LLC for Amazon FBA: Do You Need One? - MarketWatch (2024)

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“FBA” stands for “fulfillment by Amazon,” which means Amazon stores, packs and ships all of your orders for you (also known as “drop-shipping”). Businesses who sell products on Amazon will have their products shipped in bulk to an Amazon fulfillment center where they’re stored until they’re sold. Amazon has one of the world’s largest fulfillment networks, so sellers using the FBA model can save time and money by using Amazon’s network.

A limited liability company (LLC) is a business structure registered under the laws of a state that protects its owners (called members) from personal liability for the activities of the business. LLCs have fewer registration and maintenance requirements than corporations, but are more formal than sole proprietorships or partnerships. An LLC is a separate legal entity from its owner for liability purposes.

A sole proprietor with a growing business may want to start keeping business and personal assets separate, and protect themselves personally in the event of a lawsuit. They can do this by forming an LLC, which will set them up for success as the business grows.

An Amazon FBA LLC automatically comes with legal protection, as long as you keep your personal assets completely separate from your business assets. Common LLC benefits include liability protection, tax flexibility, management flexibility, low compliance requirements and enhanced credibility as a seller.

Liability Protection

You can protect yourself and your business by forming an LLC. For example, say you ship a defective product that ends up injuring a customer. If you’re a sole proprietor, you and your business are considered to be the same entity for legal purposes. So, if that injured customer sues, they’ll be suing you personally. However, if you run your business as an LLC, only your business and your business assets will be subject to a lawsuit.

Tax Flexibility

One benefit LLCs have over corporations is that they can elect to be taxed as pass-through entities, corporations or S-corporations (if certain requirements are met). Other business entity types don’t have this flexibility. You can make this election for your LLC by simply checking a box on its annual tax returns.

Management Flexibility

LLCs have a lot of freedom when it comes to determining their management structure. LLC members can manage the business collectively, designate certain members to manage it or designate outside individuals or entities to manage the business (member-managed LLCs vs. manager-managed LLCs).

Low Compliance Requirements

An LLC may be the best business entity for an e-commerce business because it’s the most low-maintenance option that still provides liability protection. Though the requirements vary slightly state to state, all LLCs have annual reporting requirements which come with state filing fees. Unlike corporations, LLCs aren’t required to form a board of directors, hold annual meetings or be owned by shareholders. The lack of corporate formalities required by an LLC allows you to focus on growing your business rather than worrying about compliance.

Seller Credibility

Running your business as an LLC signals to customers that you’re serious, organized and professional. The relatively low cost of forming an LLC may be worth it to increase credibility, and therefore, sales.

Did you know you aren’t required to start your Amazon LLC in the state where you live? It may be most convenient for purposes of formation and operation — especially if there’s a fulfillment center in your state. consult with a tax professional to determine where you may be responsible for sales tax as well.

There are many ways to determine the best state for forming an LLC. Check out the tax benefits you can get in each state, such as low income tax or tax breaks for certain businesses.

Setting up an LLC for an Amazon FBA can be done in five easy steps using our comprehensive guide to starting an LLC. It’s simply a matter of filing the correct forms with the correct state agency (usually the secretary of state) and paying the filing fees.

Setting up an LLC on your own is doable — especially for an e-commerce business. To take the stress out of formation and to ensure you do it right the first time, formation services like ZenBusiness, LegalZoom and other established companies will handle formation for you at a reasonable fee.

Step 1: Choose a Business Name for Your Amazon FBA LLC

Choose a unique name for your business that isn’t already in use by another company in your state of formation. To be safe, choose a name that isn’t in use or widely known nationally, since your business will be accessible far and wide on Amazon. LLC names must include a designation to signal to the world that your company is an LLC. A designation simply means including “limited liability company,” “limited company,” “LLC” or “LC” in the name.

If you want to do business under a name other than your LLC name, consider filing a DBA or trade name application. This will give you a second registered trade name that you can use to market your brand.

Step 2: Designate a Registered Agent

Every LLC is required to designate a registered agent with a physical address in the state where the LLC is formed. You can hire a commercial agent, find a private agent or serve as your own (although your LLC can’t serve as its own agent).

Step 3: File Articles of Organization

The articles of organization (sometimes called a certificate of formation) is the paperwork that officially forms your LLC. You’ll file these documents with the appropriate state agency and pay the accompanying filing fee.

Step 4: Draft an Operating Agreement

Only a handful of states require an operating agreement as a condition of having an LLC in the state, but it’s a good business practice to have one regardless. An operating agreement outlines in detail how your business runs and is necessary to the smooth growth of an LLC. Without one, you’ll be subject to the default rules of your state, which may not be preferable for your business.

Step 5: Obtain an Employer Identification Number (EIN)

The final step to forming your LLC is obtaining an EIN from the IRS. An EIN is necessary to hire employees, obtain financing and open a small business bank account. You can apply for an EIN for free on the IRS website.

Legal Disclaimer: This article contains general legal information but does not constitute professional legal advice for your particular situation and should not be interpreted as creating an attorney-client relationship. If you have legal questions, you should seek the advice of an attorney licensed in your jurisdiction.