When you start off selling on Amazon, you are effectively being given access to the biggest marketplace in the world. It’s easy to assume that you need to prove a lot as a seller, and that there could be a lot of red tape getting in the way.
While there are plenty of aspects of Amazon that are a bit more challenging, the business license question is one of the simpler ones.
To start selling on Amazon, it isn’t 100% essential to have a business license. You won’t have to provide a copy of this license to set up an account on Seller Central. That said, most people are in agreement that if you are going to go about things in the correct way, and build your business on the Amazon platform, getting a license, and setting yourself up as a business correctly, is very much the right thing to do.
Simply put, a business license is a permit to conduct business in a certain location. The licenses are issued by local state government agencies, and provide permission to trade as a business.
In the U.S.A. the Small Business Administration provides information which states need licensing for business, and their requirements. Depending on what you plan to sell, and the industry in which you operate, things can get confusing. Fortunately, the SBA guide can talk you through exactly what you need to do for each state and for each industry.
You certainly have to do some research. In certain industries you may have to be licensed to sell at all. For instance, if you want to start producing and selling alcohol.
The simple answer is that Amazon’s policy allows anyone to get started selling with a Seller Central account. Just like platforms such as Etsy and Ebay, you can sign up and get selling.
Sellers are still liable for what they sell, but unless you are selling in certain predetermined categories, you don’t strictly have to have a license. Most consumer products can easily be sold, which is why you find so many people getting involved in “retail arbitrage” or finding products cheaply in person that they can sell for more money online.
The option to sell without a license is only available in certain consumer categories. Fortunately, these are mostly the consumer categories where sellers want to get started.
Federally regulated categories require you to be licensed. This is to ensure that not just anyone can jump in and start selling products that have strict regulations.
Categories that are regulated in this way include:
The first is if you’re planning to sell Federally regulated products.
For example, if you want to sell an alcoholic product, your next steps might be to contact the Bureau of Alcohol, Tobacco, Firearms and Explosives. It is essential to stay safe and within the law, or you could face legal action as well as an account ban on Amazon.
It’s important that you check the laws in your local state.
Some areas impose restrictions on some other types of products, and this might mean you need a license to sell them. These include:
Some areas might even ask you to obtain a general business license to trade at all. It’s your responsibility to check your municipality laws. Amazon won’t step in.
The key considerations here are income tax and liability. Selling without a license is undoubtedly a convenient way to get started, but it doesn’t absolve you of all responsibility.
If you sell on your own, without being registered as a business, you will be classed as a sole proprietor in the eyes of Amazon, and in the eyes of the IRS (or the equivalent where you are based).
You must pay the relevant taxes on any income you receive from selling on Amazon. You, and only you, are liable for this. You must declare it on your relevant income tax documentation.
Selling without a license is not to be discounted. If you’re already self-employed and plan to just sell a few items a month, or you’re dipping your toes in Amazon selling for the very first time, then it can be a pretty good option for you. However, the bigger and more professional operations will go a different route.
Getting a business license and setting up as an LLC has a couple of main benefits.
While the majority of sellers don’t need a license to get started selling, you may need to if you operate in one of the more restricted categories. On top of that, it’s often a good idea to set up an LLC and get a business license once you have proven your concept and you are making some profit. It is better for taxation and can provide peace of mind when it comes to your own personal liabilities on products and fees.