Is an LLC Needed to Sell on Amazon?

With most businesses where you need to operate with an office, storefront, or with employees, you have to set up some sort of business license in order to operate, often choosing the form of a Limited Liability Corporation, or LLC. However, on Amazon you do not need to set up an LLC.

Sole proprietorship registration is perfectly fine if you are brand new to e-Commerce, however, as you grow your business the benefits of getting an LLC will far outweigh the ease of just being a sole proprietor.

What is Sole Proprietorship?

When you are a sole proprietor, that means you are a solo entity, unincorporated, and running your business as one person, one owner. Sole proprietorship is easy to set up, you just simply need to start selling products under your own name, and that’s it. You have to be careful though, as with sole proprietorship you are also personally responsible for every debt and lawsuit you incur.

What is a Limited Liability Corporation?

LLC’s is a specific legal entity that you can set up in order to protect yourself from debts and other liabilities that naturally come with business ownership. You are separated from the company, which means any debts or lawsuits that occur, happen against your LLC rather than you. As well, LLC’s can have multiple members rather than just a single owner, single employee.

What is the Main Differences Between Sole and LLC?

For the most part the biggest benefit of having an LLC for your Amazon business is the protections it offers you in legal cases. LLC’s can on their own have bank accounts, loans, debts, property, sue, and be sued, all without putting the owner directly in liabilities’ path. If your business is sued and loses a lawsuit, then any creditors or persons cannot go after anything beyond what the LLC itself owns, such as your home and personal savings.

You could choose to go with sole proprietorship and get seller’s insurance, but that still means you are liable personally, and damages could exceed your policy.

When Should You Switch to an LLC?

The best time to switch your business to an LLC is when you decide that you want to further expand your business. As your sales increase, so can the liability of faulty products or other hazards, and that means having the protection of an LLC is necessary to protect yourself. As well, if you want to bring in business partners to grow your business even faster, you need an LLC, as sole proprietorship can only have one owner.

Other Legal Requirements

While an LLC may not be required by you to sell products on Amazon, state and federal law may require you to have other licenses and permits in place for your business to operate. Always consult an accountant or lawyer before you start to sell on Amazon so you understand everything you need by law. Business licenses aren’t required by Amazon, but may be required by your state or local government for example. As well, if you wish to purchase products to sell tax-free, then you will need a sales tax permit; although, you are likely required to need this by your state anyhow.

Setting up an LLC and getting an EIN

Setting up an LLC is as simple as going to your local government website and filling out the proper forms; or having your accountant do it for you. Employer Identification Number, or EIN is given to your LLC by the IRS.

Protecting yourself is key to doing business, and setting up an LLC on Amazon, while not mandatory, is a good idea if you plan to grow your business.

Carlos Alvarez

Alvarez sums up his mission to help online sellers with a quote he heard early on in his career. New sellers constantly compare their Chapter 1 to another seller’s Chapter 20. They see what other veteran sellers are doing and they judge their success and failures by this benchmark. His goal is to show sellers a realistic path to success, and how they can enjoy every chapter of their own, unique journey.

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