Chapter 2.1: Sole proprietor or LLC?
What you'll learn: the two common ways to run a US Amazon business, what each means day to day, whether you need an EIN, and how to choose. There's no single right answer, and plenty of successful sellers use each.
This page gives you the general picture so you can make an informed choice. It isn't tax or legal advice. Rules and fees differ from state to state, so check your state's official website or talk to a CPA or attorney about your own situation.
Do you need an LLC to sell on Amazon?
No. Amazon lets you register as an individual, and its sign-up flow has an option for exactly that. Many people start as a sole proprietor: you're self-employed, and the business is you. Others form a limited liability company (LLC) before they register. Both can open an Amazon Professional seller account and use ArbiSource.
The two options side by side
| Sole proprietor | Single-member LLC | |
|---|---|---|
| What it is | You trade as yourself; legally, you and the business are the same | A separate legal entity, formed under your state's law, that you own |
| Setting up | Nothing to file to start; some cities or counties want a local business license, and a "doing business as" (DBA) name is optional | File formation papers with your state (often called Articles of Organization) and pay the state's filing fee |
| Ongoing cost and paperwork | Minimal | Depends on the state: many require an annual or biennial report and fee, and some charge an annual LLC tax or franchise tax |
| Federal income tax | Profit goes on Schedule C with your personal return | By default, the IRS treats a single-member LLC as a "disregarded entity", so profit still goes on Schedule C |
| Liability | You're personally responsible for business debts and claims | Generally separates business liabilities from your personal assets, provided you keep business and personal money apart |
| Tax ID | Your SSN, or an EIN if you get one | An EIN is common, and banks usually ask for one |
| Bank account | A separate account is strongly recommended | A business account in the LLC's name |
| Amazon sign-up | Register as an individual with your own details | Register with the LLC's legal name, address and EIN, exactly as on your state filing |
How to choose
Starting as a sole proprietor often suits you if:
- you want to test the water and start quickly, with no state filings or fees
- your profits are modest to begin with
- you'd rather keep things simple until you know this business is for you
An LLC often suits you if:
- you want a clear line between business and personal finances from day one
- liability protection matters to you
- you'd like the business, rather than you personally, to be the name on your seller account, and you plan to use a business address (relevant to the INFORM Act; see 3.2)
Plenty of sellers start as sole proprietors and form an LLC later, once the business is growing. If your profit becomes substantial, a CPA may also talk to you about other tax elections. That's a conversation for later, not for day one.
Filing fees and annual charges vary widely. A few states charge a fixed annual LLC tax or fee whether or not you make a profit, which can be significant while you're starting small. Your Secretary of State's website lists the current figures.
An EIN: do you need one?
An Employer Identification Number (EIN) is a federal tax ID for a business. It's free from the IRS and can be issued online straight away: Get an EIN (IRS). Beware of websites that charge for it.
- A sole proprietor or single-member LLC with no employees often isn't required to have one, and can use their SSN instead. Single-member LLCs (IRS)
- Many sellers get one anyway. Banks often ask for one for a business account, and it means you can give an EIN rather than your SSN on resale certificates, supplier applications and Amazon's tax interview.
- Forming an LLC? Form it with your state first, then apply for the EIN in the LLC's name.
If you start as a sole proprietor
- Check whether your city or county needs a local business license.
- Open a separate bank account for the business. It makes bookkeeping far easier.
- Register with Amazon using your own legal name and address, and your SSN or EIN for the tax interview.
If you form an LLC
- File with your state (the SBA's guide to registering a business links to every state).
- Get an EIN in the LLC's name.
- Open a business bank account in the LLC's name. Amazon will pay your sales into it.
- Register with Amazon using the LLC's exact legal name and address. Everything on your seller account should match your formation documents.
No. You need to be an adult to open a seller account. Amazon's seller agreement sets out the rules.
Checklist
- I've decided whether to start as a sole proprietor or form an LLC
- I've checked any local license or state LLC filing and fees
- I've decided whether to get a (free) EIN from the IRS
- I have a separate bank account for the business