Do You Need an LLC to Sell on Etsy

One of the most common questions potential sellers ask is whether they’ll need to form a Limited Liability Company (LLC) to start selling on Etsy.

Well, the short answer is: no — you won’t actually “need” an LLC to sell on Etsy. Having said that, depending on what you plan to sell and how you want to run your business, setting one up could be a smart move.

In this Do You Need an LLC to Sell on Etsy article, we’ll break down when forming an LLC might be in your best interest and delineate the other factors that you’ll need to consider — such as obtaining a business license.

Is an LLC Required to Sell on Etsy?

Currently, Etsy allows individuals to start selling without forming an LLC or any other legal entity — meaning that you can open a shop on Etsy, list products, and make sales without a formal business registration. 

If you do this, your business will automatically be considered a sole proprietorship for legal purposes, and your earnings will be reported as personal income, typically using Schedule C (Form 1040) on your tax return.

That said, while you don’t need an LLC to sell on Etsy, there are certain situations where setting one up could make a lot of sense for you and your business.

When Should You Consider an LLC for Your Etsy Business?

Generally speaking, there are five main scenarios where you may want to consider forming an LLC for your Etsy business, which we’ve outlined below:

• You Sell High-Risk Products: If your products carry potential liability risks (e.g., candles, skincare, children’s toys, or food items), an LLC can help protect your personal assets from lawsuits or claims.
• You Earn Significant Revenue: If you’re expecting your Etsy shop to generate substantial income, forming an LLC can provide significant tax benefits, especially if you choose to elect S Corp status. 
• You Plan to Scale or Hire Help: If you’re looking to expand your business, hire employees, or work with contractors, an LLC can help protect you from the legal and financial risks associated with growth, as well as make it easier to manage payroll and establish a clear operational structure.
• You Want to Attract Business Partners or Investors: If you’re planning to bring in partners or seek outside investment, an LLC can help by providing a clear legal framework for ownership, profit sharing, and decision-making.
• You Need Business Credit: If you want to apply for business loans or open credit accounts with suppliers, forming an LLC can help you establish a separate credit profile for your business and build credibility with financial institutions over time.

Of course, just like no two businesses are exactly alike, no two Etsy shops are the same, and so this list isn’t exhaustive. Even so, if one (or more) of these situations apply to your Etsy shop, you’ll likely be wondering how you can actually go about getting started with forming an LLC.

How to Form an LLC for Your Etsy Business

The exact steps you’ll need to take in order to form your LLC will ultimately depend on the state you choose to register in. 

Having said that, you will generally need to complete the following steps:

• Choosing a Business Name: You will need to select a unique LLC name that complies with your state’s naming guidelines (e.g., no restricted words, a required legal identifier such as “LLC” or “Limited Liability Company,” etc.).
• Appointing a Registered Agent: You will need to designate a registered agent, which is a person or business authorized to receive legal documents and official notices on behalf of your LLC. This can be you or a third party — such as a professional registered agent service — but note that a physical address in the state where your LLC is registered will be needed.
• Filing Your LLC Articles of Organization: You will need to submit your LLC’s Articles of Organization (which some states refer to as a Certificate of Formation) to the Secretary of State. This will include your business name, address, registered agent, management structure, and business purpose (sometimes) — among other things. 
• Creating an Operating Agreement (If Required): You will also need to create an operating agreement, which is a document that outlines your LLC’s ownership structure, management roles, profit and loss distribution, and decision-making processes. Although almost always not required, it’s always recommended. 
• Obtaining an EIN (Employer Identification Number): You will need to obtain an EIN from the IRS, which serves as your LLC’s tax ID and is required for hiring employees, opening a business bank account, and filing taxes separately from your personal finances.
• Filing a BOI Report: The last step you’ll need to do is submit a Beneficial Ownership Information (BOI) Report to FinCEN, which serves as a disclosure of the individuals who own or control your LLC and must be filed within 30 days of formation.

Note: Due to a nationwide injunction issued on December 3, 2024, all BOI reporting requirements under the Corporate Transparency Act have been temporarily suspended. Therefore, until the Fifth Circuit Court of Appeals reaches a decision, you will not be legally obligated to submit a BOI report, though you may choose to do so voluntarily.

Select Your State

• Alabama LLC
• Alaska LLC
• Arizona LLC
• Arkansas LLC
• California LLC
• Colorado LLC
• Connecticut LLC
• Delaware LLC
• Florida LLC
• Georgia LLC
• Hawaii LLC
• Idaho LLC
• Illinois LLC
• Indiana LLC
• Iowa LLC
• Kansas LLC
• Kentucky LLC
• Louisiana LLC
• Maine LLC
• Maryland LLC
• Massachusetts LLC
• Michigan LLC
• Minnesota LLC
• Mississippi LLC
• Missouri LLC
• Montana LLC
• Nebraska LLC
• Nevada LLC
• New Hampshire LLC
• New Jersey LLC
• New Mexico LLC
• New York LLC
• North Carolina LLC
• North Dakota LLC
• Ohio LLC
• Oklahoma LLC
• Oregon LLC
• Pennsylvania LLC
• Rhode Island LLC
• South Carolina LLC
• South Dakota LLC
• Tennessee LLC
• Texas LLC
• Utah LLC
• Vermont LLC
• Virginia LLC
• Washington LLC
• Washington D.C. LLC
• West Virginia LLC
• Wisconsin LLC
• Wyoming LLC

Tip: If you’re unsure about which state to form your LLC in, you can have a look at our in-depth Best State to Form an LLC article. 

Other Factors to Consider 

Besides deciding whether to form an LLC or not, there are also a few other important considerations that you’ll need to keep in mind when selling on Etsy, which we’ve outlined below.

Do You Need a Business License to Sell on Etsy?

It’s important to understand that Etsy itself does not require sellers to have a business license; having said that, you may still need one if your state, county, or city mandates it for online businesses operating within their jurisdiction.

This, of course, will vary across different regions, with some places having stricter licensing requirements for online sellers than others.

But as a general rule, you can think of it this way: if selling on Etsy is primarily a hobby where you occasionally make and sell items without expecting significant profits, you’ll likely won’t need a business license. 

If, on the other hand, you are primarily running your Etsy shop as a business — meaning that you consistently sell with the intent of making a profit — you will generally be required to obtain a business license in most jurisdictions.

Ultimately, we recommend checking with your state’s Department of Revenue or with your local Small Business Administration office in order to confirm whether a business license will be required for your Etsy shop.

Do I Need to Collect Sales Tax 

Generally speaking, you won’t need to collect sales tax as long as you’ll be selling exclusively on Etsy and/or other qualifying online marketplaces. 

This is because Etsy operates under a marketplace facilitator system, where it automatically collects and remits sales tax on behalf of sellers where required in all states that impose sales taxes — which is the case regardless of whether you’re running a print-demand, dropshipping, or self-manufacturing model. 

Even though Etsy will handle your sales taxes for you, you may still be expected to obtain a Seller’s Permit and file a tax return in your home state, as well as any others in which you’ve established a sales tax “nexus” — though it’s worth noting that this is highly state-dependant.

Be aware that, even if you’re required to submit these returns, you won’t owe any sales taxes when doing so as they’re purely for reporting purposes.

Note: If you’ll be selling your products and/or services outside of Etsy, it may be a good idea to obtain a reseller’s permit in order to avoid paying sales tax (depending on your state).

Do You Need Business Insurance to Sell on Etsy?

Etsy does not require sellers to have business insurance, but many shop owners still choose to carry some form of coverage, even though it’s not mandatory.

Remember that standard homeowners or renters insurance typically does not cover business-related claims, and so you could be personally responsible if an issue arises with something you sell.

This is especially important if you sell physical goods such as skincare, candles, children’s items, or food, as you could easily be held liable if a customer experiences harm or damage from using your products.

If you are wondering whether business insurance is right for your unique Etsy shop or just want more information on how it can protect you, we’ve broken down everything you need to know in our in-depth Business Insurance guide. 

Do You Need to File a DBA (Doing Business As) to Sell on Etsy?

No, you don’t need to file a Doing Business As (DBA) name to sell on Etsy, and if you are selling under your own legal name (e.g., “Emily Smith”), there is generally no need to file one.

However, you may want to file a DBA if you plan to operate under a business name that is different from your legal name — especially if you want to protect your brand and prevent others from using the same name.

For example, if Emily Smith wants to sell as “Diamond Aura Jewelry”, filing a DBA would allow her to legally operate under that name, making it easier to conduct business and market her brand.

Having said that, it’s important to understand that a DBA is not a trademark, and DBA regulations vary widely from state to state, so you’ll need to check with your state’s business filing office to determine what protections, if any, a DBA registration would provide in your jurisdiction.

Moreover, you should note that in many states, the cost of registering an LLC and obtaining a DBA are quite similar, and so if you’re choosing between the two, you might as well go with the LLC for the added liability protection.

Do You Need an LLC to Sell on Etsy FAQs