Do You Need an LLC to Sell on Amazon?
When learning how to become an Amazon seller, many questions will arise. One of the most common is, “Do I need an LLC to sell on Amazon?”
In order to answer this question, a few concepts need to be covered. What is an LLC? What can it do for you? Do you technically need it to sell on Amazon? What about an LLC for Amazon FBA? How do you set it up and how much does it all cost?
We’ll cover all of the above questions in this article. Read on to learn more about setting up an LLC for Amazon FBA or use the links below to skip any section that interests you.
- What Is an LLC?
- What Are the Benefits of an LLC?
- Do You Need an LLC to Sell on Amazon?
- How to Set Up an LLC for Amazon FBA
- Everything for Your Business on Amazon
What Is an LLC?
LLC stands for “limited liability company.” It’s an officially registered and recognized legal entity that is formed as part of an overall business structure. An LLC is an extra layer of protection for a business and a business owner (or owners) that separates the business from the individual owner or owners.
This protection mostly means that in the case that the business fails, goes under, or deals with an unfortunate legal situation, the business takes the hit, not the owner. As the name suggests, a limited liability company means the liability is on the company and your personal legal liability as the business owner is limited. The most common form of this liability with a new business is debts. If a business goes bankrupt, for example, an LLC protects the personal assets of its owner(s).
Having an LLC allows an owner to completely separate themselves from the business in terms of assets. There are business assets and there are personal assets and the two do not have to mix with an LLC.
An LLC also has protections in place for profits a business makes. There are different tax options available based on the state of LLCs. For instance, LLCs might be able to claim a whole different set of business expenses during tax time and can be subject to self-employment tax advantages. Just like an LLC separates liabilities between business vs. personal, this applies to taxes as well. Forming an LLC separates business vs. personal finances.
What Are the Benefits of an LLC?
The main benefits of an LLC all relate back to liability and protection.
Having an actual business entity that is legal can add to your credibility and professionalism as a business owner. It also greatly reduces your personal attachment and associated risks to the business.
Protection and credibility are helpful for a variety of reasons:
- It gives your business a name and an identity
- It makes your business authentic and recognized in the eyes of the county, state, and FICA
- It allows for cleaner separation and accountability for tax purposes
- It gives you options for how you want your business to be taxed (Sole Proprietor, S-Corporation, C-Corporation)
- It allows you to be under the realm of self-employed
- It provides credibility and is often required to be considered for business loans
- It allows you to be eligible for small business loans instead of just personal loans
- It protects a business owner(s) from business debts
- It protects a business owner(s) from business lawsuits
- It is often part of seller insurance requirements.
Do You Need an LLC to Sell on Amazon?
In order to successfully sell something via Amazon, you actually do not need an LLC.
Individuals across the world sell their products on the Amazon platform every day without an LLC. This type of business model is called a sole proprietorship, and it is what many single-person businesses starting out lean towards at the beginning.
Even though sole proprietorships seem attractive to anyone trying to make passive income on Amazon, there are many benefits to forming an LLC if you want to sell on Amazon.
Do You Need an LLC for Amazon FBA?
Amazon FBA is “Fulfillment by Amazon.” It is an extremely large and convenient platform Amazon sellers can use which sets up receiving, storing, packing, and shipping of orders all through Amazon. This means sellers do not have to do any of this in-house and they gain access to arguably one of the world’s largest fulfillment networks.
Amazon fulfillment centers are designed to deal with high volume and they have the space and the capacity to do this on a massive scale. With fulfillment centers across the United States and the world, Amazon sellers do not have to deal with finding extra space or warehouse logistics on their own.
So, do you need an LLC for Amazon FBA? Similar to our response for if you need an LLC to sell on Amazon in the first place, the answer is no—but the benefits of forming an LLC are all relevant to Amazon FBA as well.
Plus, if you are looking into the Amazon FBA services in the first place, odds are your business is scaling to a level where having an LLC makes a lot of sense for the overall brand and trust of your product. You clearly have a business that is growing and there are many benefits in making it official.
How to Set Up an LLC for Amazon FBA
Setting up an LLC for Amazon FBA is extremely similar to setting up an LLC for any business. There are a few steps that a business owner or owners need to take and some options to discuss:
Step 1: Register
Contrary to popular belief, you actually do not need to register for an LLC in your state of residency. Amazon even suggests forming an LLC in a state where there is an FBA center and there are tax benefits to take into consideration. Many sellers outside of the United States set up their Amazon FBA LLCs in Delaware or Wyoming, for example.
Determining the best state for your LLC should probably be discussed with a tax and business professional like an accountant. While forming an LLC in your home state might be the perfect option for your business, it’s nice to know you have options.
Step 2: Legal Name
This is the name of your unique and original business. This step is also the first step many businesses take in establishing their brand, which in turn can be a huge milestone in their overall marketing plan and rollout.
Since legal names are unique, you will need to ensure that you do not choose a name that already exists. You can check for names through an LLC name check site.
Step 3: Registered Agent
A registered agent is a person connected to your LLC and needs to have a physical address in the state registered. This person will receive physical paperwork and will own any filing or legal documents needed for your business in that state.
Step 4: Operating Agreement
An operating agreement is a document that clearly outlines duties, responsibilities, contributions, etc. This is often not an actual requirement of forming an LLC, but this is generally regarded as a best practice, especially if there are two or more owners. Some states require this as well, though.
Step 5: Filing With the Secretary of State
This step involves filing a document called “Articles of Organization” (or “Certificate of Organization” depending on the state). This is the step that formally puts you on the government radar and there is a filing fee.
Step 6: EIN
An EIN is an Employer Identification Number and it is the federal tax ID associated with your newly formed business. This is needed if you ever want to open a bank account for the business, for tax forms, or if you want to hire employees in the future.
How Much Does It Cost to Set Up an LLC for Amazon FBA?
While setting up an LLC involves a few fees in the beginning, keeping an LLC active is an annual responsibility with annual expenses.
Depending on the state, initial fees for registration and filing are probably not going to be more than a few hundred dollars (though in some states it’s upwards of $500). The annual renewal fees tend to cost around a few hundred dollars as well and need to be paid on time to keep an LLC active.
In addition, establishing an LLC means there will be annual reports that need to be filed on an ongoing basis in the state of registration. You’re on the radar now and need to keep your business in good standing.
Everything for Your Business on Amazon
While deciding whether or not to form an LLC to sell on Amazon or utilize Amazon FBA is a personal business owner’s decision, there are a lot of tools out there to help Amazon sellers succeed.
At Helium 10, we offer an all-in-one software solution for Amazon sellers. Whether you need to survey the marketplace, conduct keyword research, track inventory or analyze key analytics, our platform can help you meet all of your business goals when selling on Amazon. To learn more about our platform, services, and resources contact us directly on our website or chat with a support specialist.