Table of Contents
- 1 What Is Amazon Services LLC?
- 2 Do You Need an LLC to Sell on Amazon?
- 3 How Does Amazon FBA LLC Help to Sell on the Platform?
- 4 Pros of Amazon Seller LLC for Your Business
- 5 Cons of Creating an LLC for Amazon FBA
- 6 When Is Proper Time to Launch an LLC for Amazon Business?
- 7 How to Set up Your LLC for Amazon Business?
- 7.1 Step 1: Select a state to create the LLC for your Amazon FBA business.
- 7.2 Step 2: Decide on a legal name for the LLC.
- 7.3 Step 3: Form your LLC’s operating agreement.
- 7.4 Step 4: File the article of incorporation with the Secretary of the chosen state
- 7.5 Step 5: Submit the IRS form to get EIN for the LLC.
- 8 Managing Your AMZ Sellers Account
- 9 Bottom Line: LLC for Amazon Seller
Launching your seller account on Amazon is a big deal! It is the beginning of an e-commerce venture that might become a significant profit source for you, especially if you discover the proper product niche.
For any entrepreneur, though, there are some back-office jobs to consider, like managing finances and protecting business assets. While they are not as exciting as selling, they are still crucial in developing your brand in the long-term perspective.
And one of the most common questions we hear from novice Amazon merchants is whether you need to register your company and obtain a licence as an LLC for Amazon.
The short answer to these questions is no. You do not need to register or license your business to become eligible to sell goods online, including on Amazon.com. However, registering the Amazon company as a Limited Liability Corporation (LLC) is a straightforward and affordable process with some essential payoffs for your reputation and finances.
Let’s discuss whether creating a Limited Liability Corporation will make sense for your company.
What Is Amazon Services LLC?
Most entrepreneurs have heard of the LLC as some business entity. In fact, the LLC structure shares some similarities with partnerships or sole proprietorships and corporations. However, it differs in some crucial ways. An Amazon Limited Liability Corporation combines the most inviting features of all the said brands.
It is a legal entity that sellers create by applying to the state government via simple forms. Thus, registering an LLC is close to applying for a charter for some new company through your state’s government. Nonetheless, a Limited Liability Corporation is more similar to a partnership or sole proprietorship in how owners are allowed to run their company. Unlike a traditional corporation, an LLC doesn’t require a board of officers or directors and can carry out business in the same way as a partnership or sole proprietorship in most ways.
Do You Need an LLC to Sell on Amazon?
Before we look through further details on making an LLC, it’s vital to discuss if there’s a requirement to create one to operate on Amazon. The short answer to this question is no; you do not need a Limited Liability Corporation to run the business on Amazon.
The platform’s terms and conditions for merchants don’t oblige them to register an LLC. Instead, merchants can sell on the marketplace via the general partnership program or as a sole proprietor business unit.
How Does Amazon FBA LLC Help to Sell on the Platform?
So, why do sellers still need it if it’s not a legal obligation to obtain an LLC for running a business in the marketplace? The necessity to form an LLC for the platform primarily comes from its perks for the merchant. A Limited Liability Corporation legally keeps apart a brand owner from the business as a legal entity.
To put it simply, an LLC connects the liabilities and debts of a certain business on Amazon to the company instead of an individual. It’s essentially a lawful way for entrepreneurs to safeguard themselves personally from the potential lawsuits, debts, and liabilities they might face while running their companies.
In the Amazon context, you might need to work through a Limited Liability Corporation in the scenarios below:
- You wish to sell or flip your business on Amazon later on and wish to separate yourself from it.
- You aren’t the sole owner of the Amazon business.
- You work with goods that might cause possible adverse health effects or injury, e.g., gardening tools, supplements, wellness products, and sports gear.
The following section will further cover the benefits and troubles an Amazon LLC can lead to.
Pros of Amazon Seller LLC for Your Business
Although you are not legally required to create an LLC, you can miss out on the following benefits:
Enhances your reputation
Clients are more inclined to purchase from established brands with business names. Therefore, one method of proving you are serious about your Amazon business is creating an official business entity, such as an LLC.
Besides, forming a Limited Liability Corporation safeguards your business name. The thing is that no two business entities can share the same name in the same state.
Protects your assets
It’s the main reason to create an LLC. It gives sellers peace of mind about safeguarding their assets (like their house). After all, you do not want any unpredicted challenges ( obligations, debts, or other liabilities) in the Amazon company to harm your finances.
Easy to create and manage
Operating an e-commerce formation company, you may register a Limited Liability Corporation for your seller profile on Amazon in a few hours. Then, the state government will control it. Consequently, there is much less paperwork and complexity than with a corporation.
Most small entrepreneurs, like Amazon merchants, opt for setting up an LLC because they are inexpensive and easy to manage. However, you will pay a one-time filing commission (some states in the United States ask for an ongoing commission every 1 or 2 years). Usually, a Limited Liability Corporation fee is up to $89.
You will get the same perks as larger corporations without the costly regulations, rules, paperwork, and legal compliance necessary for other company structures.
To better estimate your other AMZ selling fees and potential profits, you can use SellerSonar’s free calculator. Thus, you feel much more confident about operating your business, especially if you are just starting your way on the platform.
If you apply for an LLC, you can make a separate bank account for the business. Keeping your business finances apart from your personal makes monitoring your outgoings, income, and revenue concise and clear.
It also makes tax season clear for the brand if you own an account with only business costs instead of combining business and personal expenses into one account.
Whereas a corporation should pay its taxes, an Amazon Limited Liability Corporation is a “pass-through” taxation entity. So if your seller brand on AMZ gets a profit, the income “flows through” to the tax return and is taxed as usual. It may lower your accounting costs.
Besides, you will not be “double taxed” — large corporations should pay tax on the profits, and then their owners pay are taxed again when they get stock dividends. In turn, LLC companies aren’t subject to such double taxation.
Control business partners
It is simple to add your new business partners to an Amazon LLC. And you may use a Limited Liability Corporation agreement to set up rules and specify daily operations if any issues arise in the future. Moreover, you may plan out responsibilities, duties, and actions on how to resolve the disputes.
Cons of Creating an LLC for Amazon FBA
While Amazon LLCs have their benefits, starting this legal business structure might come with some downsides. Thus, we should also let you know those cons before wrapping up this blog post.
- You will need to pay another overhead and fixed cost of LLC state commissions.
- You cannot hold onto earnings for reinvestment or later distribution like large corporations. Instead, you will need to declare and use your profits every year.
- Ownership addition and transfer are not as straightforward and supple with limited liability companies as with corporations.
When Is Proper Time to Launch an LLC for Amazon Business?
Form a limited liability company as your Amazon business expands and once you want to take your digital commerce venture seriously. Opening a Limited Liability Corporation is the most efficient way to safeguard your business and yourself. In short, create an LLC if:
- You’re serious about selling on the platform and expanding your AMZ brand.
- Your sales have been gradually increasing each month.
- You trade goods that might cause injuries, such as health and wellness goods, supplements, and sporting goods.
- You wish to separate yourself from your company.
- You share your company with business partners.
If any of the above apply, it’s best to create an LLC right away. Opening your LLC is not as complicated as you might imagine and could save you in the long run.
How to Set up Your LLC for Amazon Business?
Mind the following six simple steps to open a Limited Liability Corporation for your business on Amazon.
Step 1: Select a state to create the LLC for your Amazon FBA business.
To use the Amazon fulfillment option in the United States, you need to incorporate the LLC in states with Amazon fulfillment centers. Business-friendly specific states like Nevada or Delaware might be good to begin with. You may easily apply for your Limited Liability Corporation in such states, even if you live in some other country.
Step 2: Decide on a legal name for the LLC.
You will need to come up with an original naming for your LLC. You should always perform some research in the chosen state to avoid choosing an existing name.
You will need to add a “designator” for your LLC, normally by including suffixes like ‘Limited liability company’ or ‘LLC.’ For instance: ‘ABC Trading, Limited liability company’ or ‘Bio Management, LLC.’ If you already got a name for the LLC but aren’t sure whether it is unique and original, just give it a check with any Business Name Checking Tool.
In general, you should have a registered agent for the LLC. It’s a company or an individual who receives legal papers and has responsibility for filing for your AMZ FBA brand.
Your registered agent should have a physical address in the state where you created your LLC.
Step 3: Form your LLC’s operating agreement.
Although most states do not require it, all limited liability companies with more than two members should create an operating agreement.
It’s a document that specifies the operation and the arrangements between all owners of the LLC.
Step 4: File the article of incorporation with the Secretary of the chosen state
To form your LLC, you will need to file an ‘article of organization’ with the Secretary of State.
In some states, this document is also known as a ‘certificate of organization’ or ‘certificate of formation.’
You may complete this article on the organization online by filling out the template available on the Secretary of State’s website.
To sum up, the article should include the following details:
- your limited liability company name;
- information of your LLC’s registered agent;
- other basic info (for example, objectives and purchases of your company, agreements, ownership, etc.).
Besides, you will need to pay a filing commission when you submit the articles. Such fees are around $100 in most states.
Step 5: Submit the IRS form to get EIN for the LLC.
Normally, you do not require an Employer Identification Number (EIN) if you are operating a single-member LLC.
Yet, EIN is a compulsory requirement if you open a business bank account or employ people for the business. In these cases, we recommend you get it as soon as possible.
As an entrepreneur and business leader, you may be inclined to believe you may do everything on your own – from applying the article of incorporation to getting an EIN.
However, wasting time with such back-office and paperwork tasks might delay your business growth. By engaging some professional service provider for EIN application and LLC incorporation, you will have more time to concentrate on what you do best.
Managing Your AMZ Sellers Account
After that, check out these few other back-office jobs to consider when managing your Amazon Sellers account daily:
- comply with sales tax rules;
- stick to Amazon’s marketplace rules and guidelines;
- manage your Amazon’s payout schedule;
- learn the basics of Amazon’s seller’s insurance;
- prevent account suspensions on the platform.
We do know that this article on LLCs might seem complicated. However, it’s easy to understand as soon as you conduct your research. Take some time to study the concept involved, as it’s crucial information to know when determining to sell goods on Amazon.
If you wish to test out how running an online business will work for you, start with being a sole proprietor. Nonetheless, if you’re serious about growing your business, opening a Limited Liability Corporation will help safeguard you.
Regardless of your chosen company structure, it’s vital to keep track of your selling processes. SellerSonar is a 24-hour monitoring tool that notifies you of sudden and unexpected changes to your product listings. So rather than losing thousands of dollars in sales, our software allows you to spot and fix listing problems immediately.
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