The top reason to form an LLC for a personal shopping business is to gain access to the personal asset protection provided by this business structure. Whether you’re a “gig economy” personal shopper on the Instacart platform or a personal shopper providing wealthy clients with high-fashion clothes, you need the limited liability protections that an LLC can provide.
For example, let’s say that you run your personal shopping service out of a small retail location. One of your customers slips on a wet spot on your floor, falls over, and gets injured. In this circumstance, if you operate your personal shopping business as a sole proprietorship, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if you are sued.
On the other hand, if you form an LLC for your personal shopping service before you ever sign up your first customer, and you operate and maintain that LLC in a compliant fashion, the scope of the lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
However, this is just the tip of the iceberg when it comes to the advantages of the LLC for personal shopping services. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.
Your personal shopping LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your shopping business itself does not pay taxes, but rather the profits are passed through the business entity and you pay taxes on that money when you file your own personal taxes.
You can also choose for your personal shopping service to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to you as an owner.
The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most U.S.-based personal shopping businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.
S corp taxation can help your personal shopping business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself a reasonable salary for your role and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
Compared to operating a sole proprietorship or general partnership personal shopping business, the S corp taxation model can save you quite a bit of cash that you can use to expand your inventory or make other improvements to your business, rather than writing a big check to Uncle Sam.
Finally, an LLC structure can enhance the credibility of your personal shopping business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a personal shopping service, your company’s name is also “Johnny Smith,” which obviously isn’t a great name for any business.
In this scenario, you could register a DBA (doing business as) name to give your business the ability to operate under an assumed business name, but DBAs have no exclusivity regarding their naming rights in many states. This means that if another personal shopping service wants to use your DBA name as their own, they’re not only allowed to do so, but they can actually register a formal business entity with that name, preventing you from continuing to use your own assumed name.
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.
Identify the LLC package and services that fit your needs and then get started.
First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole propritorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:
Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.
Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.
The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.
The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.
Most states don’t require operating agreements but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.
You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.
Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. There are no industry-specific licenses or permits required for personal shoppers, but that doesn’t mean you don’t need any at all. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.
Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.
Seeing as it comes from Cosmo, it shouldn’t be any surprise that this article has some great information about the fashion side of personal shopper services. These 12 tips and tricks cover everything from learning the basics of fashion to figuring out how to serve a wide variety of customers.
Fashionista is an excellent resource for fashion, style, and beauty trends and news, so it’s obviously going to be a solid resource for personal shoppers in the fashion world. In addition, they have some interesting articles, like this one that discusses how personal shoppers and stylists can cater to regular, everyday people just as well as they can help wealthy celebrities.
The International Association of Professions Career College provides “non-traditional career education” in a variety of fields, and their personal shopper certificate courses are a great way to learn how to tackle this sometimes-complex career. Their courses typically aren’t too expensive, and you can complete the personal shopper certification course in as little as four weeks.
Are you looking to enter into the gig economy for personal shopping? If so, there’s no better resource than Instacart. This grocery delivery service has become enormously popular, and they’re always looking for new, reliable personal shoppers to fulfill their orders. It may not be the most exciting form of personal shopping, but there’s money to be made here, especially as a side hustle.
Postmates is another casual gig-based personal shopper app, although Postmates does have one significant distinction from Instacart: they deliver items other than just groceries. As a Postmates personal shopper, you’ll deliver takeout food from restaurants, personal items, groceries, and much more. Some Postmates personal shoppers even make deliveries via bicycle!
While most personal shoppers don’t have many liability risks, there could still be some issues. For example, we mentioned earlier the potential for a slip-and-fall accident if you operate your personal shopping service out of a retail location. This business may not have as many potential liability issues as some other business types, but that doesn’t mean you should operate your personal shopper service as an informal business entity — you need personal asset protection.
Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses.
Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC. The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.
You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize.
For instance, you would need to be present and available at your business location during all standard business hours. In addition, if you serve as your LLC’s registered agent, you may need to make your home address a matter of public record. Not only does this have privacy concerns, but there’s also the matter of unwanted junk mail as well.
The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. In addition, some of these companies often throw in free bonus features that make them an even better bargain.
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.
The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our comprehensive guide to state-by-state expenses.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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