Do You Need an LLC to Sell on Amazon

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So, if you just started your ecommerce journey and are considering selling on Amazon, you might be wondering, “do I need an LLC to sell on Amazon?”

The short answer is no. You do not need an LLC to sell on Amazon. You can start selling on Amazon right away as a sole proprietor. But keep in mind both a sole proprietorship and an LLC have their benefits and drawbacks.

As your business grows it might be beneficial to consider shifting your business into an LLC. Let’s discuss the differences between a sole proprietorship and an LLC.

(Important: this is NOT legal or accounting advice, I am not licensed to give legal advice. If you find yourself needing such advice please consult a professional.)

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What is a Sole Proprietorship?

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Exactly as the name states, this is an unincorporated business run by a single person as the sole owner. You simply need to begin selling to become a sole proprietor.

This is the easiest way to break into the ecommerce market, however, there is no recognized legal separation between the owner and the business. (meaning the owner is personally responsible for any liabilities)

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What is an LLC?

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Limited Liability Corporation (LLC) is a legal entity designed to protect the owner(s) from liabilities. You are legally separated from your business if you have an LLC unlike a sole proprietorship. 

LLCs can also have multiple members/owners while sole proprietorships only have one.

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What is the difference between a sole proprietorship and an LLC?

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The biggest difference is that an LLC provides much more legal protection and separates the business from the owner(s). An LLC can be used to operate a business - the LLC can have a bank account, owe money, borrow money, sue, and be sued, in addition to buying and selling real estate. 

As a sole proprietor, you are responsible for any lawsuits or debts. Meaning your personal money and assets can be pursued by business creditors. An LLC keeps the business separate from you.

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When you should consider an LLC for your Amazon Business?

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If you are planning to take your ecommerce journey seriously, forming an LLC can help protect you and your business. Form your LLC when:

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• You want to seriously scale on Amazon
• Your sales are increasing every month
• Products you sell may cause injuries (sporting goods, supplements, etc)
• You want to be separated from your business
• You have business partners

If any of these apply, it is time to form an LLC. Don’t worry it is not as hard as you think.

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What about a Business License?

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While a business license is not required when opening a seller’s account, it may be required by your state or local government (consider consulting an accountant or attorney).

If you plan to sell wholesale products on Amazon you will most likely need a business license and sales tax permit. Prior to opening an account with a wholesaler you will need to get these documents to confirm you have a legitimate business. 

A business license is not required when selling private label or retail arbitrage (my fav shopping at stores like TJ Maxx).

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What is a sales tax permit?

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This is just a fancy way of saying “resale certificate” and it allows you to purchase inventory tax-free and to collect sales tax on a state’s behalf. You will most likely need this if you are selling products on Amazon.

As an FBA Seller on Amazon, you may have to pay sales tax in other states where your inventory is being stored. 

(a professional can help you determine your federal and state tax liability)

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How to register a company to sell products on Amazon:

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Go to your state’s website to form your LLC, the fees associated with this vary by state. You can also use a service (at a significantly higher cost) to help you set everything up.

Your state specific website will have all the information you need to form a business.

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Get Your EIN

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You will need an EIN (Employer Identification Number) when you form your LLC. This is your business’s social security number and the IRS will use this to identify your business.

You can apply for your EIN on the IRS website for free.

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So, which business structure is right for you?

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I hope you feel a little more at ease knowing the difference between a sole proprietorship and an LLC. It can seem scary at first, but with a little time and the necessary information you can decide which structure is the right one for your business.

If you are just getting into selling on Amazon you can start out with a sole proprietorship, but if you are serious about growing your Amazon business an LLC is the best route to go.

(Note: I am not an attorney or accountant, myself nor my business are licensed to give legal advice. Please consult an attorney or account to structure your business.)

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