Quick Guide to Forming an LLC for Your Amazon Seller Business
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(This article was last published on February 21, 2017. It’s been updated for accuracy and completeness.)
Launching your Amazon Sellers account is a big deal! It’s the start of a business venture that could turn into a serious source of income for you, especially if you find the right product niche.
For any entrepreneur though, there’s some back office tasks to consider like protecting your business assets and managing your finances. While these aren’t as exciting as selling, they’re crucial in setting up your business for the long term.
And, one of the most frequent questions we hear from new Amazon sellers is whether you need a business license.
The short answer to the questions is technically no. You don’t need to license or register your business to be able to sell products online including for Amazon. But, registering your Amazon business as a Limited Liability Corporation (LLC) is a simple and inexpensive process that has some major payoffs for your finances and reputation.
Let’s look at when forming an LLC can make sense for an Amazon Business.
Why Set Up an LLC?
An LLC, or Limited Liability Company, is a formal business structure that offers personal liability protection. An LLC is a “separate legal entity,” which means that your business assets are separate from your personal assets. So, any issues with your business (like getting sued) won’t put your personal assets (i.e., your house) at risk.
While selling online is relatively low risk, it’s always better to be on the safe side.
Do I Need an LLC to Sell on Amazon?
You aren’t required by law or Amazon policy to set up an LLC before you start selling. But there are a number of benefits, including:
Boost Your Reputation
Customers are more likely to buy from established companies with business names. One way of demonstrating you’re serious about your business is to form an official business entity such as an LLC.
Also, forming an LLC protects your business name. No two business entities can have the same name in the same state.
Protects Your Personal Assets
This is the main reason to form an LLC. It gives you peace of mind about keeping your personal assets (like your house) protected. After all, you don’t want any unforeseen challenges (debts, obligations and other liabilities) in your Amazon business to take a toll on your personal finances.
Easy to Set Up and Manage
You can set up an LLC for your Amazon seller business in a couple of hours using an online business formation company. It’s then overseen by your state government. There’s much less complexity and paperwork than a corporation.
Inexpensive
Most small business owners like an Amazon seller choose to set up an LLC because they’re simple to manage and inexpensive. You’ll pay a one-time filing fee (and some states require an ongoing fee every 1 or 2 years). On average, an LLC fee costs $89.
You’ll get the same advantages for larger corporations, but without any of the expensive rules, regulations, legal compliance, and paperwork needed with other types of business structures.
Simplifies Finances
With an LLC, you can create a separate bank account for your business. Separating your business finances from your personal makes tracking your income, outgoings and profits clear and concise.
This will also make tax season for your business crystal clear when you have an account with only business expenses, instead of mixing personal and business expenses in one account.
Tax Benefits
Unlike a corporation that pays its own taxes, an LLC is a “pass-through” tax entity. When your Amazon seller business makes a profit, the income “flows through” to your personal tax return and is taxed as normal. This can keep your accounting costs down.
You also won’t be “double taxed” — larger corporations have to pay tax on their profits and then individuals pay tax again when they receive stock dividends. LLC businesses are not subject to this double taxation.
Manage Business Partners
It’s easy to add new business partners to an LLC. And, you can use an LLC operating agreement to outline daily operations and set up rules if any conflicts arise in the future. You can plan out duties and responsibilities and how to resolve any disputes.
How to Setup an LLC for Your Amazon Seller Business
Follow these easy steps to set up your own LLC for your Amazon business.
1. Name Your LLC
You’ll need to create an original name for your Amazon Seller business. If you already have an idea for a retail brand or name for an ecommerce store, that could be perfect for your LLC name (given that it’s unique).
You should conduct a business entity name search in your state to ensure you don’t choose a business name that already exists. You will need to include a “designator” in the name of your business to show it’s an LLC. This is normally through including a suffix of “LLC” or “Limited Company.” For example: “Perfect Widget Solutions, LLC” or “Ruffpets, Limited Company.”
Pro Tip: If needed, you can register a DBA (Doing Business As) if you would like to conduct business under a name different than your LLC. However, most LLCs don’t need this. You can use your LLC name as your brand name and accept check and other payments under it.
2. Provide the Address for Your New LLC
Your new business will need to have a designated address. If you’re running a company from home, this can be the same as your home address. If you have a distribution center, it could be that. If you have multiple locations, it would be the address where your “head office” is. This must be a physical street address, not a P.O. box.
3. Assign a Registered Agent for Your LLC
Every LLC must have a registered agent. For smaller LLCs, this might be the same person as the managing director or owner. The registered agent is simply the person who receives official legal and tax correspondence and has responsibility for filing for your Amazon Seller business. A number of online business formation companies will designate a registered agent for you as part of the formation package.
4. Provide the Names and Addresses of LLC Members
The LLC members are the people who own and run your Amazon business. They can take profits out of the business to pay themselves. Most states require you to list the names and addresses of all members when you register the LLC. You can register these addresses as street addresses or P.O. boxes.
5. State the Purpose of Your LLC
Some states require you to explain the purpose of your company. This does not limit you to engaging solely in that type of business — it’s fine to expand into new areas later on. Because you’re selling on Amazon, you can state your purpose as an ecommerce retailer.
6. File the Articles of Organization
Once you’ve gathered all the information together for your LLC, you’ll need to file formal documents with your state agency. Again, usually online formation companies will do this part for you.
8. Get a Federal Tax ID (EIN)
You can’t open a business account at a bank without a Federal Tax ID, also known as an EIN. It’s completely free to apply for an EIN with the IRS online. Be sure to secure your EIN before heading into a bank to open your account.
Who Can Form an LLC?
Almost anyone in good legal standing who has the right to live and work in the U.S. is able to form an LLC.
But, not all businesses can operate as LLCs. For example, businesses dealing with banking or insurance are typically prevented from forming as an LLC. There are also restrictions from state to state, for example California prevents some types of professionals from starting LLCs.
Fortunately, there are no rules preventing you from starting up an LLC if you’re selling on Amazon.
Where to Form Your Amazon Seller LLC
If you plan to manage and conduct your business from your home state, it makes sense to form your LLC there. As an Amazon seller, you’ll be selling across the country (and possibly around the world). That doesn’t need to influence where you form your LLC.
Although there can be some advantages to forming an LLC in Delaware, Nevada or other “business friendly” states, in most cases those benefits won’t apply to your LLC.
Additionally, you will need to file as a “Foreign LLC” if you conduct business in other states. So if, for example, you incorporate in Delaware and then conduct business in North Carolina (like opening a brick-and-mortar store), you’d have to file and pay fees to the government of North Carolina.
When to Form an LLC
If you’re already running your Amazon business and haven’t officially formed a business entity for it yet, it’s a good time to form an LLC.
If you’re starting an Amazon business in the future, taking a few minutes right now to make sure you form your business properly will give you peace of mind, and let you get on with growing into a thriving Amazon Seller when you launch.
Ongoing Responsibilities for an LLC
Once your LLC is formed, you will have ongoing responsibilities you need to carry out. These include:
- Filing an annual report with your state’s secretary of state.
- Reporting income earned (or lost) by your Amazon seller LLC on your personal tax return. Each member of an LLC will need to do this.
- Paying an annual fee, varies by state.
- Providing business reports as needed to other LLC members. (This is not a legal requirement, just a best practice.)
Managing Your Amazon Sellers Account
After that, here’s a few other back office tasks to think about when managing your Amazon Sellers account:
- Staying compliant with sales tax and other tax tips
- Amazon’s Marketplace rules and regulations
- Managing Amazon’s Payout Schedule
- Basics of Amazon’s Sellers Insurance
- Preventing Amazon Account suspensions
Ready to Take Your Amazon Business to the Next Level?
Get Fast Funding to Scale Up
Payability offers fast funding to Amazon sellers based on their sales history. You’re eligible once you’re doing over $10,000 a month in sales. We have three fast funding programs for Amazon businesses.
- Instant Advance provides up to $250k in funding for eCommerce sellers ready to scale.
- Instant Access offers accelerated daily payouts for online marketplace sellers who are tired of waiting for the funds from their sales.
- Advance Line provides a flexible line of credit for business owners who want to fund business growth without compromising control over their company.