Amazon.com® is one of the most well-known markets to come from the eCommerce era. By using Amazon’s established structure and global reach, sellers can start an online business easily.
Amazon sellers have two options to sell and ship their products. Take the time to review both options before you decide which setup works the best for you and your products.
Types of Amazon Sellers
Fulfillment by merchant (FBM) sellers handle every part of the sale. They store their own stock and ship their products directly to the buyer. In short, FBM sellers take a hands-on approach to every part of their business. In this case, they are using Amazon’s website to list their products.
Fulfillment by Amazon (FBA) sellers, on the other hand, rely on Amazon to store and ship their products to customers. The seller’s stock is kept in an Amazon warehouse, and when an order comes in, Amazon processes the order and ships to the customer. FBA sellers are able to focus on sourcing products, and they let Amazon handle the logistics.
Whether you follow the FBM or FBA setup, you are still running a business. As a business owner who is serious about long-term success, you should think about incorporating your new business. Here are five reasons why Amazon sellers choose to form a corporation or limited liability company (LLC).
1. Protect your personal assets
Not every transaction will go smoothly for you. For instance, one bad product could result in a flood of returns or refunds, and in most cases, the Amazon seller must fix the situation.
If your FBA business is not an official LLC or corp, all your assets (both business and personal) are tied to you. They are not considered separate in the eyes of the law.
When you incorporate your business, the law treats the company as a distinct entity with its own assets. That means people are less able to go after your personal assets in the event of a lawsuit. Instead, they are limited your business assets.
2. Build trust and credibility
Amazon’s ready-made template makes starting an online business easier, but Amazon sellers still have to build brand credibility and trust. People prefer to buy from a business they know or one that has brand recognition. Forming an LLC or corporation sends a message that you are a serious business owner. Your business name is also filed with the state, which protects you from competitors.
Additionally, many lenders, investors, and businesses will only work with corporations and LLCs. In some industries, you must have an LLC or corporation to win a contract or project.
3. Take advantage of tax benefits
Incorporated businesses can also claim tax breaks that individuals are not able to. For instance, both corporations and LLCs owners may deduct business expenses, including salaries, before they allocate income to themselves. Companies can also claim losses on their returns, where individuals can not. Lastly, formal companies often get better deals for health insurance and retirement plans.
4. Attract investors
Investors and lenders, like customers, tend to prefer incorporated businesses. LLCs or corps tend to appear more credible to a bank or an investor. You may also have a formal business plan to show to an investor. In addition, it is easier to give partial ownership to investors when you hand out corporate stock or LLC interests.
5. Build a business with lasting value
Creating an FBA or FBM business takes hard work, and you want to make sure your company structure will last through changes in management or ownership. As an LLC or corporation, the life of your business is tied to an EIN, or employee identification number, instead of your own social security number.
Corporations and LLCs are designed to outlive any one owner, principal, or partner. Creating one helps protect you from frustrating legal situations. It also keeps your company in existence, in the event you are no longer the owner.
Ready to Form an LLC or Corporation?
Make it happen with incorporate.com. From formations to filings, we can help you stay on track as your business grows. We also offer other services, such as:
- Free Business Name Check
- DBA “Doing Business As” Names
- Corporation, LLC, Series LLC, S-Corp, and Nonprofit Formations
- Registered Agent Service
- Getting an Employer Identification Number (EIN)
- Annual Reports
- Business License Research
- Bylaws and Operating Agreements
- Certified Copies of LLC or Corporation Documents
Want to learn more? Get our free incorporation toolkit, complete with a step-by-step guide, business plan template, and more!