Selling on Amazon

Do You Need an LLC to Sell on Amazon?

By July 19, 2021 No Comments
 

featured image:Do You Need an LLC to sell on Amazon

The cost for a Professional Amazon Seller Central account is $39.99 per month. Setting up an LLC can cost $400 to thousands of dollars. So, do you need an LLC to sell on Amazon?

Why would you want to set up a company to sell on Amazon?

The primary reason to sell on Amazon under a company rather than as an individual person is legal protection. If something happens and you get sued, a company can shield you personally from the liability.

Other reasons:

  • Tax benefits of writing off tax-deductible business expenses
  • Separation of business from personal finances for tax reporting
  • Possibly making it easier to sell your business in the future

Do You Need an LLC to Sell on Amazon?

In our opinion, you can likely wait until you’re sure you will continue with your business. If you’re just creating an Amazon Seller Central account for the first time and aren’t sure if this business is for you, it might make more sense to wait.

However, if you’re confident you will pursue this business and are willing to spend at least $300-$400 or more, setting up a company to use for your ecommerce business is ideal.

What type of company should you create?

We interviewed the attorney CJ Rosenbaum of AmazonSellersLawyer.com and he recommends starting with a s-corporation. This is a corporation in which you elect to have business income flow through your personal income for taxes.

If you’re in the US, he recommends you set up your corporation in your local state for simplicity. Setting up a corporation in another popular state for businesses such as Delaware or Wyoming is likely not worth the additional reporting requirements for a small business according to CJ.

How to set up your corporation

CJ recommends blumberg.com to form your entity. We also recommend incorporate.com. Currently at incorporate.com, you can set up a Texas s-corporation, for example, with an employee identification number (EIN) and full documentation for $294 plus the $300 state fee, or $594.

Important: How to avoid getting your Seller Central account rejected

One caveat that might dissuade you from setting up a company before you create your Amazon Seller Central account comes from our Chief Mentor, Rich Henderson:

“Since you need to add a bank account when you setup your Seller Central account, you will need a bank account in the name of your company. If you try to use a bank account under a different name than your company, such as your personal name, Amazon might reject your account. The more you get rejected, the harder it becomes to create your Amazon seller account.

Amazon requires a bank statement which shows transactions. We recommend at least six or seven transactions before submitting this proof to Amazon. This means you will need to run a few transactions through your new business bank account if you wish to use it for Amazon. However, if you have an existing business and bank account with history you want to use for Amazon, then this likely won’t be an issue.”

Summary

If you’re testing out selling on Amazon and aren’t sure if you’re going to continue past the first few months, it may not be worth the cost to set up a corporation to sell on Amazon. You can start as an individual. Later, you can create a corporation and add those details to your Seller Central account.

However, if you’re serious about building a successful ecommerce business, we recommend you create a corporation, either an s-corporation or limited liability company (LLC), to sell on Amazon. The legal protection, tax benefits, and long-term necessity of separating your business financials from your personal financials make the cost worth it.

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