The Amazon.com® marketplace is one of the most worthwhile opportunities to emerge from the eCommerce era. By leveraging Amazon’s established infrastructure and global reach, Amazon sellers can start a profitable online business quickly and relatively easily.
Amazon sellers fall into two different categories depending on the process in which they sell and ship their products.
Types of Amazon Sellers
Fulfillment by merchant (FBM) sellers handle every major aspect of their sales. They obtain the necessary storage space for their inventory, and they personally ship their products to the buyer once an item sells. In short, FBM sellers take a hands-on approach to every part of their business.
Fulfillment by Amazon (FBA) sellers, on the other hand, rely on Amazon to store and ship their products to customers. The seller’s inventory is kept in an Amazon warehouse, and when an order comes in, Amazon handles the shipment and delivery to the customer. FBA sellers can focus on what he or she does best, sourcing and marketing merchandise, and 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, it is important that you consider incorporating your new business. Here are five reasons why you should consider forming a corporation or limited liability company (LLC) as an Amazon seller.
1. Protect your personal assets
Not every business transaction will be a perfect experience for you and your customer. For instance, one defective product could result in a flood of refunds, and in most cases, the customer will expect the Amazon seller to fix the situation.
If your FBA business is unincorporated, that means they might look to you, personally, for compensation. Your personal assets—like your home, car, or savings account—could be up for grabs.
When you properly incorporate your business, the law treats your corporation or LLC as a distinct entity, with its own property and liabilities. That means consumers will generally be limited to pursuing their claims against your business entity’s assets, and not your personal 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 establish trust among prospective customers. Customers prefer to work with a business they are familiar with or that has established credibility. Adding “Inc” or “LLC” to your business name by incorporating sends a message that you take being a business owner seriously.
In fact, many lenders, investors and business partners will only do business with corporations and LLCs. In some industries, it is required to form an LLC or corporation to be awarded a contract or project.
3. Take advantage of tax benefits
If you are an unincorporated business, you might be missing out on tax breaks as an Amazon seller. For instance, both corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners. Additional perks that align with property structured companies can include advantages to medical insurance, retirement plans, and loss deductions.
4. Attract investors
Investors and lenders, like customers, tend to prefer incorporated businesses. Not only do business entities appear more credible to both, but it’s easier to provide partial ownership to investors when you’re dealing in corporate stock or LLC interests.
5. Build a business with lasting value
Developing an FBA or FBM business takes hard work, and you want to make sure the foundation you build can endure 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 personal social security number.
Corporations and LLCs are designed to outlive any one owner, principal, or partner. Establishing one for your business can help protect your business against frustrating legal entanglements or even termination in the event of retirement, long-term disability, or death.
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