Amazon clearly states that sellers must abide by its policies and guidelines. Most sellers recognize the importance of complying with these rules. Therefore, it isn’t surprising that many new sellers ask, “Do I need an LLC to sell on Amazon?”
This is a valid question, as best practice demands you tailor your business structure to your line of business.
This post explores in detail whether using a Limited Liability Company (LLC) is necessary for selling on Amazon.
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Quick Answer - Do I Need An LLC to Sell on Amazon?
No, you do not need an LLC to sell on Amazon. You can sell on Amazon under any business structure, including as a sole proprietorship.
However, selling as an LLC may provide some benefits, which we will explore in detail in this post.
Whatever type of business you choose to register, you will always need all the money you can get to run your Amazon business smoothly. That’s where Getida comes in.
We help FBA sellers understand the Amazon FBA returns they’re owed and also manage the refund recovery process.
We employ world-class tools to consistently audit Seller accounts for discrepancies and experts to manage claims, securing reimbursements for more than 90% of the claims we open.
Sign up with Getida today to unlock FBA refunds to fuel growth.
What LLC and Licenses Are Really For
If you want to sell on Amazon, do you need an LLC or a business license or adopt some other formal business structure?
The quick answer is, “No.”
Online marketplaces are not federally regulated and primarily sell consumer products. So whether you sell on Amazon or other sites including Shopify, eBay, Etsy, Craigslist, or Facebook, you don’t need an LLC or any kind of business license or registration.
This isn’t to say that at some point you may want to become an LLC. It mostly depends on whether you are selling on Amazon as a side-hustle or as a full-fledged business enterprise.
Let’s take a closer look at the forms of business structures and any required business licenses which might work best for you:
- What is a sole proprietorship?
- What is DBA?
- What is an LLC?
- What Tax IDs do you need?
- When and what kind of licenses are required?
- What is FBA?
- What is FBA Reimbursement?
Sole Proprietorship
Most small businesses start as a sole proprietorship. This is the simplest and most common type of business structure, an unincorporated entity run by one individual, with no distinction between the owner and the business. You pay the same taxes as a sole proprietor that you do as an individual on income earned from the business. You are also solely responsible for all of the debts, losses, and liabilities incurred by the business.
There’s nothing you have to do to become a sole proprietor. Once you start selling on Amazon, you become a sole proprietor.
If, however, you start selling under a business name, you need a DBA.
DBA
DBA means “Doing Business As.” Basically, you are operating your business under a name other than your own. Why would you want to do that?
Operating as a DBA helps establish a brand identity. Jane Jones sells on Amazon as a sole proprietorship. “Jane Jones” doesn’t tell me anything about the business. “Jane Jones Custom Shirts” does. As does “Creative Custom Shirts”—you could include your name or not, but the business name is separate from you.
Consequently, there is some paperwork to complete. You need to register as a DBA in the state where you are located. If another business already has the same DBA name, you need to create another one that is unique. You can still maintain your status as a sole proprietor, but you do need to open a separate bank account under the DBA name to receive and issue payments.
LLC
An LLC is a “Limited Liability Company.” LLC is a way to protect business owners from personal liability for debts or claims against the business. So if Jane Jones Custom Shirts LLC owes a supplier debt the business lacks funds to pay, the creditor cannot legally place liens against the personal bank account, house, or other possessions of Jane Jones.
You may think that LLC stands for “Limited Liability Corporation.” It doesn’t. Most Amazon sellers don’t need to get into the complexities of forming a corporate structure. Forming an LLC protects your personal assets if you are ever sued or need to dissolve the business and can’t pay your creditors.
An LLC is not limited to sole proprietorships. A partnership of multiple business owners can register as an LLC.
What about taxes? LLC provides you with “pass-through taxation,” meaning all profits or losses for the business are taxed at your personal tax rate. There is also a 20 percent pass-through deduction created by the Tax Cuts and Job Acts of 2018 that is in effect until 2025.
There are costs to filing as an LLC in the state where your business is located, as well as annual fees and state taxes. The requirements and fees vary from state to state.
You may want to consult with an attorney and/or accountant about whether an LLC is advantageous for your business. But, again, you do not need to be an LLC to sell on Amazon.
Tax IDs
Sole proprietors don’t need an EIN, or a federal tax identification number. It is required for DBA and LLC businesses. Apply to the IRS to obtain an EIN; there’s no fee to apply.
Most states require a sales tax permit to collect sales taxes. You need to collect sales taxes in every state where you ship products. Of course, you also need to report the sales taxes you collect to the individual state tax authorities.
Other Business Licenses
While you don’t need to register as a business to sell on Amazon, you might need to register with your state or other authority as an online business. Some state and/or local governments require an annually renewed license if you make more than a certain amount of money. Check with these authorities for specifics.
Benefits of LLC for Amazon Sellers
There are advantages to running an Amazon Seller business under an LLC, including:
- Easy and inexpensive to create: Creating an LLC is pretty straightforward, and you may not need an attorney’s help. Further, the only cost is your state’s filing fees. For instance, in California, you’ll need $70 to file Articles of Organization and $20 to file a Statement of Information.
- Provides limited liability protection: An LLC will protect your personal assets (such as house and savings) in case of liability exposures arising from lawsuits, debt defaults, etc.
- Pass-through taxation benefits: With an LLC, your Amazon profits and losses are passed on to you and reported as personal taxes. This can lead to significant tax savings, which a corporation may not enjoy.
- Reduced regulatory burden: You want enough time to focus on your core Amazon seller operations, such as product research and marketing. An LLC’s lower compliance burden when compared to a corporation makes this possible.
- Gives legitimacy to your Amazon Seller business: In the eyes of suppliers, FBA prep companies, banks, and investors, an LLC has higher credibility than a sole proprietorship.
The core benefits of an LLC to an Amazon seller are credibility, tax savings, and limited liability protection. However, it is vital to remember that limited liability protection has limits, such as when there is willful fraud.
Steps for Amazon LLC Registration
Generally, you will need to take the following steps to register an LLC in most states in the USA:
- Select a good name for your Seller business: Amazon recommends using a business name so customers can remember your company. You must choose a unique name that complies with your state’s regulations.
- Designate a registered agent for the LLC: States require LLCs to appoint a registered agent with a physical address in the state. The agent will receive tax, legal, and other official documents on behalf of the LLC. You yourself can be the registered agent.
- File Articles of Organization with your state: The articles outline your business name, details of the registered agent, the business’s purpose, company management structure, and the business address. You’ll pay a one-time fee to file it.
- Draft an LLC operating agreement: Most states do not require this as a mandatory step, but California, New York, Delaware, Missouri, and Maine do. The document outlines your business structures and establishes rules for internal operations.
- Acquire an Employer Identification Number (EIN): You’ll need an EIN issued by the Internal Revenue Service (IRS) to open a business bank account, hire employees, and file taxes.
- Get state licenses and permits: You likely won’t need a specific license to sell on Amazon. Nonetheless, if you sell in a highly regulated product category, such as the sale of controlled substances, it helps to check with your local office to see if you need one.
After taking the above steps, you should be ready to start operations. However, you must still meet compliance requirements to keep your LLC for Amazon in good standing, such as keeping business records, filing annual reports, and paying taxes.
How Getida Can Help:
Registering an LLC is just the first step to succeeding with Amazon FBA. The second step is to ensure you have the funds to support day-to-day operations and fuel future growth.
Getida can help you unlock a new revenue stream by securing more than 90% of the FBA reimbursements due to you.
We’ll manage the entire FBA refund recovery process for you. Moreover, the first $400 in reimbursements we secure is free of charge. Register with us to get started.
Best State to Form LLC for Amazon FBA
The best state to form an LLC for Amazon FBA is one that provides a business-friendly environment, such as ease of registration, low compliance burden, and low taxes.
Your home state should be the first choice if it meets the above criteria. Otherwise, consider
- Delaware
- Wyoming, or
- Nevada
All three states have favorable limited liability protections. Nevada and Wyoming don’t have state corporate income taxes. Delaware will also not apply a corporate income tax if you register a company but don’t operate from there.
Notably, Nevada and Wyoming don’t have a personal income tax.
Further, Delaware has no sales, personal property, or investment income tax.
If you are unsure of the best state for your LLC, consider consulting an attorney or CPA experienced with Amazon FBA operations for guidance.
Detailed Answer - Do I Need An LLC to Sell on Amazon?
You do not need an LLC to sell on Amazon. No federal or state regulation requires sellers on platforms like Amazon, eBay, and Etsy to operate under a registered business entity.
Amazon also does not require sellers to operate under a given business structure.
The decision of whether or not to register an LLC is entirely up to you. Nonetheless, LLCs provide significant benefits, and running an Amazon Seller account under one makes business sense.
If an LLC structure is not right for you and you still want to run your Amazon Seller account under an entity with liability protections, you can use a Limited Liability Partnership (LLP) or corporation to start an Amazon FBA business.
How to Decide on the Right Business Structure for Amazon
Your chosen business structure will depend on your unique business needs and goals.
Even then, you want to consider the following factors when making a decision:
- Liability protection: Most Amazon sellers will benefit from liability protection. LLCs, corporations, and Limited Liability Partnerships (LLPs) offer significant protection; sole proprietorships do not.
- Tax considerations: You want to reduce tax liability to leave enough funds to support growth. If you are unsure of the way forward, consult with a qualified tax accountant.
- Future growth: Factor in future growth when deciding on the optimal business structure. Do you see your Amazon business expanding internationally? Will you raise capital?
- Compliance burden: Every business structure has rules to follow to maintain good standing. Sole proprietorships and partnerships have low compliance burdens, while LLCs and corporations have moderate and high compliance burdens, respectively.
Amazon gives you the freedom to choose the business structure that’s right for you. You should carefully evaluate your current and future needs and consult a professional before deciding.
FBA and FBA Reimbursement
FBA stands for Fulfillment by Amazon. It isn’t a business license or structure, but it is a way to get your business started without investing a lot of time and money in setting up a distribution system. Amazon handles all that for you.
Of course, there are fees to be an FBA seller, but for many start-up businesses, FBA is more convenient, less time-consuming, and not any more expensive than managing your own logistics.
If you do choose FBA for selling on Amazon, whether under your own name or as a DBA and/or LLC, when Amazon makes mistakes managing your inventory or fulfilling your orders, you are owed FBA reimbursement. However, Amazon doesn’t always automatically credit you with this FBA reimbursement. In fact, more often than not you have to identify the errors and submit claims for FBA reimbursement.
FBA reimbursement can add up to between 1% to 3% of your annual revenues. The more money you make, the more money you could potentially lose if you don’t properly submit claims for FBA reimbursement.
GETIDA (GET Intelligent Data Analytics) makes the whole process of obtaining your FBA reimbursement simple, easy and cost-effective. For no charge, GETIDA software reviews the previous 18 months of transactions to flag instances where Amazon mistakes are eligible for FBA reimbursement.
Your claims are handled by a team of former Amazon employees experienced in FBA reimbursement. There is still no charge to file claims.
The only charge to use GETIDA is a percentage of approved claims. And the first $400 in FBA reimbursement is free. GETIDA saves you time and headaches so you can focus on running your sole proprietorship, DBA, or LLC business. Sign-up is free and easy.
Frequently Asked Questions (FAQs)
Looking for more information about whether you need an LLC to sell on Amazon? Below are the answers to some of the commonly asked questions:
Do I Need an EIN to Sell on Amazon?
If you sell on Amazon under an LLC or any other registered business entity, you will need an EIN.
Sellers operating under sole proprietorships may not need one, though, as they can use their Social Security Number (SSN).
How Do Business Types Affect Amazon Sellers?
Generally, the business structure you use will determine:
- Your liability exposure
- Your federal and state tax obligations
- Your credibility in the eyes of FBA prep companies, suppliers, banks, etc.
- Your ability to raise capital when you want to expand
- How much time is dedicated to regulatory compliance
Can I Start Selling on Amazon Without an LLC?
Yes, you can start selling on Amazon without an LLC. Many Amazon sellers operate under their own names and sole proprietorships.
What Should I Know About Transitioning from a Sole Proprietorship to an LLC?
Transitioning from a sole proprietorship to an LLC will not adversely affect your Amazon Seller business. Nonetheless, you must comprehensively and accurately update records, employ Amazon bookkeeping best practices, and notify your partners.
Consider:
- Separating business and personal finances
- Updating your bank account and card information
- Notifying suppliers, 3PLs, and other parties of the change
- Updating any contracts you may have entered into
Conclusion
Federal and state regulations and Amazon do not require you to operate under a specific business structure as an Amazon seller. You, therefore, can choose to register an LLC or forego it altogether.
If you are still unsure about the right move, we recommend you consult an attorney or CPA specializing in Amazon FBA business structures, taxes, and compliance.
Whether you register an LLC or not, efficiently managing your Amazon business requires a steady flow of income.
At Getida, we specialize in helping Amazon sellers like you recover FBA refunds. We do this by consistently auditing Seller accounts to identify reimbursement opportunities and having experts (including ex-Amazonians) file the claims.
Sign up with Getida today to supercharge your FBA refund recovery and grow your profits. On average, our customers see a 166% boost in Amazon FBA recovery.
