As an Amazon Seller, Do You Need to Form an LLC?

You just launched your Amazon seller account so you can sell your products on this popular internet marketplace. You upload your product pictures and descriptions, fine-tune your seller’s account and start racking in your first couple of sales. Great success!

After a while, your sales keep growing, and you wonder whether you need to form a Limited Liability Company (LLC) to truly be a successful Amazon seller. Could this be a good opportunity to protect your business?

The short answer is: maybe. Although you do not need to form an LLC to become an official Amazon seller, you may decide to do so for a few important reasons.

Most of these reasons deal with financial and legal protection. Even though you may be a tiny seller now, what happens if your Amazon business starts to suddenly take off? Or what if someone starts to pick a fight with your through the marketplace? Are you protected? Is your business protected? What about tax payments? There are so many important questions to ask yourself when scaling your business on an internet marketplace like Amazon! Here are a few answers to get you started.

Grow and Protect Your Small Business

The main reason to form an LLC as an Amazon seller is to grow and protect your business and its assets.

If selling on Amazon is a tool for you to grow or launch your business, increase brand recognition, distribute your product to customers and make a decent income, then you may want to plan now for long-term business growth.

Over 80 percent of small businesses choose an LLC as their business structure because it is simple and provides them peace of mind. Even if selling your products on Amazon is “just for fun” and “nothing serious,” you never know what’s on the horizon for your business in the future. Your sales could grow exponentially, or unfortunate situations may arise that could turn this fun side hustle into a bust or a liability. From the beginning, you should consider every option for how to protect yourself and your small business.

An LLC is a business and tax structure that is a great way to protect both your business and your personal assets in case a legal dispute arises. An LLC is different than an Inc., S Corporation or C Corporation, and it is typically a better fit for a solopreneur or small business owner just starting out.

Here is a quick list of the advantages an LLC structure offers your company:

  • Limited liability protection
  • Pass through taxation
  • No ownership restrictions
  • Versatile tax status
  • Flexible profit distribution
  • Minimal compliance requirements

For more information on benefits to forming an LLC, Incfile has an entire resource center to help you understand everything you need to know about starting your business.

Scary Selling Scenarios

We don’t want to scare you away from selling on Amazon without forming an LLC first, but it’s important to be aware of some common scenarios that could potentially put you (and your business) in hot water.

Scenario 1: A Buyer Wants to Sue You

Whether your product is faulty or the buyer believes they have been ripped off, any customer can file a costly lawsuit against your company. This could drain you and your business of valuable time, energy, and financial resources. However, if you form an LLC, your business assets would be separate from your personal assets. Financially, at least, this means your personal assets will be safe and sound.

Scenario 2: Dealing With Taxes

Since you are earning income from selling your products on the marketplace, you will have to account for that when filing your taxes. You may owe the government a pretty penny if you do not account for your taxes ahead of time! Having an LLC structure makes it easy to pass through business taxes to your individual returns to ensure they get paid on time.

Our LLC help center explains this issue best: “Taxes ‘pass-through’ the company, and the individual members are taxed at an individual level and not the company level according to their profits or losses. While LLCs file tax returns, the company does not pay federal income tax.”

Scenario 3: Buyers With Bad Intentions

These are the buyers who may be intentionally trying to scam you, take down your small business, or create a knockoff or counterfeit of your product. Just like in scenario 1, you will need the help of an LLC to protect you from these sneaky buyers if they are trying to rip you off. Also, looking into business insurance could be a smart move in this scenario as well.

Get Started Today

If you are looking to grow your Amazon seller profile while protecting your business and personal assets, forming an LLC could check off several items on your long-term business plan quickly and efficiently.

Ready to start an LLC for your Amazon seller’s account? Incfile is quick and easy to use. You can start your LLC today for as little as $49 plus state fees with no contracts or pesky hidden fees to worry about. So what are you waiting for? Start today! Your business truly does begin here.

Lisa Crocco

Lisa Crocco is a freelance writer who can be found wandering the aisles of local bookstores or the streets of different cities. Follow her on Twitter or read more of her work.