When starting an online business, one of the most important steps to take is to select a business structure for your company. Many different business structures have unique benefits and limitations associated with them. While you may be able to switch business structures at a later stage, it sometimes involves a cost. Sometimes this cost of ineffective business planning when starting a ecommerce business and selecting a business structure can limit your ability when managing business matters.
One type of business structure that you may select is a sole proprietorship. One advantage of doing so is that you have full control of your company and can run it without difficulty. The problem is that you are offered no protection in the case of a lawsuit and you are fully taxed on earnings of your company. There is no double taxation though which is a positive.
A partnership is a bit more advanced than a sole proprietorship. A partnership allows additional members to join as owners but also does not limit the risk of lawsuit unless you were to label it as a limited liability partnership. Taxes flow down to the partner layer so there is no double taxation. There can generally be up to 500 investors in a partnership, though some states are more restrictive.
A corporation has the disadvantage of having double taxation. A corporation is first taxed on its earnings and then a shareholder is taxed when they receive a dividend from the corporation. There can be as many owners as you want which allows corporations to spread their ownership more fully and attract investor capital. This can allow these companies to be very large. In addition, your liability is limited to your ownership in the corporation. In other words, you can't be sued and held personally liable for the actions of the corporation.