For the new Amazon seller, the frequent question eventually leads to the following:
Do you need a Business License to Sell on Amazon?
The really short answer is NO, you do not need a business to sell on Amazon. But should you? I long answer for that is yes, and we will answer that in much detail below.
Does Selling on Amazon Require a Business License? Let’s start with a definition of a company license.
A business license is a legal document that grants you the ability to operate as an individual or a corporation.
Registering as an Amazon seller does require the formation of a corporation, especially if you are just selling a few SKUs. But establishing your own LLC on the other hand could be a smart thing because it can provide you with a number of advantages.
Why you don’t need a Business License to Sell on Amazon?
In most cases, you don’t need a business license if you sell your items online. Consumers regularly sold on e-commerce platforms such as do not need to pay any fees or obtain any permits from the federal government.
Basically, Amazon does not prevent you from listing your product on their platform or use their services such as Amazon FBA.
You can see that you don’t need an LLC nor a business license during the seller account registration. In step 5 of the registration, Amazon allows “None, I an individual” under the section Your business type. This basically allows you to go through the entire registration without a business license.
Why you do need a Business License to Sell on Amazon?
Others believe that business licenses for online sellers, as well as the procedure of obtaining one, are a needless hassle. As a result, it is frequently overlooked. But one fact that you don’t want to overlook is if your product is federally regulated. If your product falls under the following category and agencies then you will need a business license.
The following product category will require a federal business license:
- Agriculture – visit the US Department of Agriculture
- Alcoholic beverages – go to the Alcohol and Tobacco Tax and Trade Bureau and the Local Alcohol Beverage Control Board
- Aviation – visit the Federal Aviation Administration
- Firearms, ammunition, and explosives – consult the Bureau of Alcohol, Tobacco, Firearms and Explosives
- Fish and wildlife – go to the US Fish and Wildlife Service
- Commercial fisheries – visit the National Oceanic and Atmospheric Administration Fisheries Service
- Maritime transportation – check with the Federal Maritime Commission
- Mining and drilling – seek advice from the Bureau of Safety and Environmental Enforcement
- Nuclear energy – talk to the US Nuclear Regulatory Commission
- Radio and television broadcasting – consult the Federal Communications Commission
- Transportation and logistics – go to the US Department of Transportation
The following product category will require a state and local business license:
- Food production
- Restaurants and bars
You can see a complete list from the Consumer Product Safety site here.
Register for Business License for the Legality
Another reason for registering for a business license is the legality aspect of it. By forming an LLC, you are giving your company a legal foundation. Obtaining a business license will allow you to function and safeguard your company from any litigation. If your company’s popularity and sales are increasing, the chances of being sued are increasing as well.
Of course, you should want to prevent any litigation as much as possible. However, by creating an LLC, you can safeguard your identity from any legal proceedings taken against your firm. If someone decides to sue your company, they will sue the LLC rather than you. Not trying to scare you, but that is exactly how it will happen if you are doing business as an LLC with a business license vs as an individual.
Register for Business License to sell on Amazon Globally
So all the information in this article assumes for US-based sellers selling on the Amazon US marketplace. But if you want to branch off of Amazon US, other marketplaces require you to have an LLC, for example, Amazon UK.
On Amazon UK you cannot register for a professional account unless you have an LLC, although you can register for an individual account, your account will be quite limited. The UK individual account will not allow you to use key services such as Amazon advertising or Amazon FBA.
Register for Business License for Growth
If you want to get essential services for your business such as any government grants or loans you are required to have a business license and LLC. Amazon selling is a cash-intensive business, and getting a loan allows you to scale out your business. Obviously, the first thing a bank or financing company will need is your LLC registration, they cannot offer you a business loan without it.
Do not make this an excuse
However, new sellers make things far more complicated than they need to be. You may become lost and go in circles trying to figure out all of the federal, state, and local business licenses that are available.
If you don’t make any sales, hence any profit then you are just invisible in the eyes of the IRS. They don’t care about you!
So focus on the thing that matters, such as making your first sell on Amazon first.
Go ahead and take action. You always registered your business and do bookkeeping after orders keeps coming in. Accountants won’t tell you this cause they like it, but you can be selling for up to a year before doing any bookkeeping work, by backdating your sales. So it is not like a business license or potential tax fillig is preventing you from doing anything.
So do not use a business license as an excuse to take the next step of action, priority people!
If you currently have an Amazon store and have decided to become an LLC, you can change your seller information after the fact. To change your Amazon store legal entity or name you will just need to take Amazon’s tax interview again. Once this process is done, you will update your account address to your LLC address.
What do I need to do to get a Business License?
Choose a Business Structure
As mentioned you can start your entire online business without establishing a legal entity. The basic goal is to safeguard yourself in case something bad happens. Although the likelihood of things going wrong and being sued is low, it is possible.
You can operate as a sole proprietorship if you’re just starting out. When you file your taxes, all of your sales will be included with your income tax. It makes the tax filling much easier than the next option.
The next structure you should think about is forming your company as an LLC (Limited Liability Company). If your company is growing and you need to hire more employees, an LLC is a good option.
It also gives your company a legal identity apart from you, ensuring that you are not personally liable for your firm’s responsibilities.
Another advantage is that it will readily differentiate between business and non-business spending. This will ensure operational discipline.
Register a DBA
If you’re doing business as someone other than yourself, you’ll need to register a DBA. This basically the name that you want to be registered with.
Get a Sale Tax ID
State, county, and local taxes are all included in a sales tax. When sales are made, you can collect sales tax from the customers, although on Amazon this collection is done for you
You can get a sales tax ID by:
- Go to the website of your state’s Department of Revenue.
- Then, go to “Sales Tax” section and register your LLC
Get a Federal Tax ID
This is probably the most important part. A federal tax identification number used to identify an LLC is known as an Employer Identification Number (EIN). So you’ll need an EIN if you want to register a business banking account for your LLC or for import/export.
If your using a company registration service they will probably register an EIN for you. But you can also register via one of 3 ways.
- Online – just visit this link from IRS.
- Via Mail, send your accomplished Form SS-4 to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999. Mailed-in applications are processed within 4 weeks.
- Via Fax – download your Form SS-4 from the IRS website and send the accomplished form to fax number 855-641-6935. Please include your fax number so you can receive your EIN via fax within four (4) business days.
But let’s be honest no one using the internet will be using the last two options anymore.
It’s also worth noting that obtaining an EIN as a sole owner is completely optional, although you are still allowed to do so. As a sole proprietor, you can use your social security number for tax fillings.
Hope this article has answered any remaining questions you may have regarding business license registration. When you’re just starting out, it’s easy to feel overwhelmed and believe you need to accomplish more.
If you don’t make money, all these business licenses, LLC, tax etc don’t matter. Don’t get yourself in knots figuring this out. Your north star is sales, so concentrate your efforts on getting out and sourcing your first product!
If you have more questions, feel free to comment below.
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