Creating an LLC for Amazon FBA
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.
Best State to Form LLC for Amazon FBA
Using A Wyoming LLC To Be An Amazon Associate
Amazon is the #1 internet retailer. Amazon’s success is in large part due to the fact that the site offers unmatched retailing opportunities to third-parties and individuals. Nearly anyone can sell products through Amazon, and anyone with a website or blog can be an Amazon affiliate, no matter where you live. This last part may come as a shock to anyone living in states where Amazon has banned affiliates. But it’s true, anyone can be an Amazon associate no matter where they live, if they use a Wyoming LLC.
Wyoming LLCs in Banned Amazon Associate States
To anyone with an online presence and mind for marketing, the Amazon affiliate program was a godsend. You don’t need product, a warehouse, employees—you only need a way to funnel customers to an Amazon product page, and when a customer buys something off Amazon, you get anywhere from 5% to 15% of the sale. Many people use their personal blogs or websites and simply have Amazon banners and ads running and visitors can simply click those ads. The Amazon affiliate program is amazing as long as you don’t live in a state where these sales are prohibited (see: Arkansas, Missouri, Maine, and Rhode Island). Because the aforementioned states saw affiliates located within their borders as mini-Amazon retailers, they wanted the sales tax from Amazon to fill their coffers. Amazon discontinued the program in those states.
However, you can continue living in your state of choice and gain access to the Amazon Associates program as a Wyoming LLC.
Do You Need an LLC to Sell on Amazon
You do not necessarily need to form a Limited Liability Company (LLC) to start selling stuff on Amazon. However, forming an LLC for your Amazon business does have some certain important advantages that should be addressed. First, we’ll talk about your first option which is to continue to work as a Sole Proprietorship.
You will need to check with your town/city hall. Most will require permits for where you operate your business – even if it is at home and there may be zoning restriction on what you are allowed to do. You can also check with the local Chamber of Commerce and they can help you to determine what you need to do. A conversation with a local accountant will also be helpful.
If you have not set up a separate company (e.g. LLC), your business income will be added to your personal income. Again, speak with a local accountant.
You should start with products you are familiar with and use the websites for those brands to get in touch with their sales managers to get set up as a reseller.
It is usually best, for credibility, to have set up your business, even as a sole proprietor. You should have a business license (as above) and be registered for sales tax. Without those, they won’t respond to your contacts.
You can sell without a registered trademark. If you have designed your own products, you should look into patents and trademark registration. If you are reselling other brands, you don’t need to do that. It is still worthwhile to check into existing company names. That will usually be required before you get your business license. This will help you to avoid getting sued because someone else already has the same business name. It can be worth a conversation with an intellectual property lawyer regarding yours risks and options.
Do I need a DBA to Sell on Amazon
Starting a small business enterprise on eBay, Amazon Webstore, Etsy or even Craig’s List has become an increasingly popular option for entrepreneurs looking to get instant visibility and access to a massive online marketplace.
But how do you go about becoming a serious eBay seller and forming a business around your enterprise? At what point does your enterprise become more than just a hobby? Will you need to get a business license, incorporate, and pay sales tax?
Here are some answers to these and other common questions about moving beyond just selling online to becoming a serious online business owner.
Do I Need to Form a Business to Sell on eBay, Amazon, etc.?
Actually, no – as long as you aren’t making a profit, you can buy and sell on these sites without formalizing a business entity. To the IRS, you are a hobbyist.
It might even be a good idea to test the waters this way to give you an idea of what you’re getting into before diving in head-first. But remember, once you start making a profit, the IRS will consider you a for-profit business and you’ll need to report any income you earn. Since neither eBay nor PayPal reports transactions to the IRS, it’s up to you to report your profits.
For more information check out IRS guidance on when your online marketplace activities are a considered a hobby and at what point they become a business.
Do I need an LLC to start an online business?
There is no legal requirement that you form an LLC (or other entity) to start a business. But here’s the $64,000 question: Do you want to have your personal assets stripped from you? Do you want to be at risk in the event of a lawsuit? Do you want to spend a lot of time and money building a business that will always be dependent on you?
If your answer to any of these questions is “No,” then you should form an entity. Take this seriously. Sketch out a business plan. Project your expenses. Don’t assume that the Internet still operates on a “build it and they will come” mentality. (It doesn’t.) According to Mashable, there are 350,000,000 registered domains, and 150,000 more are added each day. That’s a lot of noise and a lot of traffic to cut through.
If you’re not serious about running this as a business, then figure out how much you’d have to spend on it and put that money toward something else.
So you’ve decided to start an online retail business. You’re working out the details of Web design, marketing, search engine optimization, finances, customer service, shipping, production and more. Sooner (rather than later) you need to decide upon a legal structure for your business. As an individual, you can choose to operate either as a sole proprietor or a limited liability company. If you have another member/manager in your online business (even a spouse), you have no choice but to form an LLC.
A sole proprietorship is the simplest business structure, since you need not register your business name with the state, and you can use your Social Security number instead of obtaining an employer identification number. If you establish an LLC, however, you must first create an operating agreement. (Free templates for each state are widely available online.) Then you will need to register online with your secretary of state’s department, pay a fee and file an introductory form called the articles of organization. You may also need to apply for a federal and state employer identification number, or you may be able to operate under your Social Security number.
Research your state requirements at your secretary of state’s website. No matter your online business type, make sure you obtain the necessary business licenses from the state. The secretary of state’s office will tell you what licenses are required.
The net effect of taxation will be identical whether you are a single-member LLC or a sole proprietor: Your federal income will be reported on IRS tax form 1040, Schedule C. You will be taxed only once, as opposed to incorporated business owners, who are taxed once at the corporate level and again on their individual tax return. Most banks treat sole proprietorships and limited liability companies the same in terms of business accounts, but check with your financial institution first.
If your online retail business will owe sales tax for sales to in-state customers, your business structure should not make any difference in how you pay this tax to the state. The only added expense for an LLC is the startup fees and annual registration fees owed to the state.
How do I set up Amazon FBA?
The Fulfillment by Amazon (FBA) business model continues to grow in popularity, and for good reason. Fundamentally, it’s the same as a traditional ecommerce business. But, instead of your having to fulfill orders one by one, Amazon stores your products for you and even picks, packs and ships them out to customers.
This makes it a lot easier for you to build your business without having to worry about the logistics of warehouses, packaging materials, couriers and so on. With private labeling, you also have the opportunity to build your own brand and website, thereby increasing the value of your business.
The FBA business model allows you to leverage Amazon’s robust distribution network and customer base. As noted, Amazon will warehouse your products, fulfill orders and even provide customer service so you don’t have to be hands-on with every aspect of the business.
What this means for entrepreneurs is that you can act like a big corporation without the headache of actually being one. You can focus on finding product opportunities while Amazon handles the rest on your behalf.
In a typical ecommerce business, you have to figure out the logistics of sending products to your customers in a timely manner. However, with FBA, Prime members get most orders shipped to their door within two to five days.
Another common challenge with an ecommerce store is that inventorying and listing additional products for sale can increase the complexity of your business. With FBA, all you need to do is ship the products to Amazon’s warehouse, and the company will take over from there. You can easily increase your product selection without significantly adding to your workload.
Raring to go? Here’s our basic guide for starting an FBA business.
With these quick and simple steps, FBA can help eliminate your fulfillment headaches and help you scale your business.
1. Set up FBA.
If you already have a Selling on Amazon account, add FBA to your account. If you don’t have a Selling on Amazon account, get started today.
2. Create your product listings.
Add your products to the Amazon catalog one at a time, in bulk, or by integrating your inventory-management software with Amazon’s API.
3. Prepare your products.
Make sure your products are “e-commerce ready,” so they can be safely and securely transported all the way into a customer’s hands. Need supplies? Get Amazon preferred prep and shipping supplies delivered to your door.
4. Ship your products to Amazon.
Create your shipping plans, engage discounted partner carriers, and ship and track your shipments to Amazon fulfillment centers. Amazon’s online seller tools can help you through the process.
5. Customers order your products, and Amazon picks, packs, and ships them.
Prime customers get fast, free shipping on your products, and all customers can qualify for FREE shipping on eligible orders. Amazon fills those orders quickly and efficiently using our advanced, web-to-warehouse, high-speed picking and sorting system. Customers receive tracking information from Amazon.
6. Amazon provides customer support on products you sell.
Amazon’s world-class customer-service team manages customer inquiries, refunds, and returns for orders on Amazon marketplaces, 24 hours a day, seven days a week.
Although starting an FBA business will require up-front capital, the effort will be nowhere near as intensive as it would be with a traditional ecommerce business. Getting your business off the ground is the easy part. Finding ways to grow your FBA business is the more difficult part. Take advantage of the resources available to you, and systematize your processes as you go.