Should You Form An LLC For Your Amazon Business?
When people start selling on Amazon, they may just think of it as a “side-hustle” or something they do part time. Certainly there are a good number of people that want to make it their main way of making income. For all sellers, regardless of it is your main job or something you do on the side, forming an LLC for your Amazon business is something you should consider. It may have never crossed your mind, especially if you are doing retail arbitrage or online arbitrage. But there are important aspects to having your business legally recognized that could benefit you in the long, no matter what kind of seller you are.
What is an LLC?
LLC stands for limited liability company. According to LegalZoom, “A limited liability company (LLC) combines elements of a partnership, sole proprietorship and a corporation.” While it is not a requirement to have an LLC, or any kind of legally registered business entity, in order to sell on Amazon, it is a good idea to register your business. Forming an LLC is a fairy simple and inexpensive process, so many people choose to create their LLC when they start selling on Amazon rather than waiting until the business has grown. If you plan on selling on Amazon long-term, it’s a good idea to go ahead and create your LLC in the beginning instead of waiting. Having the added layer of protecting that an LLC offers is worth taking the time to do it earlier.
What are the Benefits of Forming an LLC for your Amazon Business?
When you form an LLC for your Amazon business, you are essentially creating an entity that is separate from yourself. This means your LLC can have a bank account, is legally recognized by the government, own property, and even be sued. An LLC will help protect your personal money and assets in the event that the company is sued by someone. By having an LLC for your Amazon business, someone who sues you will not be able to come after your house or other property you personally own, any money you’ve personally saved, etc.
Having an LLC will also make it easier to manage your business by separating your personal bank account(s) and business bank account(s). This is important when it comes to tracking expenses and filing taxes. Again, it goes back to the idea that the LLC is a separate entity from yourself, so it should help keep your business and personal assets separated and more organized.
In order to apply for things like a bank account for your business, business credit cards, and even to work with wholesalers, you will need a legally registered business. This is another reason forming an LLC for your Amazon business is a good idea. Even if you don’t initially think you will need any of those things, you might change your mind down the road and having your LLC already established will speed up those processes.
How to Form an LLC for your Amazon Business
The first thing you have to do when forming an LLC for your Amazon business is decide where you want to register. If you are only an internet-based company, which many Amazon businesses are, then you can register in your own state (or another state if you prefer). The one thing to remember if you choose to register your LLC in a state in which you do not live, is that you will need to have a registered agent with an address in that state in order to complete the registration. A registered agent, usually yourself or someone else involved in the business, must have a valid address in the state you are going to register in. A registered agent is the person who will received leal documents on behalf of the business, hence why they need a valid address in the state where you are reigstering. Every state has its own requirements for registered agents but usually they have to be 18 years or older and be available at the listed address during normal business hours to receive any documents that may be sent to the business.
You can also use a registered agent service if you are choosing to register in a state in which you do not live. There are plenty of these services in each state and are not hard to find with a simple Google search.
Once you have registered your LLC successfully, you’ll want to register for an EIN (employer identification number) with the IRS. This unique 9 digit identifier is basically a social security number for your business. Registering for an EIN is free and will be needed to open bank accounts and other kinds of accounts for your business.
You will also, obviously, have to have a name for your LLC before you can complete the registration. If you’ve already started selling on Amazon, you can use your store/seller name for your LLC.
What Other Options are There Besides an LLC?
There are other options when forming your Amazon business into a legal entity, but an LLC is going to be the best option for most people. If you are interested in figuring out which legal entity is right for your Amazon business, you can use this quiz by LegalZoom to figure out which one is best for your needs and goals. You can (sometimes) change the kind of legal entity your business is registered as, but it is a hassle and can cost you money you could be using for other business needs. So registering as the right legal entity to begin with is the best option.
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