Should I Start an LLC for My Ebook Store?

By starting an LLC for your ebook store, you can:

• Protect your savings, car, and house with limited liability protection
• Have more tax benefits and options
• Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Ebook stores will benefit from liability protection because of risks associated with the distribution of intellectual property. 

Example 1: The original author of a book files a copyright infringement lawsuit against your ebook store after discovering that it has been distributing copies without first acquiring legal consent. In the ensuing litigation, your personal assets will remain protected if your business is required to compensate the claimant. 

Example 2: In an advert recently published by your ebook store, your business is accused of making false claims about the content that is available on its platform in an attempt to attract new customers. This prompts one customer to sue your business for false advertising. In this example, the court will not be able to seize your personal assets in order to award damages.

Example 3: Your ebook store published an ebook that contained a defamatory statement about a popular brand. Upon discovering this, the brand decided to sue your business for defamation, seeking damages. In this scenario, limited liability will preclude you from being held personally liable. 

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC’s limited liability protection, you must maintain your LLC’s corporate veil.

LLC Tax Benefits and Options for an Ebook Store

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business’s net income passes through to the owner’s individual tax return. 

The business’s net income is then subject to income taxes (based on the owner’s tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform. 

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you’d need to be saving about $2,000 a year on taxes.

We estimate that if an ebook store owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Ebook stores rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.