Do You Need A Business License To Sell On Amazon?

With the explosive growth of e-commerce, learning how to become an Amazon seller has become an increasingly attractive opportunity for entrepreneurs. The online shopping market was projected to reach 4 trillion in 2020, making this the perfect time to open an Amazon store. Whether you're looking to create an Amazon account and start selling part-time or build a full-scale business, understanding the basic requirements is essential. This comprehensive guide will clarify the process of becoming an Amazon seller, breaking down everything you need to know about business licenses, legal structures, and setting up your online store for success.

Understanding Amazon's seller platform is essential for anyone looking to establish a successful online business. Opening an Amazon store involves more than just uploading products; it means integrating into a vast global marketplace. Here’s an optimized guide to help you navigate the process of creating an Amazon seller account.

Initial Requirements

To create an Amazon seller account, you need to gather specific information and documents:

• Email Address: Use a frequently checked email for account notifications.
• Phone Number: A valid phone number is necessary for verification.
• Bank Account Details: This account must be in your name or your business's name for receiving payments.
• Government-Issued ID: A passport or driver’s license is required for identity verification.
• Tax Information: You’ll need your tax identification number (TIN) or equivalent.

Legal Requirements

Selling on Amazon involves navigating a variety of legal requirements that can vary based on the products being sold and the seller's location. Understanding these requirements is crucial to avoid potential legal issues that could jeopardize your selling privileges. Below is a detailed overview of the general legal requirements for selling on Amazon, including specific conditions based on location.

1. Business Structure and Licensing

• Business License: While a business license is not universally required to sell on Amazon, many states require sellers to have a seller’s permit or business license, especially if they are collecting sales tax. This permit allows sellers to legally collect sales tax from customers.
• LLC or Corporation: Sellers are not required to form an LLC or corporation to sell on Amazon; individuals can register as sole proprietors. However, forming an LLC can provide personal liability protection and may be beneficial for tax purposes.

2. Tax Identification

• Tax ID Number: Sellers must provide their Social Security Number (SSN) or Employer Identification Number (EIN) during the registration process. This information is necessary for tax reporting purposes .
• Sales Tax Compliance: Sellers are responsible for understanding and complying with state sales tax laws, which can vary significantly. Following the Supreme Court decision in South Dakota v. Wayfair, Inc., many states now require remote sellers to collect sales tax even if they do not have a physical presence in the state.

Benefits of Having a Business License

Given that there is no need for a seller to have their own company to sell on Amazon, then the same thing goes when it comes to having a business license. Most of the products sold on Amazon and other online marketplaces are consumer products that are not federally regulated, so you won’t need the government’s approval to be an online seller on Amazon. But if you want to grow your business and start earning consistently from your online sales, then registering as a business will be a good idea. 

If you ever decide to move forward with this, here are a number of licenses and permits that you might have to work on:

Setting Up Your Amazon Seller Account

Creating an Amazon seller account is like creating a digital storefront that connects your business to millions of potential customers worldwide. The process is more than just filling out forms—it's about strategically positioning your brand in the global marketplace.

1. Visit Amazon Seller Central:
   Start by navigating to the Amazon Seller Central website and clicking on "Sign Up" to create a new seller account.
2. Create Your Account:  
   • Email Verification: Enter your email address and create a password. Amazon will send you a verification code to your email that you need to enter to proceed
   • Business Information: Provide your business details, including the name, address, and type of business (individual or company)
   • Billing Information: Enter your credit card information and bank account details. Ensure that the bank account is in the name of the primary contact or business name you provided

3. Product and Store Information:
   Input details about the products you plan to sell, including UPC codes if available. You will also need to choose a store name, which can be changed later.
4. Identity Verification:
   Upload a government-issued ID (like a passport or driver's license) and a recent bank statement for verification. You may also need to complete a video call with an Amazon associate for final identity verification.
5. Complete Registration:
   After verifying your identity and submitting all required information, your seller account will be created, allowing you to start listing products on Amazon.

Can You Change Legal Entity in Amazon Seller Account?

The short answer is no, you don’t. But depending on how you want to be taxed, you might want to consider registering your business as an LLC or a Limited Liability Company. You should also keep in mind that forming an LLC is different from getting a business license.

A good way to look at it is that when you establish an LLC, you get to provide your business with a legal foundation. On the other hand, obtaining a business license will give you the right to operate and have the ability to protect your business from any possible lawsuits that might arise. If your brand’s reach and sales are starting to grow, then the probability of getting entangled with a lawsuit also increases.

Of course, as much as possible, you should avoid any lawsuits from occurring, But by forming an LLC, you get to protect your name from any legal actions attempted against your company. Instead, when someone decides to sue your business, they will instead sue the LLC, not you directly. You might not need one to establish your online business, but forming an LLC is the best legal entity for Amazon seller. It is a better and smarter way of managing risks and may well be the best legal entity for Amazon sellers. And if you ever decide to switch up to an LLC, you can always update your Amazon seller account.

If you already have an existing Amazon store and decided to establish an LLC, you will need to update your seller information. However, there might come a time when a seller might want to change the legal entity they’ve registered on Amazon Seller Central. There are worries that by changing their legal entity, their customers’ feedback and other online store history will disappear and that their account might get suspended. But this isn’t exactly the case - so what happens if I change legal entity on Amazon Seller Central, for instance and what are the steps?

First, to change your legal entity or name, you will need to retake Amazon’s Tax Interview. This interview process is designed to obtain the information required to complete your respective tax form and fulfill IRS tax requirements correctly and efficiently.

Once you have accomplished the interview, you will then have the ability to update your legal name. On the other hand, to update your address, you can simply go to your Account Info tab and under the Business Information section, select Business Address and you can Add a new address.

Once you have accomplished the interview, you will then have the ability to update your legal name. On the other hand, to update your address, you can simply go to your Account Info tab and under the Business Information section, select Business Address and you can Add a new address.

In fact, on Amazon, once you have reached 50 transactions in a calendar year, you will be required to update your Amazon FBA income tax information, otherwise, your account will be suspended until you update your seller information and provide your tax information.

Aside from your concerns on if you have to have a business license and tax ID information to sell on Amazon, you should also take into account the type of selling plan to choose if you want to be a seller. Will you register as an individual or professional seller? But how do you choose between a professional or an individual selling plan? Let’s break down the differences.

For the Individual account type, a seller is charged a closing fee of $0.99 per sale, in addition to other selling fees and can list products under 20+ open categories. On the other hand, with the Professional account type, a seller is charged a monthly subscription fee of $39.99. With this monthly fee, a Professional seller can take advantage of the following perks:

The moment you decide to sign up for a seller account on Amazon, be it as an individual or as a professional seller, it’s important to think about all the important aspects for your registration. See to it that you have decided whether or not to register as an LLC and have a business license, choose what address to use, and make sure that you incorporate your tax information. This way, you get to make sure that the moment you put up your online store and start having customers visit your shop, everything will go smooth sailing.