Do You Need an LLC to Sell on Amazon?
Growing a business can be a thrilling experience. As you scale the mountain of product research & development and reach new heights with each step of your business plans, selling on Amazon may seem like the right next step. While that’s an exciting proposition, it may also give rise to questions about how to run an Amazon business.
One such question for a business owner is: do you need an LLC to sell on Amazon?
The short answer is no, you don’t. However, just because you don’t need an LLC doesn’t mean havingan LLC can’t benefit your business. Let’s look a little closer at what an LLC is and why having one can be a boon to your Amazon adventure.
What Is an LLC?
The acronym LLC is short for Limited Liability Company. An LLC is a business structure that is owned by one or many people, called members. In most states, there are no ownership restrictions when it comes to LLCs, so their membership can vary widely.
An LLC’s members can consist of:
- One person (sole proprietorship)
- A group of people
- A combination of companies, foreign entities, and even other LLCs
So, what’s the purpose of an LLC—and why might you want one for your Amazon business?
In short, an LLC is a way to separate your business from yourself. Unlike becoming a corporation, LLCs tend to be easier to set up and can provide certain flexibility when it comes to issues such as taxation.
What Are the Benefits of an LLC for Amazon Sellers?
Just like the plethora of products you can find in the online business marketplace, there’s more than one way to do business on Amazon. Especially, due to the variety of Amazon seller account types. You can have an Amazon seller account as an individual seller—but this means any of the profits (or losses) you accrue are considered part of your personal income.
Creating an LLC separates your personal finances from those of your business. There are many reasons this may be advantageous.
The letters LLC refer to a limited liability company, so it should come as no surprise that one of the main benefits of forming an LLC is that it can offer you liability protection.
While you may not think you need any protection, just consider a couple of the events that could occur while running your business:
- You could build up debt while creating or growing your business that you may not be able to easily pay off from your sales.
- You could be sued by customers. Product Liability lawsuits are common, and you don’t want to be caught unaware.
In either of these cases, if you haven’t protected yourself, your personal assets could be at risk. It’s important to take the time to understand Amazon seller insurance requirements. This allows you to create a barrier between yourself and your business liability, so you can protect the things you value—your car, house, or personal finances—should any part of your business go south.
Another advantage of an LLC is that it provides flexibility when it comes to filing your Amazon FBA taxes. Your LLC can utilize several different tax statuses:
- Sole proprietorship
- S corporation
- C corporation
The IRS automatically classifies LLCs in one of the first two categories depending on the number of members. This allows you to utilize pass-through taxation, meaning your profits go directly to your members and avoid any company taxes. Pass-through taxation can make it easier when it comes to filing and can prevent your profits from being subject to “double taxation.” In this setup, members are considered self-employed and must pay taxes accordingly.
As your company grows, it may make sense to file your LLC as an S or C corporation. This allows you to classify members as employees, enabling different individual sales tax collection filings and the ability to participate in benefits programs.
However, it’s important to consider your business details carefully before filing for an LLC. Not every business is eligible to be an S corporation, and C corporations will be subject to “double taxation.”
Another benefit of an LLC is that it gives your business credibility. When they shop from your Amazon store or visit your website, customers will see they’re buying from a business as opposed to an individual.
Given the wide range of sellers currently using Amazon, becoming an LLC can be a superb way to boost your business’s reputation and stand out among the rest. Showing that your business is legitimate can lead to greater customer confidence and increased sales as a result.
Do You Need an LLC for Amazon FBA Selling?
When you first start selling inventory on Amazon and you have a small business, you may not need an LLC. If you haven’t accrued any debt, you may not need liability protection—and if you aren’t generating too much in profits, it may be simpler to handle things (like taxes) as an individual.
Once your business starts to grow, especially if you accrue debts or bring in partners, an LLC’s advantages may start to seem more necessary.
Fortunately, creating an LLC is a relatively straightforward process:
- Register your LLC. Note that your LLC does not have to be registered in the same state you live in, and there may be tax advantages to registering in a different state. Once you decide on a state (and complete the next step), you’ll need to file articles of organization. These provide the state with basic information about your business.
- Choose your business name and registered agent. The next step in making your business a separate entity from yourself is giving it a name. You’ll also need to decide on a registered agent. Your registered agent will need a business address in the state where your LLC is registered to receive official communication. This can be a member or a third-party representative.
- Obtain your EIN. An employer identification number will be assigned to your LLC. You will need this for tax purposes.
- Create an operating agreement. This document will outline the specifics of how your LLC will be run, such as who is considered a member and how you will distribute profits.
Take a Different Approach to Amazon with Forum Brands
As you grow your business, you need to start thinking about things like liability and taxation—and for many Amazon FBA sellers, forming an LLC can be a smart idea.
But if you’re more interested in reaping the benefits of your growing business, you may decide that a better option is to sell.
At Forum Brands, we make it easy to sell your Amazon FBA. Benefit from a significant cash payout, continued brand growth, and a learn-out where we help you grow your business skills so your next venture can be even more exciting.
IRS. Limited Liability Company (LLC). https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
Amazon Seller Central. What is the Individual selling plan? https://sellercentral.amazon.com/gp/help/external/G200399460?language=en_US
BBCIncorp. LLC For Amazon FBA: Do You Really Need It? This Will Help You Decide Instantly!https://bbcincorp.com/resources/llc-for-amazon-fba
Legal Zoom. Advantages of an LLC. https://www.legalzoom.com/articles/advantages-of-an-llc
Forbes. What Is A Limited Liability Company (LLC)? Definition, Pros & Cons. https://www.forbes.com/advisor/business/what-is-an-llc/
Nerd Wallet. What Is an LLC? Pros and Cons of a Limited Liability Company. https://www.nerdwallet.com/article/small-business/starting-successful-llc