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You’ve probably already considered selling on Amazon but its way easier than you think.
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Selling on Amazon is an exciting opportunity, whether you're launching your first ecommerce business or expanding an existing one. You may be thinking of the requirements needed to sell on Amazon and are wondering if you need an LLC.
Well, to clear this up quickly, you do not need an LLC to sell on Amazon. You can easily start your Amazon business with your name as a sole proprietor. But should you? That depends on several factors, including liability protection, tax benefits, and long-term business goals.
An LLC can provide numerous benefits that might interest you.
Stick around as we go through what an LLC is and how it can impact your Amazon business. We will also look at what you should consider setting up an LLC and the steps to take in setting up an LLC.
An LLC (Limited Liability Company) is a popular type of business structure that offers its owners (members) liability protection for the activities of their business.
In other words, an LLC prevents you from being responsible for any debts or lawsuits your business may experience. So, if someone sues your company, they won't be able to take your assets.
It separates your personal assets from your business liabilities, meaning if your Amazon business faces a lawsuit or debt, your personal assets (like your house or car) are generally protected
LLCs allow for a wide range of ownership structures. So, members of your LLC can include individuals, corporations, other LLCs, and even foreign entities. There is no limit to the number of members an LLC can have, making it suitable for single-owner businesses as well as larger corporations with multiple owners.
This business structure is recognized by state statutes across the United States, although the specific regulations and requirements can vary from one jurisdiction to another.
A sole proprietorship is the simplest and most common business structure, run solely by one individual. There is no legal distinction between the business and the owner, meaning the owner is entitled to all profits but is also responsible for the business’s debts, losses, and liabilities. Business income is reported on the owner's personal tax return (Schedule C, Form 1040).
While a sole proprietorship offers no legal separation between the business and the owner, meaning the owner is personally liable for all business debts and obligations, LLCs provide limited liability protection, separating the business entity from the personal assets of its owners. This means that the owner's personal assets are generally protected from any business debt and lawsuit.
Also, sole proprietors report business income and expenses on their personal tax returns, while LLCs offer flexible taxation options and benefits.
No, you do not need an LLC to sell on Amazon. You can simply set up your Amazon Seller account and start selling products as a sole proprietor. Your personal assets will not be separate from your Amazon business.
You also do not need any business license to sell on Amazon. However, some states or local governments may require some documentation to confirm the legitimacy of your business.
Also, if you want to sell some types of products (e.g., branded products) on Amazon, you will need to have a registered trademark and enroll under the Amazon Brand Registry.
Generally, an LLC can make it easier to get a registered trademark. Overall, we recommend that you speak to an accountant or attorney to ensure you tick all the boxes.
Setting up an LLC to sell on Amazon offers several significant benefits:
An LLC can offer valuable benefits depending on your business goals, financial situation, risk level, amongst other factors.
As an Amazon seller, you may need to consider an LLC in these situations:
If you're committed to expanding your Amazon business, forming an LLC is a strategic move. As you make more sales and profits, the financial and legal risks increase. You want to protect your personal assets as you grow and face new challenges. With an LLC, you can register trademarks more easily, partner with investors or business partners in the future and expand beyond Amazon (such as Shopify, Walmart Marketplace, or brick-and-mortar stores).
As your sales volume increases, especially if it's doing so consistently month over month, moving to an LLC becomes more beneficial. It gives you a structured framework for managing your growth and scaling your business.
If you’re selling private label or wholesale products, you’re more likely to deal with product liability issues or supplier agreements that require a formal business entity. With an LLC, you can better protect yourself from product liability claims and establish credibility with suppliers.
If you sell products that carry a high risk of injury or damage, such as sporting goods, health and wellness items, and supplements, forming an LLC is crucial. It shields you from personal liability in case of product-related lawsuits or claims.
If you plan to involve business partners, forming an LLC is essential. It defines the rights and responsibilities of each partner, providing a clear legal structure.
If you just want to avoid the legal risks that can come as you sell an Amazon, an LLC can help you separate your assets from your business assets and offer protection in case of business-related legal issues or financial difficulties.
If you want to enhance your business's credibility among customers, suppliers, and potential investors, setting up an LLC is a great move.
The main benefit of an LLC is the legal protection it offers. You can shield your personal assets from being used to pay off business debts or liabilities. This is particularly important in the volatile environment of online marketplaces like Amazon, where product liability lawsuits are quite common.
If you've decided that you need an LLC to sell on Amazon, here is a simple guide to help you set up an LLC:
First, you will need to select a name for your LLC that is unique within your state and reflects your brand. You want to check your Secretary of State's website to make sure the name is not already in use by another company in your jurisdiction.
You want to appoint a registered agent to receive legal documents on behalf of your business. This can be an individual or a professional service. A registered agent is required in most states to maintain compliance with state laws.
Next, fill out the forms on the site and submit the necessary formation documents to your state's Secretary of State. These documents typically include the Articles of Organization and may require payment of a filing fee that typically ranges from $50 to $500. Once done, wait for confirmation of LLC approval.
Apply for an Employer Identification Number (EIN) from the IRS. This is crucial for opening a business bank account and for tax purposes.
To apply for an EIN:
You want to ensure that you obtain the licenses and permits that are required in your industry, local government, or state. These could be a sales tax permit or any professional license related to your industry on Amazon.
Next, you will need to draft an operating agreement, which outlines the ownership and management structure of your LLC. The document should define the roles and responsibilities of members, profit distribution, voting rights, and so on.
Use your EIN to create your business bank account. This account will help you keep your personal and business finances separate. It will also help you manage your finances effectively and comply with tax regulations.
Setting up an LLC comes with numerous benefits but not without costs. It involves some upfront costs as well as some ongoing fees. Here is a breakdown of some fees you need to keep in mind before setting up an LLC for your Amazon business:
An LLC for your Amazon business can be a wise move if you're serious about growth, dealing with high-risk products, planning to involve business partners, or aiming to separate your personal and business assets. It comes with legal and financial protections and better credibility and is a valuable structure if you're looking to safeguard and grow your Amazon business.
No, you don’t need an LLC to sell on Amazon. You can start as a sole proprietor. However, forming an LLC can offer benefits like liability protection and potential tax advantages.
Yes, you can sell on Amazon with an LLC. In fact, many sellers choose to form an LLC for liability protection and tax benefits. All you need to do is set up your LLC in your state and get an Employer Identification Number (EIN) from the IRS and sign up on Amazon Seller Central using your LLC’s name and EIN.
Amazon.com, LLC was a legal entity Amazon used in the past, but Amazon has since restructured under Amazon.com Services LLC and other subsidiaries.
The best state to form an LLC for your Amazon FBA business depends on your business goals. Here are some things to consider:
In general, forming an LLC in your home state is the simplest and most cost-effective option.
LLC stands for Limited Liability Company. It is a type of business structure that Amazon sellers can use to legally operate their businesses.
Many Amazon sellers form an LLC to:
You’ve probably already considered selling on Amazon but its way easier than you think.
Call Us Now