Do You Need An LLC To Sell On Amazon?

When you buy tools using links on our website we may earn a tiny commission — at no extra cost to you. None Whatsoever!

When a seller starts a business on Amazon, one common question always bothers them: whether they need to form a Limited Liability Company (LLC) to sell on Amazon.

The answer to their question is “no.” They don’t necessarily need an LLC to run a business on Amazon. However, they might be unaware of the many benefits of having an LLC in place.

Amazon is a huge platform for sellers. When you start a business on Amazon, you already become the sole proprietor of your business. But if you want to grow your business further, opening an LLC makes sense, as there is no certainty of how your business will respond in the future. If you want to form an LLC for your Amazon business, you need to understand a few legal implications before the process. And in this post, I am going answer all these questions regarding forming an LLC.

Let’s dive right into the post.

Table of Contents

What Is An LLC?

An LLC is a US-specific and legal entity that separates your personal assets from your business assets. That means if your business ever takes a tragic turn, like your business being sued or bankrupt, your personal assets are protected. In simple words, you won’t be liable for lawsuits and debts in such cases—the LLC will be accountable. An LLC also provides greater flexibility and many tax benefits for your business.

What Is A Sole Proprietorship?

When a business is run and controlled by an individual or a company, it is known as a sole proprietorship. You must start selling a product or service in order to become a sole proprietor. But remember, in a sole proprietorship, there’s no separation between the owner and their business. That means you are completely liable for any debts or lawsuits.

Difference Between LLC And Sole Proprietorship

While forming an LLC has various advantages for Amazon sellers, some sellers may choose to operate as sole proprietors instead. A sole proprietorship has the least expensive business structure, but it doesn’t provide any tax benefits or liability protection like an LLC.

As a sole proprietor of your business, you can take seller insurance to protect your assets from debts or lawsuits, but it won’t separate your assets from your business like an LLC. However, if you form an LLC as a single owner, you will be taxed as a sole proprietor. But your business will have more protection.

How To Form An LLC for Selling On Amazon?

The process of forming an LLC is relatively straightforward. Here are some general steps you need to follow to form an LLC:

Select Your State: The first step you need to take while creating an LLC is selecting your location or state. Many regions offer LLCs, which is why requirements for forming one can differ from each other. Before forming an LLC, you need to check all the requirements according to your region.
Find a Name for Your LLC: Next, you must name the LLC that defines your business. Make sure to choose a sensible name, as you will give the same for paperwork. It also helps people easily recognize your company. You will also need to set a domain name if you haven’t already. Having a website address, people can find your business online.
Registered Agent: To form an LLC within your state, you must have a registered agent, which can be a person, foreign business entity, or domestic entity. Your agent needs to accept the terms of the process in support of your LLC.
File Documents of Your Organization: You must share documents regarding your company with your region’s Secretary of State’s office. These documents include details of the LLC, including the business name and address.
Obtain an EIN: An EIN or employer identification number is a 9-digit unique identifier given by IRS, which is used to identify your business globally. Once you obtain an EIN, you can proceed to form LLC.
Draft an Operating Agreement: An operating agreement is a legal document that outlines the ownership of your LLC. Although the operating agreement is not required in every region, it is a good idea to have one in place.
Register Your Brand on Amazon: Once your LLC is formed, you can register your brand with Amazon’s Brand Registry to protect your intellectual property.

Why Form An LLC To Sell On Amazon?

Amazon doesn’t require you to form an LLC, but there are several benefits that indicate why it can be a smart decision for Amazon sellers. Let’s have a look at them:

1. Liability Protection

As the name refers, LLC’s main benefit is protecting your personal assets (such as home, jewelry, car, etc.) if your business is sued or faces any lawsuit. Amazon is a highly-competitive platform, so it is not uncommon for platform sellers to face legal disputes. By creating an LLC, you can secure your assets from potential liabilities.

2. Brand Protection

When you form an LLC, you have to register a brand name during the process. By registering as a brand on Amazon, you can establish your business and increase your visibility which eventually helps you boost your conversion. When you register your business with the Amazon brand registry, you also get access to exclusive tools like A+ Content, Enhanced Brand Content, etc. It will not just helps you create branded content but also protects your trademarks and copyrights.

3. Credibility

Having an LLC gives your business legitimacy and helps your business look more credible to suppliers and customers. When customers see the LLC word attached to a business, they can ensure they are buying from a registered business, not just from an individual. Not every Amazon seller has an LLC, so having one gives your business a unique identity to stand out from your competitors.

4. Tax Benefits

An LLC offers many tax benefits that can help you save a lot of money. For sole proprietorship and partnership, the IRS classifies LLCs automatically. It allows you to avoid paying any company taxes, and the profit goes to your members directly. When your company grows, you can file LLC as C or S corporation. It allows you to participate in various benefits programs by allowing you to classify your partners/teams as employees. Depending on your current business status, an LLC allows you to reduce self-employment taxes, deduct expenses, and many more.

5. Easy Loan Approval

LLCs play a major part when you apply for a loan in the future. Sellers form an LLC to protect their assets, and since LLCs shield their members from any possible liabilities, you have better chances of being approved for a business loan. If somehow your company faces financial difficulties and you haven’t paid your debts yet, the loan company won’t be able to claim your personal properties. In simple words, LLC also mitigates the risks of taking a business loan.

6. Selling Your Company Would Be Easier

When you have an LLC formed with your business, you can easily sell your company without any specific approval. Interested buyers can pay according to your business value and assets. With an LLC, you own your business name and its intellectual property. It makes it easier for you to sell the whole business. You don’t have to face legal obligations like a traditional corporation during the process.

When To Open an LLC for Your Amazon Business?

There is no right time to form an LLC for your business. But as an Amazon seller, you can consider creating an LLC as your business starts growing, or you start taking your side venture seriously. Here are some stances when you can consider forming an LLC:

Your business on Amazon is getting recognition from customers.
Your sales are rapidly increasing every month.
You want to run a full-time business on Amazon.
You sell products in gated categories, or your products might cause injuries.
You have several business partners.
You don’t want to stick with your business forever.

When you find yourself related to any stances as mentioned above, consider forming an LLC. I have already cleared about the essentials you need to create an LLC. Just wait for the right time to execute the process.

What Is The Cost to Form An LLC For Amazon Business?

Setting up an LLC requires you to pay a decent amount at the start. Once you decide to keep your LLC active, it will be reduced and only require you to pay an annual fee for renewal.

The cost of setting up an LLC depends on which state you live in. But still, it is not going to be over a few hundred American dollars (though it costs over $500 in a few states) for registration. Once registered, it will cost between $40 to $500, depending on your state.

Additionally, when you are going to establish an LLC, you must file annual reports of your business while registering. Once your LLC is established, you will be on the radar. That means you have to keep your Amazon business running and in good standing.

Related Read:

Conclusion: Do You Need An LLC To Sell On Amazon

Selling on Amazon can be a fruitful business opportunity for sellers, but it is important to understand the financial and legal connotations of starting one. While you don’t necessarily need to form an LLC to sell on Amazon, it can be a smart decision to form one if you want to protect your personal assets from liabilities. It also helps you establish your Amazon store and saves money on taxes.

However, forming an LLC requires you to understand many legal and financial considerations. Like, you might need to obtain a sales tax permit in the states where you do your business. Your business also needs to comply with federal and state regulations if you are selling specific products like food, electronics, and cosmetics. If you are aware of all the facts and regulations, follow the steps mentioned above to form an LLC for your Amazon business and take your business to the next level.

Author
Recent Posts

Shally Rose

Shally has founded several marketing agencies; and Growth Devil is one of them. She is the one behind this successful Growth Hacking Blog — GrowthDevil. Other than that, she believes in constant learning and networking with like minded people around the world. When she isn’t talking Growth hacking, she is busy developing new hobbies