles of organization is the official document that forms the LLC. Filing fees range from $50 to $500 across states. This document provides basic information such as business name, address, and registered agent contact information.
- Create an Operating Agreement
Operating agreement is a document that is not required in all states, but it’s very important to include. This document spells out ownership percentages, allocation of profits, management responsibilities, and other important details like adding and removing members.
- Get an EIN
Employer Identification Number is to a business what a social security number is to a person. This is provided by the IRS for free. Banks require this to open business accounts, and it’s used to separate personal and business finances.
- Open a Business Bank Account
Crucial step to maintaining liability protection. Never co-mingle personal and business funds. If you pay personal expenses from business accounts, or deposit business revenue in personal accounts, you could “pierce the corporate veil” and lose your asset protection. Segregate all financials from day 1.
Common LLC Mistakes To Avoid
Forming the LLC isn’t the hard part. Maintaining the proper separation is what’s key…
- Commingling Funds
Paying personal expenses from business accounts and depositing business revenue into personal accounts is one of the most common mistakes made. Courts use this as an indicator of when to hold the owner personally liable for business activity.
- Ignoring Annual Requirements
Most states require annual reports and associated fees. Failure to submit annual reports on time can lead to administrative dissolution, where all legal protections are lost. Set calendar alerts for each annual deadline.
- Skipping Insurance
Having an LLC doesn’t replace business insurance. General liability insurance and product liability insurance are two specific covers that are crucial to still obtain as a print-on-demand store selling physical products. Insurance and LLC protection go together as dual layers of protection.
- Forgetting Multi-State Registration
Sales in other states may trigger the need for foreign LLC registration in those jurisdictions. Each state has different rules on when nexus is created and foreign registration is required. Do your research on nexus rules when selling in multiple states.
- Operating Without Formal Records
Documentation is important, even for single-member LLCs. Meeting minutes, major decisions, and financials should be kept on record. Formal operating records of this nature help reinforce the business as a separate legal entity. Documentation is helpful when it comes time to prove corporate formality.
When To Form Your LLC
Timing is important when considering when to form the LLC…
Ideally, form the LLC before even starting your print-on-demand store. This allows the store to begin operations with maximum legal protection. Every sale, customer transaction, and vendor contract takes place under the LLC.
Already operating as a sole proprietor? Transitioning to an LLC is still recommended. Simply form the LLC and transfer any existing business assets and contracts to the LLC. Consult with a business attorney to confirm proper transfer procedures are followed.
Wrapping Things Up
Forming an LLC for your print-on-demand store or dropshipping brand provides legal protection that no prudent entrepreneur should ignore. The process is easy. The cost is minimal. The peace of mind is priceless.
Print-on-demand is growing at 26% annually right now. Seize the opportunity and set up a properly structured business. The combination of liability protection, tax flexibility, and professional credibility make the LLC the ideal choice for this business sector.
Take action today and start your business in the right way. Don’t gamble with personal exposure and risk that can be avoided through proper legal structure. Invest in the business foundation and get a jump start on building a sustainable enterprise.
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