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Do You Need A Business License To Sell On Amazon?

Do You Need A Business License To Sell On Amazon?

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Do You Need A Business License To Sell On Amazon?

Do you need a business license to sell on Amazon?

The short answer: No, Amazon does not require a business license to sell products through Amazon’s marketplace – or any other online business for that matter. 

However, depending on the exact product you sell, various local, state or federal government agencies may mandate that you acquire a particular license or acquire permits for your operation depending on the good or service. 

But, if you want to find out how to protect your assets and personal wealth from lawsuits and the IRS while operating an Amazon business, read on. 

Do Amazon Sellers and Vendors Need a Business License?

As stated previously, the typical Amazon seller account should not need a specific type of license. However, selling as a sole proprietor or unregistered partnership can pose several concerns, including potential liability challenges and tax inefficiency.

Many Amazon sellers register an LLC or corporation to protect themselves from liability. A side benefit of a corporation or LLC is being able to raise investment. Suppliers and other business vendors may take a registered entity more seriously than a sole proprietor or partnership, particularly for consistent high-volume orders.

Related: Comparison of business entities

Another area where sellers may run into challenges is purchasing wholesale from a supplier, which often requires a valid set of business registration credentials. The more organized your business, the easier time you will have transacting with other firms, particularly those who tend to deal with larger sellers.   

One other common “gotcha” area for new Amazon sellers, sales tax collection, also requires certain registration steps for a sales tax ID. Most states require that sellers collect sales tax at the time an end-consumer purchases a product. An accountant can also help to identify issues with tax nexus, sales tax collection, and the appropriate registration steps in your state.

Related: How do I register for a sales tax permit?

Businesses operating in highly-regulated fields requiring a federal license such as firearms, ammunition, explosives, alcoholic beverages, and others may face additional regulatory hurdles. However, these issues do not matter for Amazon businesses since sellers cannot sell these products through the platform.  

Related: Do I need a business license?

The Steps to Registering Your Business

To register a business, first, consider your specific needs. If you plan to eventually hire employees and want to ensure you have an organized corporate structure, then the following steps may help you to accomplish your goals.

DBAs and Fictitious Names

Businesses do not necessarily have to operate under their officially-registered names. For example, registering “Company A” with the government does not mean that the business must “do business as” Company A. Instead, the owners of Company A may choose to do business under a different name, “Company B.”

Some governmental jurisdictions may require that you register this DBA or fictitious name. However, note that this DBA registration does not function as a trademark or restriction on other businesses using that name. For that purpose, you would need to register an entity name and trademark with the state and federal governments respectively. 

Related: What do you need to register a DBA?

Federal Employer Identification Number

A federal tax identification number (also officially referred to as a FEIN, Employer Identification Number, or EIN – and unofficially referred to as a tax ID number) is a unique number assigned by the Internal Revenue Service to identify a business. 

For sole proprietors who choose to keep their business and personal income and assets in the same bucket and who do not plan to hire any employees, an EIN exists as an optional requirement. However, if you plan to create an LLC or corporation, an EIN becomes a mandatory requirement. 

Related: How to register for an EIN

Considerations for New Business Owners Planning to Hire Employees

As stated previously, business owners who want to hire employees should incorporate as an LLC or corporation as their liability exposure increases. Hiring employees also brings with it several additional accounting and legal requirements. Both an outside accountant and attorney should provide advice to new business owners considering this path. 

Types of Business Entities Typical for Amazon Sellers and Vendors

On Amazon, you can find examples of all types of business entities, including sole proprietorships, partnerships, LLCs, S corporations, and C corporations. Each legal entity has its own pros and cons. We will examine these different entities in the context of an Amazon business.

Sole Proprietorships

Amazon does not put any restrictions on sole proprietors operating on its platform. However, operating as a sole proprietor on the platform can expose your personal assets to liability issues and lawsuits. An organized corporate structure crafted with an advising attorney can help to establish separation between your personal assets and the business itself. 

Partnerships

Partnerships function exactly like sole proprietorships in the eyes of the legal system. They provide no additional liability protection than a sole proprietor would otherwise receive. All of the pros and cons of an unorganized, sole proprietorship apply equally to a partnership. Amazon does not restrict unorganized partnerships from operating on its platform. 

LLCs (Limited Liability Company)

An LLC provides a number of advantages to an Amazon seller. The pros of an LLC on Amazon include:

  • Liability Protection: An LLC can provide a degree of protection for the owners and separation of personal and business assets.
  • Simple Taxation: LLCs operate as “pass-through” entities in which the owners pay taxes in the same manner of sole proprietors for any business profits. 
  • Privacy: In some states, an LLC can provide a degree of privacy for the owners in public records. 
  • Minimal Formalities: Unlike more advanced corporate structures, an LLC has minimal legal or bureaucratic formalities. 

Some of the downsides of an LLC for an Amazon seller, on the other hand, include:

  • Cost: An LLC costs a fee to organize that varies depending on the state. 
  • Ownership Transfer: LLCs do not have the same flexibility in ownership transfer. 
  • Venture Capital Funding: Many VCs and other investors will prefer to invest in a C corporation. 

Related: How to form an LLC without an attorney

Corporations

Similar to an LLC, a corporation provides liability protection, however, there are more administrative requirements to follow. Corporations are typically better suited to businesses raising significant investment. 

Related: LLC vs. corporation – What’s right for you?

Advantages

  • Complete separation between ownership and management.
  • Strong legal protections and easily-transferable ownership in the form of common stock.

Disadvantages

  • Cost to form and ongoing complexity in operations. Many Amazon store owners will want to consider forming other types of entities. 

Amazon’s Advice to New Business Owners

At the time of writing, Amazon had a pricing structure for sellers that included both fixed and variable cost components:

  • Selling Plan: The individual plan charges sellers $0.99 per sold unit. The professional plan charges sellers $39.99 per month regardless of order volume. 
  • Referral Fees: For each item sold, Amazon charges a fee to sellers. The typical fee ranges from 8% to 15%.
  • Fulfillment Fees: Sellers have two choices for shipping orders to customers. The first, fulfilling through the business or with a logistics service, does not incur additional fees from Amazon. Amazon FBA (Fulfillment by Amazon) service, on the other hand, charges a fee per unit that includes all the logistics costs such as picking, packing, and customer service.  
  • Miscellaneous Costs: Other costs that sellers might incur in the process of selling goods on Amazon include storage fees, advertising, and additional account services offered by Amazon.

As a brand owner, you can also register your brands through Amazon’s Brand Registry. Acquiring this resource usually involves having an organized business structure (LLC or corporation) as well as supporting trademarks if needed. 

Ultimately, to get started with selling on Amazon, you will need a bank account (with account and routing numbers), a government-issued identification card, tax information (SSN for non-registered businesses or EIN if otherwise), and a phone number. 

Getting Started with Your Amazon Business

Operating an Amazon business presents many of the same challenges as operating a brick-and-mortar store. Understanding the reseller business model, the different online marketplaces available (Etsy, eBay, etc.), and having a solid grasp of the requirements to operate an Amazon business provide owners with the highest chances of success in their new ventures.

Do You Need A Business License To Sell On Amazon?

Do You Need A Business License To Sell On Amazon?

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