Etsy is an e-commerce platform that allows artists and crafters to sell the goods they make quickly and simply, by removing the need for them to set up an online shop from scratch.
If you’re considering setting up an Etsy shop to sell your handmade wares (or vintage or craft supply items), you may wonder if you also need to make your business official by setting up your own limited company. Let’s take a look.
A limited company is recommended if you’re earning more than £1,000 a year
You can sell on Etsy as an individual without any need to register your business officially until you earn more than £1,000 a year (through sales made via Etsy and other selling methods).
At this point – although you can register before if you wish – you will need to make your business official. This is so that you can start paying tax to HMRC on what you have earned.
If you’re unsure if you need to register yet, take a look at the HMRC guidance.
In the UK, the most popular ways to register a business are to:
- Set up as a sole trader; or
- Set up a limited company
There are advantages and disadvantages to both structures.
The sole trader model provides the business owner with a level of confidentiality and requires minimal administration.
However, there is no legal distinction between the individual and the business, which means that if the business falls into financial difficulties, the assets of the individual are at risk.
The limited company model, on the other hand, provides comprehensive financial protection for its owners, because there is a clear legal distinction between the people involved and the company. This means that personal assets are protected. On top of this, limited companies are generally the more tax-efficient of the models. Plus, there is a level of prestige associated with the limited company structure (more on this below).
However, running a limited company requires certain information about the people behind the business to be made publicly available, and there is more admin involved with running a company when compared to the sole trader model.
Whether you decide to set up as a sole trader or limited company will depend on your circumstances, but because of the financial protection, tax efficiency, and prestige that a limited company provides, the company model would typically be the more suitable for Etsy Sellers.
A limited company adds an extra level of trustworthiness to an Etsy shop
Buyers are spoilt for choice on Etsy. This is why, as well as creating first-class products, you also need to provide first-class service. This, with a bit of luck, will result in 5-star reviews and possibly even ‘Star Seller’ status.
Whilst buyers can glean certain information about you from Etsy itself (such as your ‘Star Seller’ status), the more diligent will venture away from the site and do their own research.
The limited company structure is one of the most illustrious in the world. With company status, you are demonstrating to the customers who are digging a little deeper that your business can be trusted. In short, you’re giving yourself a competitive edge.
Companies House or a company formation agent: What’s best for Etsy Sellers?
You generally have two choices when setting up a limited company. You can either form it directly with Companies House (an executive agency of the Government, tasked with overseeing the formation and dissolution of companies) or through a company formation agent such as 1st Formations.
Companies House provides a ‘no-frills’ service. Your company will be registered and you’ll be left to it. If you know exactly what you’re doing and require no extra services, this route may be sufficient for you.
However, if you require assistance in setting up your company, a company formation agent can provide this, as well as additional services that may be useful to you as an Etsy Seller. For example, we offer:
Registered Office and Service Address Services
This means you can use our Covent Garden address as the official address for your company, and your directors and shareholders, protecting your own private residential address(es) from the public register.
Business Address Service
Your general correspondence can get sent to our address, and we’ll then forward this to any address you choose. Perfect for making a great impression on customers (as your address will be based in Covent Garden), and again, stopping your own address from becoming public knowledge.
Full Company Secretary Service
As mentioned, running a limited company requires some admininstration. With this service, we’ll take care of a sizable portion of this for you (such as filing the annual confirmation statement) – and ensure your company is generally running compliantly – freeing up your time so you can keep on crafting and selling.
Once you’ve decided how you’re going to set up your company, the next step is to actually do it.
How Etsy Sellers can set up a limited company with 1st Formations
The process for setting up a company with us will take you approximately 10 minutes, and then once your application has been sent to Companies House, it will typically take 3-6 working hours for it to be accepted.
For the purposes of this article, we are going to look at how you can form a private company limited by shares. This is the most popular form of company and the most appropriate if you’re running an Etsy shop.
At 1st Formations, we have broken the company formation process into 4 simple steps:
- Choose your company name
- Select a package
- Provide the company details
Let’s take a look at these in more detail.
1. Choose your company name
Your company name must be wholly unique and can not bear any similarities to a name that already exists on the Companies House register. There are also some other rules that you need to be aware of when choosing your company name:
- The name must end with ‘Limited’ or ‘Ltd’ (or the Welsh versions, ‘Cyfyngedig’/‘Cyf’)
- The name can not be inappropriate or offensive
- If the name includes any ‘sensitive words or expressions’, written permission from the necessary body must accompany the application
It’s not imperative that the name you register matches up with the name of your Etsy shop. You can register a name that replicates your Etsy shop name entirely, partially, or not at all. It’s up to you.
Once you have decided on your company name, enter it into our company name search tool. We’ll immediately let you know if it’s available. Once you have found a name that’s there for the taking, you can move onto the next step.
2. Select a package
We offer seven limited company formation packages. We recommend browsing through the packages to find the one that’s most suitable for you and your Etsy shop.
- Digital (£12.99)
- Privacy (£27.99)
- Professional (£44.99)
- Prestige (£69.99)
- All Inclusive (£99.99)
- Non-Residents (£124.99)
- eSeller (£59.99)
If you require assistance in choosing a package, try out our Package Selector Tool. All you need to do is answer a few questions about your business and the types of additional services you’re interested in (if any). We’ll then recommend the packages that are appropriate for you.
Once you’ve picked your package, you need to add any extra services that want to your basket, provide some basic account information (email address and password), and make payment. We accept Visa, Mastercard, and American Express.
At the same time as collecting the necessary account and payment information, we will run a non-intrusive ID check on you. This is to ensure we are legally compliant with the current anti-money laundering and Know Your Customer regulations. This check is successful for the vast majority of our customers. If we do require extra information, a member of our compliance team will be in touch.
Now it’s time to complete the company formation application.
4. Provide the company details
It’s at this stage that we collect all the necessary information about your company. This includes information about the:
- Registered office address
- SIC code(s)
- Share capital
- Person/People with significant control (PSCs)
The only information that you need to hand is the personal details for directors, shareholders, and PSCs – such as name, date of birth, nationality, occupation, residential address, and service address. Everything else that you need pertaining to the above will be presented to you as part of the company formation process.
For example, we will provide you with a list of SIC codes, you just need to select the one(s) that are appropriate for you.
Each step of the process is clearly explained, and if you have any questions, you can stop at any stage and get in touch by telephone, email, or live chat.
Once you have provided all of the necessary information, you just need to check it over and then submit your application. It will then be sent to Companies House where it will be added to their queue for processing.
We will then email you as soon as your company has been registered. This email will include your company registration number and Certificate of Incorporation. In the rare occurrence that there is an issue with your application and it has been rejected by Companies House, a member of our team will be in touch, who will work with you to fix any issues and then resubmit the application (at no extra cost).
There you have it
So, do you need to set up a company to sell on Etsy? It’s not compulsory, but if you start making more than £1,000 per year through the platform, you will need to choose a business structure – and because of the limited liability and prestige that the limited company structure provides, it should be the most appealing to Etsy sellers.
And even if you’re not yet hitting the £1,000 figure, the limited company structure can help you achieve Etsy success because of the level of trust generally associated with the company model.
Are you ready to form a company for your Etsy shop? Set up your limited company today.
We hope you have found this article useful. Please leave a comment if you have any questions.