Facebook Twitter

0

Do You Need an LLC to Sell on Amazon?

In short, no. You do not need an LLC to sell on Amazon. You can start selling immediately under your name as a sole proprietor. 

If you are beginning to explore ecommerce and want to test the waters of selling on Amazon, having a sole proprietorship is perfectly fine. But if you decide to pursue an Amazon business further, should you eventually open an LLC? What is the difference between an LLC and a sole proprietorship? What are the benefits of operating an LLC?

In this article, we’re going to answer all of these questions and more, so keep on reading!

Note: I am not a lawyer or an accountant, and Jungle Scout isn’t licensed to give you legal advice. If you need legal advice on structuring your business, please consult a professional.

 

What is a Sole Proprietorship?

A sole proprietorship is an unincorporated business run by one person as the owner. To become a sole proprietor, you simply need to start selling something. You automatically become a sole proprietor once you sell a product or service. 

Being a sole proprietor is the simplest way to sell products or services online. However, keep in mind that there is no legal separation between the owner and the business in a sole proprietorship, meaning the owner is personally responsible for any liabilities such as debt or lawsuits.

 

What is an LLC?

An LLC (Limited Liability Company) is a U.S.-specific legal entity designed to protect owners from debt and other liabilities. Unlike a sole proprietorship, an LLC legally separates the owner(s) from the business. This means you won’t be personally liable for any debts and lawsuits your business may experience — the LLC will be responsible.

LLCs can have multiple members; a sole proprietorship only has one. 

 

So, what is the difference?

The most significant difference between the two is that you have much more protection with an LLC. The LLC is a legal entity separate from its owners. An LLC can be used to operate a business — have a bank account, owe money, borrow money, sue, and be sued. It can also purchase and sell real estate. 

When you are a sole proprietor, you are personally liable if your business gets sued or accrues any debts. With an LLC, your business’s creditors can’t go after any money or assets that aren’t owned by the LLC, such as your home or personal savings. 

Sure, seller insurance can help protect from that, but an LLC keeps the business separate from you. 

If you form a single-person LLC, you will be taxed the same as a sole proprietor — you just have more protection.

Forming a sole proprietorship is very easy because you simply need to start selling but eventually, you must think about protecting yourself and your business with an LLC. 

 

When is the right time to open an LLC for my Amazon business?

Open an LLC as your business grows and once you plan to take your ecommerce venture seriously. Forming an LLC is the best way to protect yourself and your business. Form an LLC when:

  • You are serious about selling on Amazon and growing your business
  • Your sales have been steadily increasing each month
  • You sell products that may cause injuries, such as sporting goods, health and wellness products, and supplements
  • You want to separate yourself from your business
  • You have business partners

Once any of the above apply, it is best to form an LLC right away. Forming an LLC is not as difficult as you may think and could protect you in the long run.

 

Do I need a business license to sell on Amazon?

No, a business license is not required by Amazon when opening a seller account, though it may be required by your state or local government. (This is why consulting with an accountant or attorney is essential when setting the foundation for your business.)

If you plan to sell wholesale products on Amazon, you will likely need a business license and sales tax permit. Before opening a wholesale account, most brands, wholesalers, and distributors will require this documentation to confirm that you have a legitimate business.

A business license is not required if you are a private label or retail arbitrage seller.

 

What is a sales tax permit? Do I need one?

A sales tax permit, aka “resale certificate,” allows you to purchase inventory tax-free and to collect sales tax on a state’s behalf. If you are selling products on Amazon, then yes, you are most likely required by your state to have a sales tax permit. 

For example, if your business is located in New Jersey and sells a product to a New Jersey resident, you are required by the state to collect sales tax and remit that tax to the state each quarter. 

As an Amazon FBA seller, you may also have to pay sales tax in other states where your inventory is stored.

Again, please consult with your tax professional to determine your federal and state tax liability. 

 

How do I register a company to sell products on Amazon?

When it comes time to open a business in the form of an LLC, you can simply go to your state’s website to form a business. The fees involved will vary depending on the state. You may also use an accountant or service such as LegalZoom, which will cost significantly more. 

Your state’s website should have all the information you need when forming a business. For example, here is what the State of New Jersey’s business formation page looks like:

Read through the information provided thoroughly, and fulfill the requirements to file your application. 

 

Do I need an EIN?

When you form an LLC, you will also need an EIN, or Employer Identification Number. Think of the EIN as your business’s social security number, and how the IRS identifies your business. 

You can easily apply for an EIN on the IRS website for free. Do not get tricked by websites or services that charge you for an EIN; the process is straightforward.

 

 

Choose the best structure for your business

We know this topic on LLCs and sole proprietorships can seem complicated, but once you’ve done your research, it is easy to understand. Take the time to learn the concepts involved, as it is necessary information to know when deciding to sell products on Amazon. 

Bottom line: If you want to test out how selling online will work for you, stick with being a sole proprietor; if you are serious about selling on Amazon and growing your business, forming an LLC will help protect you. 

Again: I am not an attorney or an accountant, and Jungle Scout isn’t licensed to give you official legal advice. Please consult with an attorney or an accountant to structure your business.

Do you have an LLC? Or has a sole proprietorship worked well for your business? Let us know! If you have any other questions regarding LLCs or business formation, ask them in the comments below, and we’ll do our best to answer them!

 

48 comments on “Do You Need an LLC to Sell on Amazon?

    1. Hi,

      Brands or distributors will require you to have a registered business to purchase products at a wholesale cost.

  1. I am in the UK and want to set up amazon seller (wholesale) account. It looks like I don’t need business license and sales tax permit in the UK to start selling wholesale products. I googled a lot and there is no platform to apply for it. I am intending to sell only in the UK so does it mean that when contacting the wholesalers I won’t need to show the license n tax permit? Can I buy from wholesaler suppliers outside the UK in this scenario?

    1. Hi Bee,

      There is no “wholesale” Amazon seller account. If you want to resell wholesale products on Amazon, any brand or wholesaler you purchase from will likely require a business license, though I am not sure how that works in the UK. Start contacting companies and see what they require.

  2. Hi brain
    You explained very well. I am from Pakistan and i want to open seller central account on amazon and plan to do FBA in USA. I need to know what is the basic requirements for me should i need LLC or Liscence Agreement or any other basic thing

    1. If contacting brands to open a wholesale account, the brands will likely require a business license from you, so yes.

  3. Hi trying to open seller central account and i have no llc yet but I am trying to test the water first whats work for me. Can you enlighten me more how to apply without llc i am not from the Us andplanning to sell for private label.

  4. Hi

    When setting up an single manager LLC to sell personal care product, travel care kits, water bottles etc on AMAZON, what NAICS CODE should I select under business purpose?

  5. The article is informative. I love it.
    I have a question that I am registered on Amazon as sole proprietor from Pakistan as FBA seller. How can I sale product with out tax number and other legal requirements of USA

  6. Hello, thanks for the informations, Im from iraq And i want to sell on amazon us And i am confused with the documentation that i need to open up my amazon seller account can you Lead me the right way please
    I need help. Regard aisha.

  7. Hi, if someone else is selling a product , do I need any type of permission or documentation to sell that same thing on Amazon

    1. You can sell similar items as other sellers on Amazon. You need to be sure there is no patent for the product you want to sell and be sure not to list your product on another seller’s listings.

  8. Hi Brian,
    I am a Canadian citizen and want to do business on Amazon in USA. I have following questions
    what is best option to register a business as a sole proprietor or corporation.
    In either scenario which documents i need to sell in USA from USA.
    Will I be double taxed,i.e USA or Canada

  9. Hello Brian,
    I am from Lebanon, and planning to start wholesaling on Amazon, if I have a foreign entity, and have a sales tax ID and a certificate, does my supplier/ brand accepts my documents?

    1. Hi Peter,

      I suggest contacting some brands or suppliers to see what type of documents they will require from you. If you have a sales tax ID and a business entity, that should work just fine when purchasing directly from brands.

  10. Hi Brian, How can you use your single member LLC name on Amazon FBA ? I notice that when adding a single member LLC Amazon stills shows Personal name under legal entity name and seller information. It seems only S-corps and C-corps will show a business name and not someone personal name . Any idea on this? Really don’t want me name as the business name. Thanks

    1. Hi laura,

      You should be able to do so. I suggest contacting Amazon seller support to see if they can help resolve that issue for you.

  11. Hi I started my amazon account as a sole prop and just opened a single member llc and received an EIN from the IRS. i went to update my amazon seller account with this info to change legal entity name and tax info but amazon is stating for tax purposes single member llc’s are still listed under individual social security numbers since its pass thru. I guess my confusion is where does your llc protection come from if everything is still listed under my name and ssn? Thanks in advance

  12. Hello,
    You perfectly explained about LLC.
    Then you mentioned;
    “Do I need a business license to sell on Amazon”.
    This is confusing, what is the difference between LLC and a Business License ?
    If I have an LLC then do I also need a Business License ?
    Thanks.

    1. Hi Ron,

      The LLC is the legal entity and a business license basically gives you permission to a specific type of business in a specific location.

      Brian

  13. Hello JS team! Good day!

    Congrats for the article. The “missing part” was to highlight that you’re mentioning LLC for sellers based in US.

    As a foreigner, who owns an LLC (New Mexico) and live outside of US, I would love to know more about the licenses and taxes, please.

    Thank you.

    Best regards, Adriano Andrade.

    1. Hi Adriano,

      Thanks for your comment! For information on licenses and taxes, if you live outside of the US, I suggest contacting an accountant.

  14. Hi

    I am Canadian residing in Canada wishing to get onboarded Walmart US marketplace. However, a Business tax ID is obligatory to get registered with Walmart. Wondering if a Canadian corporation can get a US business tax ID and get approved to sell on Walmart?

    Regards
    Rui

    1. Hi Rui,

      When applying for Walmart, it still seems they’re only accepting businesses registered from within the US.

    2. Hi Rui,

      Maybe you can help me. I am a Canadian and want to buy wholesale from the US to sell on Amazon. I am struggling, trying to figure out how to go about the LLC, EIN & reseller certificate. Any help/guidance would be muchly appreciated.

  15. Thank you for a good article Brian. What is the potential complications that might occur when switching from my personal info with SSN to my LLC with EAN? My listing is live. Would this transition effect my sale? Thank you!

Leave a Reply

Your email address will not be published.