Why You Need an LLC To Start an Amazon Business

Written by Wesley Henderson

December 4, 2022

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You might wonder if you need an LLC for amazon business ventures. Although Amazon policies don’t explicitly require businesses to set up a limited liability company before selling on the platform, there are many good reasons to do so.

If you are in the early stages of starting an Amazon business to make money, then you must equip yourself with the necessary information to maximize your chances of success. This blog describes the different Amazon business models you can start and discusses why you need an LLC.

What Are the Different Kinds of Amazon Business Models?

Every business owner has a unique goal. Once you establish yours and decide to use Amazon as your primary business platform, you must determine what model helps you meet your goal. Fulfillment by Amazon (FBA) expands your reach to millions of customers and generally comes in three categories. Here’s an overview of each classification.

FBA Reseller

Many entrepreneurs might start as FBA resellers because of the model’s accessibility. It’s a low-barrier method with limited risks. Essentially, you are a third-party seller instead of producing and storing items.

Despite its low-risk nature, standing out as a reseller can be challenging. You may need to establish a relationship with the brands producing the items you intend to sell. Moreover, you have tough competition since nearly anyone can start reselling.

FBA Private Label

This Amazon business model requires more commitment than being a reseller. It involves branding blank products and then selling them on the giant e-commerce platform. While it can be an opportunity to put your unique stamp on an item and build recognition, you must consider the work that goes into establishing a brand.

Starting an FBA private label demands time and effort in researching your market and communicating with suppliers. With a significant investment in your private label venture, you can reap the rewards of having a loyal customer base. Once you have customers who recognize your competence and the quality of your products, you can avoid much of the competition selling the same items.

FBA Proprietary

Finally, as an FBA proprietary business, you produce and sell your own items. This business strategy can lead to a rewarding experience, but it comes with more responsibilities than being a reseller or private labeler. You need to control every part of the product development process and the brand itself. With a product that you own, customers can only buy it from you.

With this business model, you can stay independent from Amazon if you ever lose your account. In essence, Amazon is just another channel that you utilize to distribute your products. With multiple revenue streams from different sources, you have more chances of becoming successful.

Why You Should Use an LLC for These Businesses

Once you have decided on the strategy to approach your Amazon business, consider the following reasons why you should use an LLC to start it.

You Can Protect Your Personal Assets

Forming an LLC separates your personal assets from your business, so you have peace of mind if someone ever sues your Amazon business — like if a customer claims that your product injured them or damaged their property. Without an LLC, a court can order the seizure of your home, car, or savings to pay for any damage.

You Can Enjoy Tax Benefits

All profits from your Amazon business as an LLC flow through to your personal tax return. You only need to pay taxes on the net amount. You can also deduct any business expenses from your taxes, which can help reduce your overall tax bill.

You Can Attract More Customers

Forming an LLC helps you establish a one-of-a-kind business because states only allow business entities to exist with different names. Being a unique enterprise is likely to make your company more appealing, which is important in establishing brand preference.

You Can Add Business Partners Easily

Bringing on a business partner as an LLC is much simpler and less risky than if you were operating as a sole proprietor. You can set clear expectations for each business partner through an Operating Agreement.

LLCs Are Easy and Affordable To Start and Manage

Setting up an LLC for your Amazon business is a straightforward process. You need to file the necessary paperwork with your state — which you can do yourself — or hire a professional service like Drafted Legal to help.

Filing is also a one-time deal, although some states may require ongoing fees. Additionally, you can start a different bank account for your LLC, further separating your business and personal finances. This lets you simplify your financial management efforts.

Protect Your Amazon Business LLC With Drafted Legal

Starting an Amazon business LLC is one of the smartest decisions you can make for your enterprise. However, you need to carefully consider your business model as each has unique challenges and opportunities.

Once you have decided on the LLC business model that best suits your needs, take the necessary steps to protect it. At Drafted Legal, we can help by filing your LLC paperwork and keeping it compliant with state requirements. Contact us today to learn more about how we can help start your Amazon business.

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Wesley Henderson

Hi, I'm Wesley! A business attorney turned entrepreneur devoted to simplifying how you protect your business and your assets. Like you, I'm an business owner so I get it and I started Drafted Legal to help you put in place simple and sound legal strategies so you can focus on your business and not worry about getting lost in legal nuances.

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