Starting a business selling on Amazon may be a very profitable process and one that comes with a few recommended steps. Do you need to set up an LLC in order to open and run an Amazon store? The short answer is no, you do not. However, there are some core advantages to doing so. Let’s break down what you can expect.
If you just launched your Amazon seller account and you’re ready to get the sales coming in, you may be concerned about the legal formalities involved with operating your business. You can operate your Amazon seller account as a sole proprietor, which means you do not have to form a Limited Liability Company (LLC) to be in business. You legally do not have to be an LLC to sell on Amazon.
There are some key advantages to forming an LLC, no matter what type of business you operate, including working as an Amazon seller. Though Amazon does not require that you do so, and there is a legal requirement in place, there are some very important reasons why you will want to do so, including the financial and legal protections an LLC can offer. If you plan to grow your business and want to be successful on a large scale, forming an LLC is likely to be in your future. However you must have an understanding of LLC approval times as it is crucial in your business planning process and might take a few weeks to months to be approved.
You can operate an Amazon business as a sole proprietor. That means that you are a single business owner who is operating the company. You do not need to do anything formally to be a sole proprietor – just get started. While this is the case, it’s important to know that sole proprietorship comes with a lot of liability risk and limited financial protection.
An LLC is a type of legal entity. When in place, it works to protect owners from the debt and liabilities of the business. In short, the LLC helps to create a separation between your business and your personal assets, helping to protect them in case there is any type of claim made against the company.
For example, if you sell a product that fails, causing an injury to a customer, the LLC helps to safeguard your personal assets from claims by that customer. With a sole proprietorship, your personal assets could be used in a judgment made against you.
Take a closer look at some of the benefits that come from having an LLC for your Amazon business.
One of the benefits of forming an LLC is that it enables you to expand your business. You can feel comfortable growing your company knowing that you have financial protections in place. LLCs are not hard to create, and once in place, you have ample protection against many of the risks sole proprietors have.
If you live outside of the U.S. but want to start an Amazon business that serves the U.S., you can do so by forming an LLC. The LLC enables you to gain access to a wide range of tools that can help you build your business. That includes providing you with services you need, like payment services and opening a U.S. bank account. This may enable you to build your business with ease and lower costs than trying to manage these payments and steps overseas.
As noted, one of the most important components of operating your business as an LLC is the protection it provides you from liability claims. This enables you to minimize the financial losses you suffer should someone sue your business or make claims against it. You don’t want to lose your home and personal savings because of a claim like this, but that is a very real scenario if you do not form an LLC.
Selling on Amazon means you’ll be producing an income. That means you are likely to have to file taxes and pay the IRS based on your earnings and tax filing status. Having an LLC allows you to create a pass through business. That means that the taxes pass through your Amazon business. You are then taxed at an individual level instead of being taxed as a business. That means that you are able to reduce tax obligations in some situations. As an LLC, when your business files taxes, it does not have to pay a federal income tax, which is good for business profits.
LLCs do not have complex business compliance requirements to meet, which simplifies ownership of your Amazon business. This is much less extensive than what could be expected if you were managing your Amazon business as a corporation. There’s less paperwork, fewer complications in the ownership and management of your business, and a more straightforward method for reporting your income and profits.
As an Amazon seller, you can create an LLC with a few simple steps. Doing so does not take a lot of time, either.
Be sure that your business name is unique and fits any legal requirements set by your state for what it can or cannot include. It’s a good idea to determine if you need a DBA as well. If you plan to register your Amazon seller business name as one thing and then operate under another name, even with slight differences, you may need to establish a DBA.
All states require a Registered Agent for the LLC. You should do your research when choosing your Registered Agent, Legal compliance is crucial for your LLC. This is a person or organization that resides in the state you plan to incorporate in and must be available to allow for the receipt of documentation or legal notices sent to your business. That means it must have a physical location within the state. Your Registered Agent must be able to accept official notices from the Secretary of State for any reason, including if someone takes legal action against your company.
Most states require that an LLC file Articles of Organization or a similar document. There may be fees to pay for this. It provides the state with information about your business ownership and management.
Your Employer Identification Number, or EIN, is much like a Social Security Number. That is, it works to help the IRS to identify your business from others. There is no cost to set it up, and it takes only a few minutes on the IRS website to do so. With it, you can hire employees, but you’ll also use it to file your taxes and for other government-related tasks.
It’s a good idea to have an LLC operating agreement in place that outlines all of the shareholders of the company if it is more than one person. All members of your LLC must sign and agree to the terms listed within this document. If you plan to be the only member of your LLC, this document still helps to create some organization for your business. It should outline the percentage of ownership for each member, their voting rights within the company, the method for distributing profits, and how the LLC can be dissolved.
Once you have your EIN and other business documentation in place, you can open business bank accounts for your company. It’s always important to keep your personal and business expenses and income separate from each other. That will help at tax time and also helps to create that separation between personal and business taxes that are so important for minimizing liability risks.
Depending on your state, you may need to obtain business licenses and permits to operate your Amazon seller business. This is dependent on your state’s rules for where you can operate your business and the type of operations you can manage. There are some federal business license requirements, including those related to alcoholic beverages, agriculture, logistics, and firearms, but it is also important to learn about any state or local business license requirements as well. These do not always apply to Amazon seller businesses.
Having an LLC in place for your Amazon seller business is a big step in creating a legitimate company with protections in place. Minimizing liability risks in itself is a reason to do so. The key to know is that you do not have to do this work on your own. Hire a company to handle setting up your LLC and serve as your Registered Agent. Doing so simplifies the process and ensures it’s done well.
