Do I Need A Registered Business To Sell On Amazon

Amazon sellers, similar other entrepreneurs that sell products online, should think near how their business structure affects them professionally and personally. The business organisation entity type chosen has an bear on on income tax obligations, ongoing business compliance requirements, and the financial and legal liability of the business possessor.

So, you're asking a valid question if you're wondering "Practise Amazon Sellers Need an LLC?"

While it doesn't appear that Amazon requires sellers to form their businesses equally any item business entity type, it's wise to consider the potential advantages of operating as something more than a sole proprietorship or general partnership.

Many small business owners find the Limited Liability Company (LLC) structure an ideal option considering it offers some of the aforementioned benefits of a corporation without every bit much complexity and cost.

I recommend that anyone considering a business entity change speak with an attorney and tax advisor for guidance and direction earlier making a decision. In the meantime, beneath I will share some information to assistance y'all better understand:

What is an LLC?
What are the potential advantages of an LLC for Amazon sellers?
What are the steps in forming an LLC?

What is an LLC?

Before I get into the potential benefits of forming an LLC, allow me first provide a quick overview of this business organisation structure.

An LLC is a distinct legal entity that is registered with the country. Unlike a sole proprietorship or general partnership, information technology is considered separate from its owners. Under almost circumstances, owners (which I volition as well refer to as "members" throughout this post) are not held liable for legal issues or debts of the company. In that way, it is similar to a corporation; however, an LLC does non have the same degree of corporate formalities (such as appointing a lath of directors, shareholder meetings, extensive corporate records, and other requirements) to fulfill.

Advantages of an LLC for Amazon Sellers

1. The LLC Structure Limits the Business organization Owner's Personal Liability

Sole proprietorships and partnerships are considered the same legal entity every bit their owners. So if an Amazon seller operates as either of those structures, it exposes the owners' personal assets (like their home, automobile, retirement accounts, etc.) to risk if someone sues the visitor or the business organization cannot pay its bills.

However, if an Amazon seller forms the business concern as an LLC, its owners gain protection from the legal and financial liabilities of the company, because the business is considered a divide legal entity from the owners.

ii. LLC Structure Offers Income Revenue enhancement Flexibility

Every bit an LLC, an Amazon seller tin cull one of two federal income tax treatment options:

Pass-through taxation (same tax handling equally a sole proprietor or partnership)
Corporate revenue enhancement
Due south Corporation election

Regarding state income tax, nigh states will apply the aforementioned income tax treatment that the Amazon seller'due south LLC has called at the federal level. It'southward best to check with the Secretarial assistant of State office to find out if the LLC is subject to any other fees. For example, some states levy a franchise tax on LLCs, partnerships, and corporations that grade and conduct business within their borders.

Which method volition offer the best advantage financially will depend on several variables. I recommend talking with an accountant or tax professional for guidance before making a decision.

LLC Pass-Through Taxation

If an Amazon seller chooses this option, the LLC'due south income and losses laissez passer through to the members' personal income taxation return forms. Instead of the LLC paying taxes separately, members pay them at their individual tax rates and according to their ownership per centum of the LLC. LLC members are considered self-employed individuals, and they must pay the full Social Security and Medicare tax obligations on their private taxable income from the LLC.

LLC Corporate Tax

With corporate tax treatment, the Amazon seller's LLC will file its ain revenue enhancement returns and pay income tax at the applicable corporate taxation rate.

Opting for this taxation method results in what y'all may have heard called "double tax." Income paid to an LLC's members equally salaries is subject to income tax at the corporate rate, and then that income is taxed once more at the tax rates for individuals on members' personal tax returns.

S Corporation Election

For some Amazon sellers that course an LLC, Due south Corp election might serve as a proficient compromise betwixt the first ii options. An LLC that has opted for corporate revenue enhancement treatment can elect to be treated as an S Corporation, whereby all business organisation income flows through to its members' private tax returns, but self-employment taxes (Social Security and Medicare) are only applied to members' salaries and wages. Other business profits that are divided amid members equally distributions are non subject to self-employment taxes. This avoids corporate double taxation and helps owners minimize their personal revenue enhancement burden.

iii. The LLC Structure Offers Management Flexibility

An LLC tin either be member-managed or manager-managed. This offers members choices in whom they give the dominance and responsibility of making decisions related to solar day-to-twenty-four hours business organization operations.

By default, near states will consider an LLC to exist member-managed unless its formation documents express otherwise. A member-managed LLC means that owners handle running the business and making daily decisions. A director-managed LLC ways someone (or more than one person) that the members appoint or hire assumes those responsibilities. Sometimes, a manager might also be a member of the LLC.

In either case, the specific duties and authority of an LLC's members and managers should be spelled out in the Amazon seller's LLC operating agreement. That will help keep all stakeholders on the same page and foreclose misunderstandings almost who should do what with regard to managing the business concern.

4. The LLC Has Relatively Simple Business Compliance Requirements

Next, to operating as a sole proprietor or partnership, the LLC structure offers the most simplicity compared to other business entity types. States typically have a few compliance requirements that LLCs need to fulfill, merely they are less extensive than what corporations must tend to. Amazon resellers encounter less registration paperwork when forming an LLC and fewer filings and formalities on an ongoing basis.

How Amazon Sellers Can Class an LLC

The basic steps in forming an LLC include:

Choose a business name.
Designate a Registered Agent.
File Articles of Organization with the state.
Obtain an EIN (Federal Taxation ID Number)
Create an LLC Operating Understanding.
Obtain required Amazon seller business licenses and permits (including a sales tax permit).
Kickoff a concern banking company account.
Stay in adept standing by fulfilling any ongoing business organization compliance responsibilities required by the state.

Amazon Sellers and Sales Revenue enhancement

Regardless of the business organization entity blazon Amazon sellers cull, the issue of state sales tax presents a challenge. In the past, many sellers weren't collecting and remitting sales tax, but budget-conscious states in need of revenue take started to cleft down on that.

Which state'southward sales tax needs to be remitted for online orders isn't always clearly divers. Must a seller remit sales tax to the country where the concern is formed? Or is the land where a seller has sold and shipped the product the one that collects the tax? Or if the concern has a fulfillment warehouse located in a land other than the i it is registered, is sales taxation owed to that land? Potentially, Amazon sellers may demand to utilize for foreign qualification in every state where its conducting business concern and where their products are being sold so that they accept a tax nexus there and can collect and remit state sales tax.

It's a tricky situation and one that needs the guidance from a qualified accountant or tax attorney.

Resource to Help Amazon Sellers Establish an LLC

I encourage all entrepreneurs—Amazon sellers included—to take discussions with an chaser and tax advisor before deciding if an LLC is a right choice for their online business. There are many factors to consider when selecting a legal structure, and it's of import to be as informed every bit possible.

If you lot're an Amazon seller that has had those conversations, CorpNet can help you move forward with forming your LLC. Our business document filing experts are here to handle completing and submitting your business registration paperwork—quickly, accurately, and affordably. CorpNet also offers access to our free Compliance Portal to give yous an easy manner to stay on top of all your upcoming filing requirements.

Contact u.s. today to get started!

<a href="https://www.corpnet.com/blog/author/nellieakalp/" target="_self">Nellie Akalp</a>

Nellie Akalp is an entrepreneur, small business organization expert, speaker, and female parent of four astonishing kids. Every bit CEO of CorpNet.com, she has helped more than half a meg entrepreneurs launch their businesses. Akalp is nationally recognized equally 1 of the most prominent experts on small business legal matters, contributing ofttimes to outlets like Entrepreneur, Forbes, Huffington Mail service, Mashable, and Play a joke on Pocket-size Business. A passionate entrepreneur herself, Akalp is committed to helping others take the reigns and swoop into small concern ownership. Through her public speaking, media appearances, and frequent blogging, she has adult a strong following within the small business customs and has been honored equally a Small Business concern Influencer Champion three years in a row.