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While planning to launch your Amazon seller’s account can be an exciting adventure, most people have lingering questions. One of the most common questions when it comes to selling on Amazon is whether or not you need to form an LLC to do so.
The answer to this question will depend on the type of business you plan to start, what you will be selling, and whether you consider it to be a hobby or business. Keep reading to find out if you need an LLC to sell products on Amazon.
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What is an LLC?
Most people know that an LLC, or Limited Liability Company, is a business structure in the United States that can be formed by those creating a new business. It is a legal entity that provides owners and the business itself protection as well as keeping the two separate.
In most cases, this means that if the company goes under or is sued by a customer or vendor, the owner’s assets are off-limits. This is because the liability falls on the company itself and there is a limitation on the personal assets of the business owner.
Not only does an LLC provide protection against any legal situation that may arise, but it also separates the business from the business owner. This creates a line of separation between the assets that are owned by the company and those assets of the owner.
Additionally, when it comes to taxes, forming an LLC can also provide a layer of protection for the owner. The bottom line is that the LLC allows business owners to keep their personal finances separate from their business finances.
Benefits of Forming an LLC
Choosing to form an LLC is a personal choice for those who wish to sell their products on the Amazon platform. While you can set up an Amazon shop with just a sole proprietorship, many people choose to form an LLC for various reasons.
Although many people view the benefits of forming an LLC as the ability to keep their personal and business assets separate for both legal and tax purposes, there are other benefits as well. These reasons include everything from credibility as a business owner to the tax and legal implications.
Here are some of the benefits of forming an LLC for your Amazon shop:
- Gives your business credibility with customers
- Provides your company with an identity
- Makes your company more legitimate
- Separates your responsibilities and accountability
- Gives you more options when it comes to filing taxes
- Classifies you as self-employed
- Makes you eligible for business loans and lines of credit
- Protects the owner from legal and financial burden
- Required if you purchase seller’s insurance
While there are likely more benefits to choosing to form an LLC for your Amazon business, these are the most talked about ones. Depending on your reason for going into business, having the option of these benefits is worth considering.
Do You Need an LLC to Sell on Amazon?
The bottom line when it comes to selling products on Amazon is that you can set up a seller’s account without having to have a business structure set. This is because Amazon does not require you to have a business set up in any particular way.
Although Amazon does not require an LLC or any other business entity before you set up your seller’s account, you need to check with your local and state government agencies. These requirements can vary depending on the state in which you live, so it is best to check with an attorney or an accountant before you get started.
Keep in mind that while your business is small, it is perfectly appropriate to sell your products through a sole proprietorship or even a general partnership. Once your business kicks off and starts selling more, you may want to consider forming an LLC for the extra layer of protection.
Since one of the biggest reasons people form an LLC has to do with personal liability if your company is sued, it may be worthwhile to set your business up this way. While many people who form businesses to sell on Amazon think they may never be sued, it is sometimes better to be safe than sorry.
Even though it is recommended that you consider forming an LLC if you sell products on Amazon, it may not be required unless you sell certain products. These products include anything related to health, wellness, or nutrition that can harm individuals.
The bottom line is that you do not need an LLC to set up a seller’s account on Amazon to sell your products. However, if you are selling products with the sole purpose of creating an expanding business, then an LLC is the best option for you.
Steps to Setting Up an LLC to Sell on Amazon
Once you have decided to set up your Amazon seller’s account to sell your products through an LLC, the next step is to go through the process of setting it up. This can be done either by yourself or you can hire a service or an attorney to help you with the legal process.
Many businesses exist either in person or online that help people who want to form an LLC. These companies will walk you through the process and make sure that you do not skip any steps along the way.
Here are the steps you need to follow to set up your LLC:
Register for an LLC
When you register for your LLC, you have to choose the state in which you plan to conduct your business. In the case of Amazon which sells all over the world, it is recommended that you register your company in a state that has an Amazon Fulfillment Center.
If you are not sure where you need to form your LLC when you are filling out your registration information, you may want to seek counsel from an accountant or legal professional.
Choose a Legal Name
To legally form an LLC for your business, you are required to have a unique name that sets you apart from other companies. The name you choose should not be in any way similar to other business names that already exist in your industry to avoid confusion.
It is also suggested that you do your research before settling on a name to ensure that the one you have chosen is not already in existence. This will protect you both legally and keep you from being associated with a company that may not have the best reputation.
Select a Registered Agent
Any company that forms an LLC must designate a registered agent who will assume responsibility for any legal documents associated with the business. This person will be required to have a physical address in the same state where the business is registered.
The registered agent is responsible for not only filing and receiving any legal documents but they are also responsible for filing for business licenses and setting up your Amazon seller’s account.
Create an Operating Agreement
The operating agreement which is not technically required but is highly recommended is a document that outlines the duties and responsibilities of individual owners. This comes in handy when there are two or more owners of the same business.
Keep in mind that not all states require the operating agreement, however, it is considered to be a best practice. If there is ever any dispute over responsibility and accountability, then an operating agreement can be the saving grace.
File Your Articles of Organization with the State
This is the step that makes your LLC legitimate and also informs the government that you are a business and are liable for any taxes and such. This is also the step where you will pay certain filing fees depending on the state in which you filed your LLC.
The articles of organization that are required in this step is a document that outlines all of the pertinent information about your business. This includes the business name, address, owner information, and goals and objectives of the company.
Request an EIN
An Employment Identification Number is a tax identification number that is associated with your business. This information gives your company a way for the government and other entities to identify you separately from your personal information.
This is also the number this is often required for those who are planning to open up a business bank account or even apply for a line of credit. In these cases, the EIN is required just as a Social Security number is required for your personal identification.
Are There Other Licenses and Permits Needed to Sell on Amazon?
Depending on the state in which you have registered your LLC, you may be required to have other licenses and/or permits to conduct business. These licenses could include having a sales tax permit in the state you will be operating.
Keep in mind that currently, if you have an Amazon seller’s account, they typically take care of all of the sales tax for you. If this is the case, then you may not need to have this particular permit.
It is important to note that even though Amazon states that they take care of any sales tax that you may have to charge, it is always best to consult with a tax and/or legal professional. Doing so can ensure that you are conducting your business correctly and legally.
Final Thoughts on Do You Need an LLC to Sell on Amazon
The bottom line when it comes to selling your products on Amazon is that you need to determine whether or not you plan to grow your business over time. If so, then you may want to create an LLC to protect your personal assets in case of a lawsuit or if other debts are incurred.
Reference Legal Explanations
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"Do You Need an LLC to Sell on Amazon?". Legal Explanations. Accessed on September 30, 2023. https://legal-explanations.com/blog/do-you-need-an-llc-to-sell-on-amazon/.
"Do You Need an LLC to Sell on Amazon?". Legal Explanations, https://legal-explanations.com/blog/do-you-need-an-llc-to-sell-on-amazon/. Accessed 30 September, 2023
Do You Need an LLC to Sell on Amazon?. Legal Explanations. Retrieved from https://legal-explanations.com/blog/do-you-need-an-llc-to-sell-on-amazon/.