Making money on Amazon is easier than ever, so it doesn’t come as a surprise that the marketplace is one of the best-selling platforms. Amazon has more than 300 million active users around the globe, of whom 197 million visit the website every month. If people, especially Amazon Prime members, can find what they’re looking for, they’re more likely to make a purchase here than with other retailers. Some vendors sell their goods directly to Amazon, which resells them to the final customers. Enrolling in Fulfillment by Amazon (FBA) has been shown to increase the conversion rate of stock keeping units and boost sales; Amazon handles all shipping, including returns and refunds.
If you want to join the movement, you indeed have questions about how to run an Amazon business. You don’t need a business license to sell products online, but assigning LLC status to your Amazon business will help you protect your personal assets and enjoy tax benefits. Just because you don’t need a business account to sell on Amazon, that doesn’t mean you don’t benefit from having one.
The Advantages of Forming an LLC For Your Amazon Business
FBA is offered by Amazon for third-party sellers to automate their order fulfillment and shipping services. Simply put, you sell, and Amazon ships. If you’re looking to dive into the world of eCommerce, save time and money by using Amazon’s network. Selling online presents a range of challenges, so if you want to be successful in the marketplace, hire an Amazon consultant with extensive knowledge and experience to help you with everything from listing optimization to data analysis. Amazon FBA is a lucrative business model, but competition is tougher than ever as standards keep improving. Being an Amazon FBA seller is slightly different from being an Amazon Affiliate, just so you know.
LLC is a popular choice for Amazon sellers, so if you take your eCommerce venture seriously, form an LLC to protect yourself and your business. If you’re still not convinced that an LLC is the optimal business entity for an Amazon FBA business, please continue reading to discover the many reasons why it’s advantageous.
Having An LLC Will Protect You from Personal Liability
LLC means Limited Liability Company. As the name clearly suggests, your personal assets can’t be seized to pay for debts or financial obligations. Let’s take an example. Try to imagine the following situation: you shipped a defective product, and it caused harm to one of your customers. Any injury or illness constitutes grounds for a lawsuit to recover damages, meaning that if that customer sues, they’ll be suing you personally. If you run your Amazon business as an LLC, your business assets will be subject to litigation, so they can go after your LLC’s bank accounts and property. If you accumulate debt while creating or growing your eCommerce business, creditors can’t touch your personal property.
You Can Choose the Way Your Business Will Be Taxed
An LLC provides flexibility as far as taxation is concerned, so you can decide the way your Amazon FBA business will be taxed. You can choose to be taxed as a sole proprietor, a partnership, an S corporation, or a C corporation. As your company grows, you can file your LLC as an S or C corporation – both business structures allow you to classify individual members as employees so they can take part in benefits programs. Attention must be paid to the fact that S corporations are pass-through taxation entities, while C corporations are separately taxed entities.
An LLC Has Less Strict Requirements
LLCs have fewer state-imposed compliance requirements and ongoing formalities, although they vary slightly from state to state. It’s a good idea to document your compliance with your internal requirements closely with company records. At any rate, you don’t have to form a board of directors, hold annual meetings, or have a minimum number of shareholders. Poor practices can result in your LLC losing its liability protection, so separate business assets from personal assets by keeping different bank accounts. The structure of the LLC makes it challenging to secure investors because it’s difficult to ensure returns on the investment.
Only you can determine what entity is the best for your Amazon FBA seller business. It’s recommended to start slow and sell a handful of items to test the waters and decide what you want to do next.
LLC For Amazon FBA: How to Get Started
Did you know that you can start an LLC in a state other than your own? It can be a convenient option if there’s a fulfillment center in your state, but ultimately, the decision is up to you. Setting up an LLC looks like the following:
- Choose A Legal Name for Your Company. Choose a business name that isn’t used by another company in your state of formation. You may be required to include an identifier like “corp.”, “inc.”, or LLC after your legal name. Stick to simple and memorable words.
- Designate A Registered Agent. Every LLC needs a registered agent with a physical address to receive legal papers (e.g., government correspondence). You can designate yourself or another member of the company as the registered agent.
- Create Your LLC’s Operating Agreement. Some states require an operating agreement, which outlines the financial and functional decision-making. In other words, it outlines how the business runs and what is necessary to ensure growth.
- File The Articles of Organization. File the paperwork with the appropriate state agency and pay the accompanying filing fee. The articles of organization are similar to the articles of incorporation.
- Apply For an Employer Identification Number. You need the EIN to pay taxes, hire employees, open a bank account, etc. You can apply for the EIN on the IRS website; once the information is completed during the online session, the EIN is issued right away.
Once you’re settled on the business name, address, and the members of your LLC, you can form a legitimate Amazon FBA business.
So, do you need an LLC for Amazon FBA? Yes and no. You can start selling under your own name, but there are several things to take into account in this decision.