How to Start an LLC for an Online Business
Updated June 2026 · Reviewed by the Hustle Copilot editors
Selling online feels like a low-risk activity right up until a customer sues over a refund, a stripe account gets frozen with your money inside, or a chargeback dispute names you personally. An LLC separates the business from you.
Why you need an LLC for this
- Customer disputes, chargebacks, and refund lawsuits stay at the business level
- Stripe and PayPal can hold thousands of dollars during disputes — better held by an entity, not you personally
- Lets you deduct home office, software, ad spend cleanly
- Looks more professional to suppliers and B2B clients
The tax angle
Once your online business clears about $40K in net profit, electing S-corp taxation on the LLC can save thousands in self-employment tax. Below that threshold, the payroll overhead eats the savings — stick with default LLC taxation.
Step-by-step
- Step 1Pick a state to form in
For most online seller owners, your home state is the right answer. Forming in Delaware or Wyoming sounds clever, but if you operate from another state you'll have to register as a foreign LLC there too — double the fees and paperwork.
- Step 2Name your LLC
Search your state's business database to make sure the name is available. It must include 'LLC' or 'Limited Liability Company.' Avoid restricted words (Bank, Insurance, etc.) unless you have the right licenses.
- Step 3File your Articles of Organization
This is the legal document that creates your LLC. Filing fees range from $40 to $500 depending on the state. Most states process online filings within a few business days.
- Step 4Get an EIN from the IRS
Free at IRS.gov. Takes 5 minutes. You need it to open a business bank account, hire employees, and file taxes.
- Step 5Open a business bank account
Critical for the liability shield. The moment you mix personal and business money, a lawyer can argue your LLC is a sham and pierce the veil. Keep it separate from day one.
- Step 6Register the LLC with payment processors
Update Stripe, PayPal, Shopify Payments to use the LLC's EIN. 1099s will flow to the business, and chargebacks will be against the entity.
- Step 7Skip all of that and use Tailor Brands
Tailor Brands files your Articles of Organization, gets your EIN, sets up your registered agent, and drafts your operating agreement in one flow. Most people finish in under 15 minutes. If you'd rather not deal with state websites, this is the fastest path.
What people get wrong
- Operating in your personal name for months, then trying to retroactively claim the income was the LLC's
- Not getting a sales tax permit in your home state
- Treating the LLC bank account as a personal piggy bank
FAQ
Do I need an LLC for a side hustle making under $10K?
Legally, no — you can operate as a sole proprietor. But the moment you take payments from strangers, the liability calculus changes. The $50–$300 cost of an LLC is cheap insurance.
Which state should I form in if my business is fully online?
Your home state. Forming in Delaware or Wyoming for an online business adds foreign registration fees in your home state and saves nothing for a small operator.