Entrepreneurs who want to sell stuff online on Amazon must go through several hurdles. So, they would be asking a lot of questions related to setting up their online business.
For instance, such entrepreneurs must figure out ways to get their online business on Amazon started. They must also develop a plan that includes what to sell and how and where to get help.
Similarly, entrepreneurs looking to sell on Amazon must also consider whether they need an LLC or a business license. So, now, the question begs, do you need a business license to sell on Amazon?
Why Don’t You Need an LLC to Sell on Amazon and Other Platforms?
The answer to the above question, ‘Do you need a business license to sell on Amazon?’ is no, you don’t need a business license to sell on Amazon.
One of the primary reasons for this is that most products or services that you sell on Amazon are not federally regulated. It only means that most products you can sell on Amazon and other such platforms are consumer-focused and don’t need government approval.
So, you can buy or sell on Amazon or other platforms such as Facebook or Craigslist without a business license. However, it would be better to register your business under an LLC or a Sole Proprietorship to protect your assets and tax and management benefits.
When is the Best Time to Register an LLC or Get a Business License?
There’s no right or wrong time to register an LLC or get a business license, and you can do it at any time. However, registering your business under an LLC or acquiring a business license can be beneficial and harmful. The benefits of getting business licenses include:
1. Liability Benefits
When you run a business under a sole proprietorship, your personal and business assets are the same. If the company does badly or collapses, or faces a lawsuit, the owner will lose their business and personal assets.
Registering your business can save you from this predicament as the business becomes a separate entity.
2. Management Benefits
With lesser compliance requirements, an LLC is easier to manage than other business types such as corporations, so it is the best choice for budding entrepreneurs. Also, you can designate one person as a manager to oversee your business unless you specify that it is a ‘manager-managed LLC.’
3. Tax Benefits
If you are operating your business under an LLC, you can choose to pay federal taxes as a sole proprietor, a partner, or even a corporation.
When paying taxes as a sole proprietor, the business owner must show the LLC’s income on their income tax profile. So, the business owner and their partners pay taxes on behalf of the business rather than the company.
Similarly, when paying taxes as a corporation, the business owner and the LLC are two separate entities. The LLC pays taxes at corporate rates, and the owner must pay taxes at individual rates. So, it makes things easier for IRS to collect sales tax. It needs to be noted that you can get different types of business licenses as well.
So, remember that you can form an LLC or register your business at any time and that you have many benefits of registering your business as an LLC, including liability, management, and tax benefits.
Do You Need a Trademark?
When you are marketing a brand or product that is your own, you can apply for a trademark or patent. Trademarks can help protect your brand names. However, do note that there is no guarantee you will get a trademark by registering your business with your respective state. Also, when registering a trademark for your brands, you must make sure that:
- You give your brand a different name — one that doesn’t already exist.
- Pay an application fee.
- Renew your trademark once every ten years.
How to Register an Online Business?
Registering an online business is by no means an easy process. However, you can do it in no time by following these steps.
1. Think of a Name
The first step towards registering your online business is to give it a name. When deciding on a name, make sure to choose one that your customers will remember. That is, you should select such a name for your business that has a lasting impression.
Also, the name should be in line with your marketing or promotional efforts. That is, what you plan to sell. If you are not sure how to name your business, use a business name generator tool that you can find online.
2. Choose a Business Structure
Before getting your business registered, you must first think of a structure. That is the type of business. There are different types of business that you can operate, including DBA, LLC, and Corporation.
DBA is a system where you can register your business under another name. The name you give to your business is called ‘assumed name’ or ‘trade name.’
The reasons you may want to do business in another name are plenty. Still, some common ones could include privacy, or that you may want to give your business a good, distinctive name, or even that you may need a DBA for opening a business bank account.
If you want to register your online or Amazon business under a DBA, you must fill the appropriate DBA forms, pay the required fee, and get the certificate. Once you complete the process, you will get a DBA name under which you start using to sell products or services.
You can say that an LLC is like a bridge between a partnership and a corporation. The business structure allows you to separate your business assets from your ones. To begin registering your business as an LLC, you must first choose a name. Now, there are rules to choosing a name for an LLC.
- It would be best if you chose a name that doesn’t already exist. The level of variance depends on the country and the state.
- The name must have a descriptor. However, you should ensure that it doesn’t contain words like ‘Company’ or ‘Corporation.’
- You will get enough time to register the name, but you should make sure to do it within a few weeks.
Besides DBA and LLC, you can also register your business under other types of business licenses, including Sole Proprietorship, Partnership, Limited Partnership, and even Corporation, Non-Profit Corporation, and Co-Operative.
All these business types differ in many ways. For instance, there is no legal distinction between the business and the owner in a sole proprietorship.
Similarly, when it comes to partnership business, you can share the responsibilities with more than one person. In contrast, the General Partners handle the daily operations in a limited partnership, with the Limited Partners only investing in the company.
Then, other business types, such as corporations that operate independently and have shareholders and employees. However, online merchants rarely set up corporations.
Besides corporations, you also have non-profit corporations and Co-operatives. Non-profit corporations are charity businesses and are exempt from taxes, while co-operatives are businesses set up for the benefit of their members without investors or stakeholders. You can also check the options of registering as a limited liability company.
3. Get a Sales Tax ID And Make It Easy to Collect Sales Tax
If you plan to sell on Amazon or any other online platform, you need a sales tax ID. The sales tax identification varies by state and country. Under normal circumstances, when you sell something, the buyer pays sales tax. Most countries across the world have a set of rules that govern the collection of sales taxes.
So, you must ensure that you register for a tax ID before collecting taxes for all the sales you make on Amazon or other such online platforms. In general, you can follow these steps to register for a tax ID.
- Collect all the necessary information about your online business.
- Visit the Revenue Department of your respective state or country.
- Search for the respective link and click on it to register your business.
So, make sure that you get your sales tax ID by following these steps.
4. Get a Federal Tax ID to Stay Transparent
A Federal Tax ID or EIN (Employee Identification Number) is mandatory to open a business bank account.
While you don’t need a tax ID if you are operating as a sole proprietor, they are required for other businesses, such as LLCs. But, again, registering for a Tax ID varies by country and state.
You can get a Tax ID by following these steps.
- Visit the respective official government websites.
- Know if you need a Federal Tax ID.
- Understand the online application process before completing it.
- Get your EIN after successfully submitting the online application form.
You should get a federal tax ID only if you need one. So, before filing for it, make sure that you check to see if you need it.
So, that answers the question, ‘Do I Really Need a Business License to Sell on Amazon?’ Though you may not need a business license to sell on Amazon or other such platforms, you must still get one as it can help you protect your assets by separating them from your business assets.
We have also covered a few things about local business licenses and federal business licenses. Regardless of whether you want to get an LLC or business license, this guide will help you. Make sure that you properly pay sales tax to conduct business without any trouble.
Also, when registering your business, make sure that you know the process and the different types of businesses that you can operate.