The world of online selling has exploded in recent years, with Amazon leading the charge as a global marketplace. Whether you’re a seasoned entrepreneur or just starting your journey, the allure of selling on Amazon is undeniable. The platform boasts a massive customer base, a user-friendly interface, and the potential for significant profits. However, amidst the excitement of launching your Amazon venture, a crucial question arises: Do you need to form a Limited Liability Company (LLC) to sell on Amazon? 

This article delves into the legalities and practicalities surrounding LLCs and their potential impact on your Amazon business in 2024. We’ll explore the benefits and drawbacks of forming an LLC, empowering you to make an informed decision about your business structure.

Do I Need an LLC to Sell on Amazon?

For starters, let’s clear up the most pressing question: No, forming an LLC is not mandatory to sell on Amazon in 2024. You can create an Amazon seller account and begin selling products under your own name, operating as a sole proprietor. This approach offers a simple and quick entry point into the platform.

However, operating as a sole proprietor comes with a key caveat: personal liability.

As a sole proprietor selling on Amazon, your personal assets (like your car or house) are not legally separate from your business. This means that if your business faces a lawsuit or incurs significant debt, your personal belongings could be at risk to satisfy those claims. While this might be acceptable for small-scale ventures or individuals just testing the waters, it becomes increasingly risky as your business grows and potential liabilities increase.

The Benefits of Forming an LLC for Selling on Amazon

While not mandatory, forming an LLC offers several potential advantages for Amazon sellers, especially those venturing beyond the basic sole proprietorship model. Let’s explore some key benefits:

  • Limited Liability Protection: An LLC creates a legal separation between your personal assets and your business assets. This means that if your business faces lawsuits, incurs debts, or experiences financial difficulties, your personal belongings, like your home or savings, are generally protected from creditors. This provides significant peace of mind and can safeguard your financial security.
  • Pass-Through Taxation: Unlike corporations, which pay taxes on their profits and then again when those profits are distributed to shareholders (double taxation), LLCs are considered “pass-through entities.” This means the business itself does not pay any income tax. Instead, the profits or losses of the LLC “pass through” to the owners’ personal tax returns, where they are reported and taxed accordingly. This can often result in simpler tax filing and potentially lower overall tax burdens.
  • Credibility and Professionalism: Having an established business structure like an LLC can enhance your image as a professional and trustworthy seller. This can be particularly beneficial when dealing with customers, suppliers, and potential business partners. An LLC adds a layer of legitimacy and can inspire greater confidence in your operations.
  • Management Flexibility: LLCs offer flexibility in how you choose to manage your business. You can have a single member managing the LLC yourself (member-managed) or appoint dedicated individuals (managers) to oversee operations. This flexibility allows you to structure your business in a way that best suits your needs and goals.

It’s important to note that forming and maintaining an LLC comes with additional costs and filing requirements compared to operating as a sole proprietor. That said, taking the time to create one can open the door to peace of mind as your Amazon venture scales and grows. 

When to Consider Forming an LLC

If you’re asking, “do I need an LLC to sell on Amazon?” as a brand-new seller, you might be getting ahead of yourself. While it’s good to have, forming an LLC becomes more appealing in specific scenarios as your Amazon business evolves:

  • Increased Sales Volume: As your sales volume and profitability grow, the potential for legal and financial liabilities also increases. An LLC provides valuable protection for your personal assets, reducing the risk of losing them if your business encounters financial difficulties.
  • Expanding Inventory or Product Lines: Expanding your inventory or venturing into new product lines can expose you to increased risks and potential product liability concerns. An LLC can offer valuable protection in such situations, safeguarding your personal assets from unforeseen legal issues.
  • Hiring Employees: If you decide to hire employees, forming an LLC can bring additional benefits. It creates a clear separation between your personal and business finances, which can be helpful for managing payroll taxes and other employee-related expenses. 

Is an LLC necessary to sell on Amazon? No. Do you need one right away, before you make your first sale? No. Is an LLC worth investing in as your sales volume begins to grow? Absolutely! Think of it as a corollary: the more exposure you have as a seller, the more risk you open yourself up to and the more valuable an LLC becomes as a tool to protect you from that risk. 

How to Apply for an LLC to Sell on Amazon

Think you might benefit from an LLC as an Amazon seller? The good news is that applying for one is relatively simple. Here’s a general overview of the process (note that specific requirements differ from state to state):

  • Choose a Business Name: Select a unique and available name for your LLC. You can conduct a business name search through your state’s Secretary of State website.
  • File Articles of Organization: This document formally establishes your LLC in your chosen state. You can typically file online, by mail, or in person.
  • Appoint a Registered Agent: This is an individual or service who receives legal notices and official documents on behalf of your LLC.
  • Obtain an EIN (Employer Identification Number): This federal tax identification number is required for opening a business bank account and filing business tax returns.
  • Create an Operating Agreement: This internal document outlines the ownership structure, management responsibilities, and profit-sharing distribution within your LLC. While not legally mandatory in all states, it’s highly advisable to have one for clarity and dispute resolution.

If you’re not quite sure about opening an LLC or want to put it in the hands of someone with more specific knowledge, consult with a qualified attorney or accountant. This person may also be able to be your registered agent and can help simplify the process of LLC ownership so you can focus on selling. 

Open a Business Bank Account with NorthOne and Start Selling

If you decide to apply for an LLC to sell on Amazon, you should also open a business bank account with NorthOne. We offer the best bank account for Amazon sellers, complete with innovative features like our revenue dashboard, instant deposit of funds from Amazon, and world-class customer support. It’s a bank account built for the era of ecommerce!

NorthOne makes it easy to succeed as an Amazon seller! Apply for a NorthOne Connected Bank Account and get the insights, tools, and support you need to optimize your sales efforts: