Do You Need to Set Up a Company to Sell on Amazon?

Selling on Amazon can be a lucrative opportunity for individuals and businesses alike. However, one of the most common questions for aspiring sellers is whether they need to set up a formal company to start selling on Amazon. The short answer is no, you do not need to set up a company to sell on Amazon, but there are several factors to consider before deciding whether to operate as an individual or as a business entity.

Selling as an Individual vs. Selling as a Company

Amazon allows both individuals and registered companies to sell products on their platform. The choice between selling as an individual or as a company largely depends on your long-term goals, the scale of your operations, and the level of liability protection you desire.

Selling as an Individual

• Ease of Setup: Selling as an individual is the simplest way to start on Amazon. You can sign up for an Amazon Seller account using your personal information and start listing products almost immediately.
• Lower Costs: Operating as an individual means you avoid the costs associated with forming and maintaining a company, such as registration fees, annual reports, and additional taxes.
• Limited Liability Protection: One of the major downsides of selling as an individual is that you have no legal separation between your personal assets and your business activities. This means that if your business incurs debts or faces legal action, your personal assets could be at risk.

Selling as a Company

• Professional Image: Operating as a company can enhance your business’s credibility and professionalism, which can be beneficial when dealing with suppliers, customers, and other stakeholders.
• Limited Liability: Setting up a company, such as a Limited Liability Company (LLC) or a corporation, provides a layer of protection for your personal assets. In the event of legal action or business debt, your personal assets are typically protected.
• Tax Benefits: Depending on your location and business structure, operating as a company may offer tax advantages, such as the ability to deduct business expenses or the option to retain profits within the company for reinvestment.

Choosing the Right Amazon Seller Plan

Amazon offers two types of selling plans: Individual and Professional. Your choice of plan should align with your sales volume and business goals.

• Individual Plan: Best suited for those who plan to sell fewer than 40 items per month. There is no monthly subscription fee, but Amazon charges a per-item fee for each sale.
• Professional Plan: Ideal for sellers expecting higher sales volumes. This plan comes with a monthly subscription fee but offers a lower per-item fee and access to additional tools, such as bulk listing, promotions, and detailed sales reports.

Legal and Tax Considerations

Even if you choose to sell as an individual, there are legal and tax implications to consider.

Tax Obligations

• Income Reporting: In most countries, you are required to report any income earned from selling on Amazon, even if you do not operate as a formal company. This means you may need to pay income tax on your earnings.
• Sales Tax: Depending on your location, you may also be responsible for collecting and remitting sales tax on items sold to customers within certain jurisdictions.

Legal Requirements

• Business License: Some local or state regulations may require you to obtain a business license, even if you are selling as an individual. It’s important to check with your local authorities to ensure compliance.
• Product Liability Insurance: If you sell physical products, especially in categories like electronics or food, obtaining product liability insurance can protect you from legal claims related to product defects or injuries.

When to Consider Setting Up a Company

While you can start selling on Amazon without a formal company, there are certain situations where forming a company may be beneficial:

• Scaling Your Business: If you plan to scale your Amazon business significantly, setting up a company can provide a more structured framework for growth, including the ability to hire employees, seek investment, and enter into contracts.
• High-Risk Products: If you sell products that carry higher risks, such as electronics, toys, or food items, forming a company can help mitigate personal liability.
• Brand Building: Establishing a company can help with brand building, as it allows you to trademark your brand name, create a unique business identity, and build customer trust.

Steps to Set Up a Company for Selling on Amazon

If you decide that setting up a company is the right choice for your Amazon business, here are the general steps to follow:

1. Choose a Business Structure: Decide on the type of company you want to form, such as an LLC, corporation, or partnership. Each structure has different legal and tax implications.
2. Register Your Business: Register your business with the appropriate government authority in your country or state. This usually involves filing articles of incorporation or organization and paying a registration fee.
3. Obtain an EIN: In the U.S., you will need to obtain an Employer Identification Number (EIN) from the IRS, which is used for tax purposes. Other countries may have similar requirements.
4. Open a Business Bank Account: Set up a separate bank account for your business to keep your personal and business finances separate.
5. Apply for Necessary Permits and Licenses: Depending on your product and location, you may need to obtain specific licenses or permits to operate legally.
6. Set Up Your Amazon Seller Account: Once your company is established, you can sign up for an Amazon Seller account using your business information.

Conclusion

In conclusion, while you do not need to set up a company to sell on Amazon, doing so can provide several advantages, especially as your business grows. Selling as an individual offers simplicity and lower upfront costs, but selling as a company provides liability protection, tax benefits, and a more professional image. Consider your long-term goals, the nature of your products, and your financial situation when making your decision.