Should I Start an LLC as an Amazon Seller?

Most amazon drop shipping businesses will benefit from starting a limited liability company (LLC).

By starting an LLC for your amazon drop shipping business, you can protect your personal assets and increase your tax options and credibility.

Our Should I Start an LLC for My Amazon Drop Shipping Business guide will explain the benefits of an LLC and teach you how to form an LLC.

Recommended: Use Northwest to form an LLC for $39 (plus state fees).


Do You Need an LLC to Sell on Amazon?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for an Amazon Business

By starting an LLC for your Amazon business, you can:

  • Protect your savings, car, and house with limited liability protection
  • Have more tax benefits and options
  • Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Amazon businesses will benefit from liability protection because of the liability risk of personal injuries, property damage, copyright infringement, and libel. 

Example: A customer’s child swallows a broken piece of one of your products, requiring a trip to the emergency room. They decided to sue your business. Even if you are ultimately not held liable, legal costs could be substantial.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for an Amazon Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return. 

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform. 

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if an Amazon seller can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Amazon businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loansgrants, and credit.

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Northwest will start an LLC for you for just $39 (plus state fees).

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What is an LLC?

A limited liability company (LLC) is the most popular legal business structure in the US. An LLC offers limited liability protection and tax options for any size business.

Limited liability legally protects a business owner’s personal assets in the event that a business is sued or defaults on a debt.

Most small businesses will benefit most from forming an LLC versus other business structure types. This is because LLCs are inexpensive, simple to form and run, and LLCs can protect a business owner’s personal assets from lawsuits and creditors.

Some business owners choose to form an LLC themselves, which can be done by following our step-by-step Form an LLC guides.

We generally recommend hiring an LLC formation service so that business owners can focus on generating income and growing their business.

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Recommended: Hire an LLC service for as little as $39. Learn more in our Best LLC Services review.

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

  • You can hire a professional LLC formation service to set up your LLC for a small fee
  • Or, you can choose your state from the list below to start an LLC yourself

Step 1: Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Step 2: Name Your LLC

When you file your LLC's formation documents, you'll need to give your Amazon seller business a unique name. 

Need help naming your business? Use our free Business Name Generator and our How to Name a Business guide to get started.

Once you find a business name, check if your name is available as a web domain with GoDaddy.

Find a Domain Now

Once you've secured your domain name, take the next steps. Learn how to create a website and then create a logo using our free logo maker.

Step 3: Choose an LLC Registered Agent

Your LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.

Hiring a registered agent service offers a number of benefits, including privacy and peace of mind.

Many of these Best LLC Services offer a free year of registered agent service when you hire them to form an LLC.

Step 4: File Your LLC's Articles of Organization

The Articles of Organization, also known as a Certificate of Formation or a Certificate of Organization in some states, is the document you will file to officially register your LLC with the state.

Step 5: Create an LLC Operating Agreement

An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.

Our operating agreement tool is a free resource for every small business.

Step 6: Get an EIN

An Employer Identification Number (EIN) is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.

EINs are free when you apply directly with the IRS. Visit our What Is an EIN guide for instructions for getting your free EIN.

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Need Help Starting Your LLC?

Check out our Best LLC Services review.

Should I Start an LLC FAQ

Which is better for my Amazon business — an LLC or sole proprietorship?

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

How much does an LLC cost for an Amazon business?

The cost of an LLC depends on which state you form your LLC in. The primary cost of forming an LLC for your Amazon drop shipping or FBA business is the state filing fee. This fee ranges from $40 to $500 depending on your state.

You can read more details in our How Much Does It Cost to Start an LLC guide.

How is an LLC taxed?

LLC taxation depends on if you operate a single-member or multi-member LLC as well as your LLC tax classification. 

Read our LLC Tax Guide for more information.

How do I pay myself from my LLC?

How LLC owners pay themselves depends on how the LLC is taxed, the number of members, and any agreements regarding profit sharing and sweat equity.

Visit our How Do I Pay Myself From My LLC to learn more.

What is limited liability protection?

Limited liability protection is one of the benefits of an LLC. It means that the owner’s personal assets are protected if the company is sued or goes into debt.

Visit our corporate veil guide to learn more about maintaining your LLC's limited liability protection.

Is an LLC good for an Amazon business?

Yes. An LLC will give you personal liability protection against potential business risks as well as give your Amazon business more tax options and credibility. It is relatively inexpensive and simple to form and maintain an LLC.

Learn more about Amazon LLC benefits.

When would I start a corporation vs. LLC for my Amazon business?

Corporations are complex to manage and they are subject to double taxation. For this reason, most small businesses won’t benefit from starting a corporation

When you know your Amazon business will need to rely on outside investors, then a corporation might be the right choice.

Learn more in our LLC vs. Corporation guide.

What is a corporate veil?

The corporate veil describes the limited liability protection (sometimes referred to as personal asset protection) provided by corporations and LLCs. If the corporate veil isn’t properly maintained, the corporation or LLC might lose its limited liability protection.

What are the benefits of starting an LLC for my Amazon business?

Some advantages of an LLC include personal asset protection, reduced paperwork when compared to corporations, tax flexibility, and increased credibility with customers and creditors.

Is a single-member LLC the same as a sole proprietorship?

No. A single-member LLC is a type of limited liability company, which is different from a sole proprietorship. Unlike sole proprietorships, a single-member LLC is formed by filing organization documents with your state government office.

Single-member LLCs are legal business structures that offer liability protection, branding, credibility, and privacy that a sole proprietorship doesn’t.

Do I need to open a business bank account for my LLC?

Using a dedicated business banking account for your Amazon business is essential for personal asset protection.

When you mix your personal and business accounts, your personal assets (e.g., your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Can I transfer my Amazon business's DBA name to my LLC?

The rules regarding DBAs can vary from state to state. Read our How to File a DBA guide for more information.

What type of insurance does an Amazon business need?

At a minimum, you’ll need general liability insurance and commercial property insurance.

Read our Business Insurance for Amazon Businesses article for more info.

What are the costs to start and maintain an Amazon business?

Visit our How to Start an Amazon Business guide to learn more about the costs of starting and maintaining this business.

What are the ongoing expenses of running an Amazon business?

Your only expenses might be the cost of salvaging relationships if your wholesalers don’t deliver as expected. You can build an online store for free or with a few hundred dollars at most.

Learn more about running an Amazon business.

How do Amazon drop shipping businesses make money?

Amazon drop shipping businesses make money by selling products in wholesalers’ warehouses at enough of a markup to earn a profit.

Learn more about starting an Amazon drop shipping business.

What is an Amazon drop shipping business and is it lucrative?

An Amazon drop shipping business serves as a middleman between businesses selling products and their customers. A drop shipper receives orders from customers, buys those products from third-party retailers, and then ships them to the customers. Traditional distribution channels can be expensive. The drop shipping approach can be cheaper and faster.

Although some Amazon drop shipping businesses can make millions of dollars, most make significantly less. 

Learn more about starting an Amazon drop shipping business.

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