What is LLC?
An LLC (Limited Liability Company) has corporate advantages with elements of tax association. Its purpose is to protect its members against the company’s financial obligations because a division is created between the member and the company.
In addition, they help protect the members’ assets since, if the LLC has financial problems, the member’s personal assets cannot be claimed to meet the company’s debts.
Benefits of Having an LLC
Having an Amazon LLC has many advantages, such as:
- You will project professionalism and confidence – By having an LLC; your business will obtain a legal and juridical personality, allowing it to transmit an image of greater confidence -especially to new clients- and professionalism when dealing with suppliers and investors.
- You can sell remotely from any country in the world – Having an LLC in the United States will open the doors to enter all the marketplaces in the world.
- You will receive Amazon payments in your bank account – If you work with Amazon, you should keep in mind that it does not pay out earnings to all countries. In this sense, having a bank account in the USA allows you to receive your earnings from sales on that platform and in dollars without losing commissions.
- Access to receive investment – By having an LLC registered as a seller on Amazon, you could be eligible to access loans through its line of credit for eCommerce: Amazon Lending.
Amazon Lending is a platform service that helps small and medium-sized businesses obtain financing and expand. It has been active since 2011 and offers loans from $1,000 to $750,000, depending on the applicant’s credit profile.
Do You Need LLC to Sell on Amazon?
The short answer is no. You do not need an Amazon LLC to sell on the platform. You can start selling immediately as a sole proprietor, but more later.
If you’re not that serious about opening an eCommerce store and just want to test the waters, you don’t need an LLC for Amazon. However, if you take it a step further and are determined to expand your business, having an LLC will provide you with the benefits we discussed earlier.
Read More: 10 Common Challenges for New Amazon Sellers
Key Differences Between Sole Proprietorship & LLC
A sole proprietorship is a company that is made up of a single individual, the owner, who carries out the activities and contributes the capital.
These commercial projects are recognized as legal persons in the commercial registry due to their commercial characteristics and the ability to contract obligations and carry out activities.
The individual who constitutes the company is in charge of contributing capital from their assets and, in turn, becomes solely responsible for the debts generated by the company, so they will not receive a salary for carrying out their operations.
LLCs and sole proprietorships differ in many ways. Most significant is protection: while sole proprietors are responsible for any business debt they accumulate, regardless of whether they decide to close the business, those who operate an LLC are individually protected against debt in the business’s name.
However, limited liability companies are subject to more formality; you have to do paperwork and pay fees for its constitution and maintenance, and having more owners implies making decisions and distributing responsibilities.
How to Create an LLC for Amazon FBA?
You can form an Amazon LLC in any of the 50 states or Washington DC in the United States. The state you choose will depend on why you are forming the business. Some US states are more “business-friendly” or “international” than others, notably Nevada, Delaware, and Wyoming.
Once you have decided on the state, you will form the company; go to the state’s website to form a business by following the steps below:
1. Choose a Company Name
You should search to ensure this name is available in your chosen state. If it’s unavailable, your chosen U.S. business registrar or manager will contact you for additional name options and keep working until they find one available.
2. Hire a Registered Agent
A registered agent is a person or company that must have a physical address in the state of incorporation of your company, be available during business hours, and will accept and sign the official legal and state documents of the company.
3. Fill out an Operating Agreement
An operating agreement is a document that clearly states the duties, responsibilities, contributions, etc. This is not a requirement for creating an LLC for Amazon, but it is considered a best practice. It may be required in some states, so check out the requirements for creating an Amazon LLC on your chosen state’s website.
4. File with the Secretary of State
In this step, you must file a document called “Articles of Organization” or “Certificate of Organization.” After doing this, you will be on the government’s radar and must also pay a filing fee.
5. Federal Employer Identification Number
The Federal Employer Identification Number (FEIN), also known as “EIN” or simply “Tax Identification Number,” is a number issued by the United States Internal Revenue Service (IRS) that is something like an identification number for businesses. Once the state has filed your business, the agent should help you obtain this number from the IRS. The FEIN will be needed to open a bank account in the United States and perhaps one in your home country (if you’re not a US citizen). Check with your local bank to see if they require this number to open an account.
Best Time to Open LLC for Your Amazon Business
The best time to create an Amazon LLC is when you see your business growing and are beginning to take it more seriously. By forming an LLC, you can protect yourself and your business. The best time to create an LLC is:
- When you are serious about growing your Amazon business.
- When you want to separate yourself from your business.
- When you see a steady increase in your monthly sales.
- When you have business partners.
- When you sell risky products that may cause injuries, sporting goods, health and wellness products, and supplements are a few examples of risky products.
Do You Need a Business License to Sell on Amazon?
No! Like an LLC, you don’t need a business license to create a seller account on Amazon. However, your state or local government may require one. It can be helpful to consult with an accountant or attorney when building the foundation for your business. This way, you can ask your legal questions from a qualified adviser.
You do not need a business license if you plan to do retail arbitrage or private label on Amazon. However, if you want to sell wholesale products on Amazon, you will need a business license and sales tax permit. Most brands, wholesalers, and distributors will ask for these documents to confirm the legitimacy of your business.
Know More: Amazon FBA Sales Tax Sellers Guide in 2024
Do You Need an Employer Identification Number (EIN)?
As mentioned earlier, the EIN is a 9-digit number used by the IRS to identify your business. You can think of it as your business’s social security number. You will need this number to create your Amazon LLC.
Getting the EIN is easy: you can apply on the IRS website for free and receive it in your email inbox.
What is a Sales Tax Permit?
A sales tax permit or a “resale certificate” is a type of certification that allows you to purchase inventory tax-free and collect sales tax on a state’s behalf. If you’re an Amazon seller, your state will require you to provide a sales tax permit.
For example, if your business is located in Nevada and you sell a product to a resident of this state, then the state of Nevada requires you to collect sales tax and remit this tax to the state each quarter.
If you use Amazon FBA as a fulfillment method, you may also have to pay sales tax in other states where your products are stored. Again, it’s better to consult a tax professional to avoid confusion.
Final Thoughts
In this article, we discussed Amazon LLC and whether you need one to start a business in this marketplace. If you are looking to strengthen your business and access the benefits of the international market, opening an LLC and a bank account in the United States is the best option.
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