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Open LLC for Amazon FBA

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Fulfillment by Amazon, abbreviated as FBA is an integral part of Amazon’s marketplace operations. On doing business by FBA, sellers have to store their products at Amazon fulfillment centers, and Amazon ships these products across. This thus produces much more reliability among buyers.

Despite many charges Amazon takes up for the storage, pick and pack, weight handling and order handling it’s still worth it. Selling through FBA can make a person achieve an increase in sales. The best benefit for a seller is that he can ship Amazon one single box with many items in it and Amazon will do the packing and shipping for each single item as sold on the website. The seller just has to do the initial effort, after which he can enjoy the profits.

If you need help opening your LLC, please call us at 407-344-1012, or email us at info@freedomtaxfl.com

Starting the selling business on Amazon FBA

FBA option on Amazon gives sellers the accessibility to reach potential 50 million+ Prime customers of Amazon. One thing you will have to plan out is not letting your products get co-mingled with inventory of other sellers.

Get Stickered before starting FBA

This usually happens if your products are not stickered. On getting co-mingled it will lead to products getting mixed. In worst case scenario, your product will get exchanged with a low-grade version. And you will be left to explain to Amazon why customer complained about receiving bogus item from you.

For the safety measures you need to work very early on this because if you sell your products stickerless you might face complaints against you. For this you will be activating your account before starting to sell through FBA to become “stickered” FBA account.

Although it’s possible to become stickered account later on, but it gets quite complicated if you have already put up some of your product on FBA storage houses as a stickerless product.

After setting up the FBA on Amazon, when a person starts selling his products by default, he creates the most basic form of business entity, the sole proprietorship. It is the easiest business form to start as it does not require state filing or other paper works.
A major disadvantage of it is that Law does not distinguish between the business obligations and the owner’s assets. In case of any claim on the business, the owner’s properties will be used to satisfy the debts or claims charged on business.

In contrast the LLC (Limited liability Company) is a separate entity from its owner, and the creation of such requires some procedures and paperwork.
It is not specifically necessary to make an LLC for doing business on Amazon. But since the LLC provides more benefits to the owner than a sole proprietorship, many people set up an LLC for doing business.

LLC in contrast of Amazon FBA

Online business can have many good and bad aspects related to it. Although much has been done to ensure the transparency the factor of risk cannot be completely removed from the online business. Just like any other business a person who has set up his business to sell products on Amazon may find himself in an undesirable position if someone claims against his business or his business faces some shortage to pay out the debts that he took for acquiring the assets for sale. The person can save his personal assets (like house and car) that are not related to the business by creating a barrier of protection against the trials in the courts. Although LLCs with single member may still be vulnerable in the courts as many States do not provide complete protection from the liability. For those who are interested in starting a proper business of selling stuff on Amazon find it a better option to organize everything, make it formal and start a company. Limited liability Company being the best option is most famous kind of business option nowadays among the sellers who are looking forward to doing business on Amazon

Types of LLC

LLC can be of two types.

  • Single member LLC
  • Multiple member LLC

But it can also be treated in forms besides these for tax purposes. They are

  • C corp.
  • S corp.

Single member LLC

Single-member LLC (if not regarded as a corporation by IRS) operates as a disregarded entity.
Because it is classified as disregarded entity, Single-member LLC must use owner’s SSN (Social security Number) or EIN for all information returns and reporting related to income tax.
In certain cases however, a Single-member company is required to have an EIN instead of SSN.

If the company has employees or if the company has some employment tax and excise tax requirement according to IRS, it will have to get an EIN.

Multi member LLC

As per IRS conditions, having more than two members on LLC will cause it to be automatically regarded as a multi-member LLC by the IRS. Each owner will pay a portion of the LLC’s taxes on their personal income tax return. It’s possible however to split up the profits and losses differently; to do so, however, you’ll need to request a “special allocation” from the IRS

C Corp.

C Corporation is a legal structure form that can be chosen by businesses. It helps in organizing themselves to limit the financial and legal liabilities of its owners. Profits of C Corp. do not pass through the owners instead are only taxed on business level. A C corp. can have any number of shareholders or owners. Registration with the Securities and Exchange Commission (SEC) is required from a C Corp when it reaches certain thresholds.

S Corp.

An S corporation is another special business type. By it, the business is able to surpass double taxation as corporate income tax is not required from S Corp on the profits. Since profits and losses are forwarded directly to the shareholders, individual tax returns are filed by shareholders. They pay income taxes according to the share of the profits they get from the business. If there are more than one shareholder, the corporation is required to file informational tax return in order to provide details regarding income of each shareholder.

Benefits of LLC

The business form of LLC provides two main benefits.

Tax saving

Corporations being a separate entity in the Law, have to pay taxes exclusively on the profits that are generated by their business

But in contrast, LLCs despite being recognized as a separate entity from its owner are still not taxed on the profit they earn as in the case of corporations.

Instead LLC is taxed as a partner-ship firm (If it is multiple member LLC) or as a sole-proprietorship (If it is single member LLC). So, LLC members have to report profits and losses on their personal federal tax returns.

But do note that as an FBA Amazon seller, the firm will be subjected to the tax of the state where Amazon stores your inventory. It is also important to note that some of those states have income tax and sales tax. That is in addition to your Federal tax obligation.

Limited liability

The owner has only a limited liability for company’s debts. Owner’s personal assets remain untouchable for covering claims, business debts or lawsuits.

As an FBA seller, your assets will be subjected to the tax of the State where your inventory is stored by Amazon. It can be a lot of states where your inventory is kept and those states have separate income tax, sales tax and franchise tax. That is in addition to your US federal tax reporting obligation

Buyers satisfaction

In the case of LLC, buyers feel secured, knowing that the seller is registered with the state thus he is not likely to run away with the money.

Copyrights

LLC’s business name is protected and can’t be taken by anybody once it is registered.

Duration

An LLC can continue perpetually even after the death of its owner/s

Credit Rating

LLC acquires its credit rating separately and is unassociated from credit rating of the owner.

By the above stated advantages it is visible that starting an LLC can provide you an upper hand on the normal sellers of Amazon and you will have our business in a much better position along with many benefits to enjoy

Start up Process of LLC

Limited Liability Company (LLC) is formed through these basic steps:

Naming the Business

Before an LLC is formed, the proposed business name should be checked. The name of your company should not be similar to any other LLC registered under your state’s Secretary of State. So, the foremost step in construction of LLC is naming it.

Articles of Association

This is the first formal paper that is needed to be filed to the Secretary of State’s office in the state or any other local governing body. As the company is an incorporated entity it should have some rules set out conducting the business and managing the internal affairs. For this purpose, Articles of Association is a compulsory document. This document also contains the purpose for which the company is formed along with the responsibilities of the members stated clearly. For forming Articles of Association the contents that it will contain are usually described by the State.

Operating Agreement

It is an agreement among LLC members. It administers the financial and managerial rights of the members. Basically it has rules set out for the people who own the LLC.

All states usually have some predefined laws which govern LLCs by default unless the business creates a clause in the agreement that puts forward a rule otherwise.

For example; A States may require the business to split profits or losses equally despite the amount of investment that each partner puts into the business. For this purpose getting a lawyer to explain the state rules is a good option.

Ownership Percentage clause

For many LLCs, the owners invest a specific amount of cash or any other thing of value to start the business. In exchange, each partner gets a specific percentage of the LLC’s profit for themselves. It could also be divided in some ratio as agreed upon by the owners. This is one of the major clause of operating agreement.

Employer Identification Number (EIN)

For a sole proprietorship, the owner requires the use of Social Security number.

But for LLC employer identification number is required. It is a number assigned by the IRS and is used for a number of business needs including: filing taxes, opening a bank account, and applying for business licenses. The request for an EIN can easily be filed online if social security number is available. If the social security number is not available, a business lawyer should be asked for help to get one.

Statement of Information

It includes some basic information about the LLC that needs to be filed with the Secretary of State.

Business Permits and Licenses

Every business has its own business permits and licenses, so it is up to the member to search for the respective permits according to their business. In case of unavailability of knowledge, the Secretary of State’s office may guide as to what licenses are required.

Disadvantages of LLC

Even though the LLC does grabs some benefits for the owner it does come with certain disadvantages attached to it.

  • For the state purposes, when business is registered it can be registered with a single owner. However the IRS does not recognize the LLC unless two or more people become its owner. In case of a single member LLC it is called disregarded entity.
  • Unless C-corp. or S-corp. style business form is chosen for LLC, It is usually subjected to the self-employment taxes. Thus profits of LLC would not be taxed at corporate level. But the taxes will pass through the members who will have to account profits on their personal tax returns. Sometimes, these taxes might be than they are at the corporate level. If you form an LLC, it’s thus a great idea to visit a knowledgeable accountant or lawyer to guide you thoroughly.
  • In corporations every person has a described role (like employees, director and managers etc.). In contrast LLCs generally do not have this predefined structure. This can cause difficulties for the business. Investors also have no idea as to who is in charge of the LLC and who will sign the contract etc. This confusion can be removed to some extent with the creation of Operating Agreement.
  • This business structure is youngest of business types. Because it new, some of the laws related to the business are still under transition. Whereas, in some of the states LLC business structure still not available.

Common Misconceptions about LLCs

  • Meaning of LLC is Limited Liability Corporation.

It stands for Limited Liability Company.

  • Every LLC is the same.

Each state has different set of laws. So location can bring an effect on the LLC. There are instances where the laws of one state are not as protective and flexible as the other.

  • LLCs are only good for businesses that have asset holdings.

An LLC is not just for holding assets. It is also very suitable for active businesses.

  • A single member LLC does not provide any protection.

In Delaware it is still the case that a single member LLC is still entitled to charging order getting exclusive protection from creditors. This makes it impossible to pierce the corporate shield of single-member LLC.

  • LLC can protect my personal assets from creditors if I place them in business.

If LLC holds assets even if they are without a business purpose, it will provide very little protection to those assets from personal creditors.

  • Managers and Directors are needed running LLC

Members can also run the LLC. Operating agreement determines the titles and authority of the agents that will be running the business.

Other Information Regarding LLCs

  • Multi-member LLCs are not required to hold General Meetings.
  • LLC may be required to report its monthly sales or profits, as required by secretary of state.
  • As per rules put forward by the state, annual report along with accompanying fee is required from an LLC
  • Accounting records that are to be kept will be same as any normal online business.
  • LLC managed singly, are amendable if its business grows. Sole proprietorship, in contrast, has no room to grow.
  • If you close your online business, you have to register such closure and distribute the assets according the clause stated in operating agreement.

If you need help opening your LLC, please call us at 407-344-1012, or email us at info@freedomtaxfl.com

Robert AcevedoOpen LLC for Amazon FBA

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