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You do not necessarily need to form a Limited Liability Company (LLC) to start selling stuff on Amazon.
However, forming an LLC for your Amazon business does have some certain important advantages that should be addressed.
First, we'll talk about your first option which is to continue to work as a Sole Proprietorship. You’ll want to consider the level of structure and formality, the possible tax advantages, your business model and plan, where you want to conduct business, sources of investment, and the desired specific goal of your business.
Sole Proprietorship is the simplest business form and is not a legal entity. Sole proprietorship is the easiest type of business to establish which means that there’s no state filing required. It is simply an enterprise owned and operated by an individual. By default, once you start selling goods or services, you have created a sole proprietorship.
So there’s no actual filing requirements and you simply report your business’s earnings on your personal taxes. A sole proprietorship is not legally separate from its owner and it offers no personal liability protection. The law does not distinguish between the owner’s personal assets and the business’s obligations. In fact, a sole proprietor’s assets can be and often are used to satisfy the debts and liabilities of the business. In other words, if your business gets sued, your personal assets may also be in risk.
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Limited Liability Company (LLC) is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. LLC provides its owners with limited liability for company debts.
This means that your personal assets remain untouchable to cover business debts, claims or lawsuits to the extent than what you invested in the company. This means that if something happens to your LLC, the owner’s personal possessions, such as car or home, can’t be touched by creditors.
So the owners of an LLC have no personal liability for the obligations of the LLC. Also, unlike corporations, LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns.
We thought this was a really interesting topic, especially as more and more people are looking to start selling products on Amazon, either their own or through dropshipping.
Let's ask the Start a Business Hub community what they think about whether you need to form an LLC to start an Amazon/FBA business.
An LLC is not required to start selling stuff on Amazon. Most small sellers will start off as a sole proprietorship in their own name and test out the business. Selling a product on Amazon does raise a concern of liability and therefore operating as a separate legal entity such as an LLC is recommended. Keep in mind, an LLC may be taxed in four different methods so you must be clear on what is best for you both short and long term. Example, if you start off as a single-member LLC disregarded and profits and losses flow to schedule C, as you start generating profits you may consider having the LLC taxed as an S corporation to help save on self-employment taxes (15.3%). This does trigger a federal 1120S tax return and more costs with your CPA. If you are a foreign seller the LLC taxed as an S corporation is usually not an option for you.
The other key is sales tax compliance. Even though there are currently about 37 marketplace nexus states and Amazon is currently collecting in about 24 of them, depending upon if you are selling on FBA or not, you may have nexus in several states and sales tax registration may be required. If you register as a sole proprietorship and later convert to an LLC, you will need to close our your existing sales tax accounts in each state and register for new sales tax permits in the name of your new LLC under the new EIN. There are a lot of other factors that come into play, but these are a few key ones that may help.
Scott Letourneau
In short, its not required to start LLC for Amazon business. You can start out as a sole proprietor but there are few risks. Your personal assets may be used for payment of business debts etc. You can check out below articles that may provide additional information.
There are few advantages of incorporating and also based on your projected income, there are tax benefits setting up LLC with S tax election. Below articles have some useful information.
Shilpa Kowligi
Generally no; the cost of forming and maintaining an LLC can be quite expensive, unless your business is making lots of money then its not worth it. If it is making enough money then you should use some of that money to hire an attorney to advise you; there are several options for how to structure an entity if you decide to go that route all of which should be explored with knowledgeable counsel.
Mathew Auric
No, you don’t need to own an LLC to start selling on Amazon. I am also a seller on amazon from past many years & i don’t own a company.
Susan Smith
Okay so we can see that like with most things when you start an online business, you don't NEED to form an LLC to sell things on Amazon.
However, if you plan to be serious about selling on Amazon, then an LLC entity is a very good business practice that will help you to protect yourself and your personal assets.
As with everything, speak to a tax professional or attorney to make sure you are choosing the right option for your specific Amazon business.