One of the great things about Amazon is its ease of use. It’s incredibly intuitive to find your way around Amazon, whether you’re navigating the site as a buyer or as a seller. Indeed, the Amazon Marketplace provides a low threshold for anyone looking to generate e-commerce sales.
Simple and elegant though Amazon may be, there are some other behind-the-scenes considerations that can seem a little more complicated. For example, every e-commerce seller should be mindful of the legal structure their business has. (And yes, your e-commerce venture does have a legal structure, whether it’s one you’ve chosen or one you’ve assumed by default.)
All else being equal, the LLC structure is probably the one best-suited for Amazon Marketplace success. This post will explain why, and offer a few basic tips for getting your e-commerce LLC up and running.
For starters, let’s explore the basic definition of the LLC.
If you’ve started generating any kind of revenue based on self-employment (yes, including revenue generated by selling wares on the Amazon Marketplace), then you’re considered in the eyes of the law to be a Sole Proprietor. This is the default status for self-employed sellers, and it basically means that you and your business are one. In other words, your business does not exist as its own separate legal entity. It’s an extension of you.
So what makes an LLC different? Sole Proprietors can choose to establish an LLC, or Limited Liability Company, at any time. Doing so actually does create a new legal entity. So, there will be a clean line of separation between you and your business. And, accordingly, there will be a clean line of separation between your personal assets and liabilities, and your business assets and liabilities. This is important, and in just a moment we’ll see why.
The LLC is one of the most popular small business structures in the United States, and it’s an especially good choice for e-commerce retailers, including Amazon Marketplace sellers. But why is that, exactly? Let’s turn now to the benefits of the LLC.
What Makes the LLC Perfect for Amazon Sellers?
The LLC structure has several unique characteristics that make it a great selection for Amazon sellers and other e-commerce retailers. Consider just a few of them.
Remember what we said about the LLC keeping your personal assets and liabilities separate from your business assets and liabilities? Here’s why that’s important: Because it means that when creditors or lawsuits come your way, your personal assets (like your house, family car, and personal bank accounts) are off limits. Your personal wealth is never encumbered with, or imperiled by, your business dealings.
This is especially helpful for e-commerce sellers because it means you can invest in the health and scalability of your business, experiencing total peace of mind that your family’s well-being isn’t going to be adversely affected.
Something else to consider is that the process for setting up an LLC is very easy, and also fairly inexpensive.
We’ll provide guidelines for establishing an LLC later on, but for now, just note that LLCs don’t require a ton of paperwork, and they don’t involve massive filing fees. Sure, setting up an LLC is a bit more complicated than setting up your Amazon shop… but compared to other forms of small business, LLCs are relatively low-threshold.
Still another benefit to the LLC structure is tax flexibility.
When you initially register your LLC, the default position will be pass-through taxation. In other words, you’ll simply declare profits on your personal tax return, and pay the IRS at your normal tax rate.
This is an easy and low-effort option for e-commerce sellers, but if your business really booms and you want to scale up, an LLC will let you do so. You can opt into corporate tax status any time it becomes financially advantageous to do so.
This flexibility makes the LLC ideal for companies that are looking to scale fast, and Amazon sellers often fit that description.
Starting an LLC requires you to jump through just a few legal hoops; again, we’ll get to the specific process momentarily. But by completing this process, you’re basically proving that you have a “real” business interest, not just a hobby or a side hustle.
Why does this matter? It matters because it gives your LLC a sheen of professionalism and legitimacy. Simply put, customers, partners, vendors, and investors will all take you a little more seriously. And you can accept payments in the name of your business (as opposed to in your personal name), which further adds to your sense of professionalism.
The bottom line: A lot of Amazon shops seem like they are basically just part-time gigs. An LLC allows you to signify your business as something meaningful, full-time, and official.
How to Register Your LLC
There are plenty of reasons to register your Amazon business as an LLC. Now we turn to the question of how.
The rules for establishing an LLC can vary from state to state. So, for example, you might seek a step by step lesson to form an LLC in New York, and it would be different than the step by step guide to forming one in Delaware, Nevada, or Georgia.
With that said, there are a few basic requirements that hold true across the board. Here’s the basic process for registering your Amazon Marketplace store as its own LLC.
Choose a Name
The name you choose for your LLC matters deeply, not just for marketing and branding purposes but also for legal ones. The main thing to keep in mind is that, in most states, LLCs have to choose names that aren’t already in use by other LLCs in the area. You can likely access an online directory to confirm that the name you want is still up for grabs, though again, you should expect some state-by-state variation.
Appoint a Registered Agent
A Registered Agent can be either an individual or an organization who is tasked with receiving legal correspondence on behalf of your LLC. So, if someone sues the company, the paperwork will be provided to the Registered Agent.
Every LLC must have a Registered Agent, though it’s up to you who you choose to do it. (The only real stipulation: Having a mailing address within the same state.) The cost of hiring a third-party LLC service may be anywhere between $50 and $300.
Naturally, creating a new business entity involves filing a little bit of paperwork. Mainly, you’ll need to file Articles of Organization with your state. This document should encompass basic details like:
- The mission and scope of your business.
- The name of your business.
- The name of your partners, if any.
- Your contact information.
- Your Registered Agent’s name and contact information.
You’ll also need to pay the filing fee, which is, you guessed it, variable by state. Expect it to be anywhere between $20 and $300.
Create a Constitution
This next part isn’t legally imperative, but it can make running your Amazon store much easier. Basically, LLCs have the option of creating Operating Agreements, which function as constitutions for how your business operates. For example, you can use your Operating Agreement to denote:
- How you’ll divide managerial duties between partners.
- How you’ll divide profits.
- How you’ll bring on new partners.
- How you’ll deal with the departure of a partner.
Basically, an Operating Agreement provides some flexibility with regard to how you operate your business and handle growth… and that’s something that can come in handy for any successful Amazon Marketplace store.
Get Your Banking Affairs in Order
A final tip: When launching your LLC, it’s important to attend to a few banking basics. Here’s what we recommend specifically:
- Claim an employer identification number, or EIN. You’ll need it for filing taxes or processing payroll. If you’re a U.S. taxpayer, you can get an EIN for free simply by registering at the IRS website.
- Set up a business bank account, one that’s not connected to your personal banking or checking accounts. Remember that it’s important to keep your personal assets and your business assets separate!
By following these basic guidelines, you’ll be well on your way to LLC success.
Position Your Amazon Shop for Long-Term Success
Looking to establish a scalable, successful Amazon Marketplace shop? The LLC structure can be a tremendous help. Get your LLC up and running sooner rather than later.
Amanda E. Clark writes for LLC University. She has appeared as a subject matter expert on panels about content and social media marketing, plus topics related to business ownership.