“Hang on, do I really need an LLC to sell on Amazon?”<\/p>\n\n\n\n
It’s one of the most common questions new sellers ask, and for good reason. You’re excited to start selling, but the legal side feels murky. <\/p>\n\n\n\n
The short answer? No, you don’t need an LLC. Amazon accepts both individual sellers and registered businesses on its platform.<\/p>\n\n\n\n
But should you get an LLC anyway? That’s where things get interesting. <\/p>\n\n\n\n
The right business structure can protect your personal assets, potentially save you money on taxes, and even help your brand appear more established to customers. <\/p>\n\n\n\n
Let’s dive into the different legal structures available, how they impact your Amazon business, and help you decide which path makes the most sense for your selling journey.<\/p>\n\n\n\n
When you want to start a business, one of the first things you\u2019ll be advised to do is to choose a legal structure<\/a>. A legal or business structure refers to how a company is organized legally. Choosing a legal structure is essential because it determines the taxes you’ll pay, your ability to raise funds, the paperwork you need, and your personal liability.<\/p>\n\n\n\n You must choose a legal structure even if you only run a small Amazon store. Your options are:<\/p>\n\n\n\n Choosing a legal structure goes before registering your business with your state. You can switch to a different structure in the future if necessary, but if you sell on Amazon, you won’t need to become an LLC.<\/p>\n\n\n\n To determine the proper structure for your business, here\u2019s an overview of each structure common in the U.S.<\/p>\n\n\n\n If you run an unregistered small business, its structure is automatically considered a sole proprietorship. This legal structure gives you complete control of your business. However, your business is not treated as a separate judicial identity, even with a trade name. This results in the absence of separation between your personal assets and liabilities and those of your business.<\/p>\n\n\n\n As such, you can be personally held liable for your small business’s debts and other obligations. But you don’t need to worry if your business isn’t at any significant risk of declining. If your Amazon business fails, you can still revive it by improving your listings and marketing efforts.<\/p>\n\n\n\n A partnership is a legal structure for two or more individuals running a business together. They all contribute money, assets, and labor or skill to the company. They also share profits and losses. <\/p>\n\n\n\n There are two forms of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). In a limited partnership, only one partner has unlimited liability, while the rest have limited one. The partners with limited liability usually have less control of the business than the general partner or the one with unlimited liability. Profits are distributed through personal tax returns, and the general partner must pay self-employment taxes.<\/p>\n\n\n\n On the other hand, LLPs give limited liability to all partners. This legal structure protects them from the business’s debts and ensures they won’t be responsible for the other partners’ actions.<\/p>\n\n\n\n Registering your business as a corporation makes it a separate legal entity, so its assets and liabilities are not merged with your own. Hence, this legal structure provides excellent protection from personal liability. It also allows you to raise funds more easily because you can sell stocks.<\/p>\n\n\n\n There are five types of corporations:<\/p>\n\n\n\n An LLC gives business owners the benefits of a sole proprietorship and a partnership. You have complete control of your business, but your personal assets and liabilities are protected if your company goes bankrupt or faces a lawsuit. You can also pass your profits and losses through your personal income without being subject to corporate taxes. <\/p>\n\n\n\n However, LLC owners are considered self-employed, so you are required to pay self-employment tax contributions to government programs such as Social Security and Medicare.<\/p>\n\n\n\n As mentioned, running an unregistered business makes you a sole proprietor automatically. While it means you have total control over your business, its assets and liabilities are also considered personal. Simply put, the law sees you and your business as the same entity.<\/p>\n\n\n\n A sole proprietorship is best for low-risk businesses or if you’re still testing your business idea on Amazon. It lets you start operating and earning profit before becoming registered. Raising capital may be more challenging because you can’t issue stock, but with optimized Amazon listings, you can maximize your business’s revenue potential and increase your capital.<\/p>\n\n\n\n Setting up your Amazon FBA store<\/a> as an individual or sole proprietor has many perks, such as:<\/p>\n\n\n\n As a sole proprietor, all you need to start your business is your products and a platform. You can also make all business decisions independently since you have no partners or shareholders to consult. <\/p>\n\n\n\n Furthermore, you can easily handle the tax filing process<\/a> since you’re only subject to personal taxes. The IRS simply requires you to attach a Schedule C to your 1040 form.<\/p>\n\n\n\n What\u2019s more, with Amazon as a platform, you\u2019re spared from renting a commercial space, which can take up a significant portion of your revenue.<\/p>\n\n\n\n You don’t have to register your business with the state or federal government to sell on Amazon. You don’t need to obtain any licenses and permits, either. <\/p>\n\n\n\n Simply put, you\u2019re not required to undergo any formal action to open a sole proprietorship. As soon as your inventory is ready and you\u2019ve created your account on Seller Central<\/a>, you\u2019re ready to list your products and start earning. <\/p>\n\n\n\n Being a sole proprietor on Amazon saves you the trouble of fulfilling paperwork, such as the Articles of Incorporation, Partnership Agreements, etc. While you can register your business and obtain necessary licenses and permits, the paperwork and other formalities are significantly fewer.<\/p>\n\n\n\n The limitations you may encounter as a sole proprietor don\u2019t necessarily have anything to do with Amazon\u2019s policies, but you may find that some products may be riskier to sell with your business structure.<\/p>\n\n\n\n Below are a few downsides of selling on Amazon as an individual.<\/p>\n\n\n\n If a customer gets harmed from using your product, you are liable for their injury. The worst-case scenario is that they’d file charges, which could put your assets at risk of seizure if they win.<\/p>\n\n\n\n Thankfully, these situations are entirely avoidable. Ensure product safety and compliance before selling, considering factors like regulatory requirements, compliance specifications, and your quality control process. <\/p>\n\n\n\n For example, if you sell a cleaning product, it may require clearance from the FDA or EPA. Additionally, ask your supplier to provide precise product specifications and to obtain necessary licenses, permits, and other documentation proving the safety of their product. And lastly, perform your own quality control by having trusted people test your product or send it to a laboratory.<\/p>\n\n\n\n Taking these precautions not only guarantees your product’s safety but also protects your business from liability and ensures a good customer experience. <\/p>\n\n\n\n Though sole proprietorship taxes<\/a> are relatively simple, your obligations may become more complicated if registered. The IRS will require you to pay Social Security and Medicare taxes, like an LLC. In some cases, you may also have to pay self-employment tax, estimated tax, federal unemployment tax, and excise tax.<\/p>\n\n\n\n Fortunately, you can offset some of your taxes via the above-the-line tax deduction. This can also help you qualify for other deductions. Above-the-line deductions include contributions to a health savings account, health insurance premiums, and student loan interests, to name a few.<\/p>\n\n\n\n Perceived lack of professionalism and trustworthiness<\/strong><\/p>\n\n\n\n Without a registered trade name or official brand, Amazon buyers may not feel as confident purchasing your product. While you can still create a customized Storefront, your ability to deliver a more bespoke experience may be limited. <\/p>\n\n\n\n Your limitations as a sole proprietorship can impact the profitability of your products. Furthermore, running an ecommerce business alone can be taxing. But you can increase the integrity of your online business by streamlining its operations with the help of powerful Amazon seller apps, such as:<\/p>\n\n\n\n InventoryLab<\/a> simplifies the entire FBA process from listing to shipping. It helps you track your inventory, create shipments faster, and manage your accounting in one place. <\/p>\n\n\n\n With these features, you’ll save hours of manual work while maintaining accurate records. This is crucial for sole proprietors who handle everything themselves.<\/p>\n\n\n\n Finding profitable products to sell is half the battle for Amazon sellers. Tactical Arbitrage<\/a> scans hundreds of retail websites and compares prices to Amazon, helping you discover items with healthy profit margins. For sole proprietors without large research teams, this tool delivers data-driven sourcing decisions that can dramatically improve your product selection.<\/p>\n\n\n\n Pricing can make or break your Amazon business. SmartRepricer<\/a> automatically adjusts your product prices based on competition, time of day, and your profit requirements. This means you’ll win more Buy Box opportunities without constantly monitoring your listings\u2014giving sole proprietors the same pricing power as larger businesses.<\/p>\n\n\n\n These three powerful tools, along with seven more essential apps for Amazon sellers, are available in one subscription through Seller 365<\/a>. <\/p>\n\n\n\n Instead of juggling multiple subscriptions and logins, you get everything you need for sourcing, prep, shipping, pricing, feedback management, and profit tracking in a single platform for just $69\/month. This unified approach helps sole proprietors operate more efficiently while keeping software costs manageable.<\/p>\n\n\n\n If you want to register your sole proprietorship<\/a> for compliance purposes and to build a brand, here’s a brief step-by-step guide.<\/p>\n\n\n\n Step 1<\/strong> \u2013 Reach out to your area\u2019s Small Business Development Center. It will tell you everything you need to know about operating your business in your state, city, or county.<\/p>\n\n\n\n Step 2<\/strong> \u2013 Choose a trade name that isn\u2019t taken. Visit the U.S. Trademark and Patent Office’s website<\/a> to find out if your chosen name has already been trademarked.<\/p>\n\n\n\n Step 3<\/strong> \u2013 Register your business. Note that since your business won\u2019t be a separate legal entity, it will be registered under your name. You can still operate under a different name by registering a DBA (Doing Business As)<\/a>. For example, \u201cJane Doe DBA Quality Home Improvement Finds.\u201d<\/p>\n\n\n\n\n
Choosing a legal structure<\/strong><\/h2>\n\n\n\n
Sole proprietorship<\/strong><\/h3>\n\n\n\n
Partnership<\/strong><\/h3>\n\n\n\n
Corporation<\/strong><\/h3>\n\n\n\n
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Limited Liability Company (LLC)<\/strong><\/h3>\n\n\n\n
Selling on Amazon as a sole proprietor<\/strong><\/h2>\n\n\n\n
Benefits of selling on Amazon as a sole proprietor<\/strong><\/h3>\n\n\n\n
Simplicity and low startup costs<\/strong><\/h4>\n\n\n\n
No formal legal structure required<\/strong><\/h4>\n\n\n\n
Less paperwork<\/strong><\/h4>\n\n\n\n
Limitations of selling on Amazon as a sole proprietor<\/strong><\/h3>\n\n\n\n
Personal liability <\/strong><\/h4>\n\n\n\n
High taxes<\/strong><\/h4>\n\n\n\n
Amazon seller tools for sole proprietors<\/strong><\/h2>\n\n\n\n
InventoryLab<\/strong><\/h3>\n\n\n\n
Tactical Arbitrage<\/strong><\/h3>\n\n\n\n
SmartRepricer<\/strong><\/h3>\n\n\n\n
How to form a sole proprietorship<\/strong><\/h2>\n\n\n\n