Are you thinking of starting an Amazon FBA business and not sure whether or not you need an LLC to be able to sell on Amazon?
In this blog post, I will explain what LLC is, its difference from a sole proprietorship and if LLC is similar to a business license. You’ll also find out if you need an LLC to sell on Amazon and the benefits of having an LLC for your business.
In addition, I will discuss when is the right time for you to open an LLC for your Amazon business.
Don’t skip the last part of this post, as I will guide you on the step-by-step guide on how to open an LLC for your Amazon FBA business to make sure you do it right.
Disclaimer: Sourcing Monster is not a legal, tax, or accounting professional. This blog post should not be considered legal advice as this is based only on our own experience. Consult an attorney or tax professional when making business decisions.
Is LLC Similar to Business License?
A lot of new business owners are confused about LLCs and business licenses. Some of them think that they are the same, but they are actually two different things.
An LLC or Limited Liability Company is not a permit, while a business license allows you to operate your business legally. There are different kinds of business licenses, and the type of business license you need to acquire will depend on your industry and the type of business you have.
The most common types of business licenses are the following:
State Business License
This is a state-issued business license. However, not all states require one. This type of business license is usually required for businesses that hire licensed professionals, such as doctors, lawyers, contractors, and more.
Local Business License
A local business license is usually required for small businesses, but it would still depend on the nature of your business. Examples of local business licenses are food licenses, health licenses, operating licenses, tobacco licenses, and more.
An LLC, on the other hand, is a type of legally organized business structure. It protects owners from any personal responsibilities, such as debts or other liabilities. Basically, an LLC separates the business and the owner legally.
For instance, if your company is sued or goes bankrupt, you will not be held personally responsible for any debts of your company.
For this reason, there are business owners who decide to convert their unincorporated businesses to LLCs. By converting into LLC, they can be protected from any liabilities that may arise in the future. This means that any of their personal assets will not be seized if their company is sued or goes bankrupt.
Related Reading: Do You Need a Business License to Sell on Amazon? See Why It Depends
Do You Need an LLC to Sell on Amazon?
Now, the big question is if you need an LLC to sell on Amazon, the answer is no. You don’t need an LLC to open a seller account. You can sell on Amazon right away using your name or your Social Security Number. This is fine, especially if you’re still starting on Amazon and are still exploring your options.
Benefits of Having an LLC for Amazon Sellers
However, if you’re serious about selling on Amazon, then it would be wise to open an LLC in the future. Why? Aside from liability protection, here are some benefits of opening an LLC for your Amazon business.
- Adds professionalism and credibility as a business owner.
- It separates your personal and business assets.
- Your business is recognized in your state or county, and FICA (Federal Insurance Contributions Act), making your business real and authentic.
- Eligibility for small business loans.
- You can apply for a separate business bank account and credit card, making you eligible for rewards such as cashback offered for business credit cards.
- If you’re planning to sell your Amazon business in the future, it would be easier to do so.
When to Open an LLC for your Amazon FBA Business?
But when is the right time to open an LLC? Here are some things to consider.
- When you’re serious about your Amazon business and plan to do this in the long run.
- As your Amazon business grows and your monthly sales increase each month steadily.
- If you’re selling products that may cause health issues or injuries, such as supplements and sporting goods.
- If you’re a corporation and have business partners.
How to Open an LLC for Amazon FBA Business?
Setting up an LLC for your Amazon FBA business is easy and inexpensive. So, if you think now is the right time to set up one, here’s a step-by-step guide on how to open an LLC.
Choose a Name for your LLC
The first thing you need to do is to decide on the name of your LLC. It can be anything that you like. You can use your family name, your parents’ or children’s name, or even your pet’s name. It really doesn’t matter what you choose since it will not be displayed on your Amazon store or product listings.
Find a Registered Agent
While it is possible to do it on your own, you may still want to find a registered agent to do it for you, especially if you don’t have enough time to do it. When I opened my first LLC, I hired a registered agent to do it for me.
I used Legal Zoom and Rocket Lawyer. You can check them out if you’re interested in using a registered agent for your LLC. If you decide to hire a registered agent, you have to decide who will manage it. You can choose to designate people who are not part of the LLC to manage it or choose to have it managed by its members.
Alternatively, you can also choose to manage it by yourself as a sole proprietor.
Create an Operating Agreement
It is a document that outlines the agreements and operations among LCC’s owners. Please note that an operating agreement is not a requirement in most states. However, if it’s not a sole membership and there are more members, then you need to create an operating agreement.
File the Article of Incorporation
When you file an Article of Incorporation, make sure that all the necessary details are correct and complete. It should include the registered agent of your LLC, your name, objectives, agreements, the purpose of your company, ownership, and more.
To officially register your LLC, your Article of Incorporation should be filed with the Secretary of State.
Submit the Form to IRS
Lastly, to get your LCC’s Employer Identification Number (EIN), you need to submit the form to Internal Revenue Service (IRS.) You will need your EIN when hiring employees and opening a bank account for your business.
It pays to open an LLC, even if it’s not a requirement when selling on Amazon. Setting up an LLC can provide a lot of benefits for a business owner. If you haven’t opened one, maybe now is the time to do it.