7 Best Business Types for Amazon Sellers in 2023
If you are thinking of selling products on Amazon, one of the first decisions you need to make is what kind of business type you will choose. Your business type will affect your legal liability, tax obligations, operational costs, and growth potential. In this article, we will explore 7 of the best business types for Amazon sellers in 2023, and help you decide which one suits your goals and needs.
1. Sole Proprietorship
A sole proprietorship is the simplest and most common business type for Amazon sellers. It means that you are the only owner and operator of your business, and you are responsible for all aspects of it. You don’t need to register your business with the state or pay any fees to start selling on Amazon as a sole proprietor.
Pros:
– Easy to set up and maintain
– Full control over your business decisions
– No double taxation (you only pay income tax on your profits)
– Low operational costs
Cons:
– Unlimited personal liability (you are liable for all debts, losses, and lawsuits of your business)
– Limited access to financing and investors
– Difficulty in scaling and expanding your business
– No clear separation between personal and business assets
2. Partnership
A partnership is a business type where two or more people agree to share the ownership, profits, and responsibilities of a business. There are different types of partnerships, such as general partnerships, limited partnerships, and limited liability partnerships. Each type has different rules and implications for the partners’ liability, taxation, and management.
Pros:
– Easy to set up and maintain
– Shared risk and responsibility
– Access to more capital, skills, and resources
– No double taxation (the partners pay income tax on their share of profits)
Cons:
– Unlimited personal liability for general partners (they are liable for all debts, losses, and lawsuits of the business)
– Potential conflicts and disagreements among partners
– Difficulty in transferring or terminating the partnership
– No clear separation between personal and business assets
3. Limited Liability Company (LLC)
An LLC is a hybrid business type that combines the features of a corporation and a partnership. It means that the owners (called members) have limited liability for the debts, losses, and lawsuits of the business, but they also have flexibility in how they manage and tax their business. An LLC can have one or more members, who can be individuals or entities.
Pros:
– Limited liability for members (they are not personally liable for the debts, losses, and lawsuits of the business)
– Flexibility in management and taxation (the members can choose how to run and tax their business)
– Easy to set up and maintain
– Access to financing and investors
Cons:
– Higher operational costs than sole proprietorship or partnership (you need to register your LLC with the state and pay annual fees)
– Potential self-employment tax for members (they may have to pay Social Security and Medicare taxes on their share of profits)
– Difficulty in transferring or terminating the LLC
– Varying state laws and regulations for LLCs
4. Corporation
A corporation is a separate legal entity that is owned by shareholders, who elect a board of directors to oversee the management of the business. A corporation can have one or more shareholders, who can be individuals or entities. There are different types of corporations, such as C corporations, S corporations, B corporations, and nonprofit corporations. Each type has different rules and implications for the shareholders’ liability, taxation, and management.
Pros:
– Limited liability for shareholders (they are not personally liable for the debts, losses, and lawsuits of the corporation)
– Access to financing and investors (the corporation can issue stocks and bonds to raise capital)
– Ability to scale and expand the business (the corporation can have unlimited shareholders and operate in multiple states or countries)
– Professional image and credibility
Cons:
– High operational costs than sole proprietorship or partnership (you need to register your corporation with the state and pay annual fees)
– Double taxation for C corporations (the corporation pays corporate tax on its profits, and the shareholders pay income tax on their dividends)
– Complex management and regulation (the corporation has to follow strict rules and regulations from federal, state, and local authorities)
– Loss of control for shareholders (they have limited influence over the board of directors’ decisions)
5. Professional Seller
A professional seller is a business model for Amazon sellers who expect to sell more than 40 items per month on the platform. A professional seller pays a monthly flat-rate fee of $39.99 to access various features and benefits from Amazon, such as selling in restricted categories, running promotions, qualifying for higher placement on product pages, managing inventory through feeds, spreadsheets, and reports, etc.
Pros:
– Access to more features and benefits from Amazon
– Ability to sell in more categories and reach more customers
– Potential to increase sales and profits
– Professional image and credibility
Cons:
– Higher monthly fee than individual seller (you pay $39.99 regardless of how many items you sell)
– Higher competition and expectations from customers
– More rules and regulations from Amazon
– More responsibility and risk for your business
6. Private Label
A private label is a business model for Amazon sellers who create and sell their own branded products on the platform. A private label seller sources products from manufacturers or suppliers, adds their own logo, packaging, and design, and sells them under their own brand name. A private label seller can differentiate themselves from other sellers and build customer loyalty and trust.
Pros:
– Ability to create and sell unique products
– Ability to control the quality and price of your products
– Ability to build your own brand identity and reputation
– Potential to increase sales and profits
Cons:
– Higher upfront investment and risk than selling existing products (you need to research, source, design, and test your products)
– Higher operational costs than selling existing products (you need to manage your inventory, packaging, shipping, etc.)
– Higher competition and expectations from customers
– More rules and regulations from Amazon
7. Wholesale
A wholesale is a business model for Amazon sellers who buy products in bulk from manufacturers or distributors, and resell them on the platform. A wholesale seller can leverage the existing demand and popularity of the products, and avoid the hassle of creating and branding their own products. A wholesale seller can also negotiate lower prices and higher margins with the suppliers.
Pros:
– Ability to sell proven and popular products
– Ability to buy products at lower prices and sell them at higher prices
– Ability to leverage the existing marketing and branding of the products
– Lower upfront investment and risk than creating your own products
Cons:
– Lower control over the quality and availability of the products
– Lower differentiation and loyalty from customers
– Higher competition and price wars from other sellers
– More rules and regulations from Amazon
As you can see, there are many options for choosing your Amazon seller business type in 2023. Each option has its own advantages and disadvantages, depending on your goals, needs, budget, skills, and preferences. You should carefully weigh the pros and cons of each option, and consult with a professional if you need more guidance. Remember that you can always change your business type or model as your business grows and evolves.
How to Choose the Best Business Type for Amazon Seller
If you want to sell products on Amazon, you need to decide what kind of business type you will use. There are different options, such as sole proprietorship, partnership, LLC, or corporation. Each one has advantages and disadvantages, depending on your goals and situation. Here are some factors to consider when choosing your business type for Amazon seller.
Sole Proprietorship: The Simplest Option
A sole proprietorship is the easiest and cheapest way to start selling on Amazon. You don’t need to register your business or pay any fees. You just need to create an Amazon seller account and follow the rules and regulations of the platform. You can also use your own name or a trade name for your business.
However, a sole proprietorship also has some drawbacks. The main one is that you are personally liable for everything that happens in your business. This means that if someone sues you, or if you have debts or taxes, your personal assets (such as your house, car, or bank account) are at risk. You also have to pay self-employment taxes on your income, which can be higher than corporate taxes.
Partnership: The Shared Option
A partnership is similar to a sole proprietorship, but with more than one person involved. You can share the work, the costs, and the profits with your partner(s). You don’t need to register your business or pay any fees, unless you want to create a formal partnership agreement. You can also use a trade name for your business.
However, a partnership also has some drawbacks. The main one is that you and your partner(s) are jointly and severally liable for everything that happens in your business. This means that if someone sues you, or if you have debts or taxes, your personal assets and your partner’s personal assets are at risk. You also have to pay self-employment taxes on your income, which can be higher than corporate taxes.
LLC: The Flexible Option
An LLC (limited liability company) is a popular option for Amazon sellers who want more protection and flexibility. An LLC is a separate legal entity from its owners (called members). This means that the members are not personally liable for the debts or liabilities of the business. An LLC also has more tax options than a sole proprietorship or a partnership. You can choose to be taxed as a disregarded entity (like a sole proprietorship), as a partnership (if you have more than one member), or as a corporation (either C corp or S corp).
However, an LLC also has some drawbacks. The main one is that you have to register your business with the state and pay some fees. You also have to follow some rules and regulations, such as filing annual reports and keeping separate bank accounts. An LLC may also be more complicated to manage than a sole proprietorship or a partnership.
Corporation: The Professional Option
A corporation is another option for Amazon sellers who want more protection and professionalism. A corporation is a separate legal entity from its owners (called shareholders). This means that the shareholders are not personally liable for the debts or liabilities of the business. A corporation also has more tax options than an LLC. You can choose to be taxed as a C corp or an S corp.
However, a corporation also has some drawbacks. The main one is that you have to register your business with the state and pay some fees. You also have to follow some rules and regulations, such as filing annual reports, holding meetings, and keeping records. A corporation may also be more expensive and complex to set up and run than an LLC.
Choosing the best business type for Amazon seller depends on your goals, situation, and preferences. There is no one-size-fits-all answer. You should do some research and consult with a professional before making a decision. You can also change your business type later if you want to.
References:
https://ioscout.io/blog/amazon-fbm
https://ioscout.io/blog/a-guide-to-amazon-fba
[4 Amazon seller business types – Gorilla ROI](https://www.gorillaroi.com/blog/amazon-seller-business-type/)
[How to Sell on Amazon As a Business or Individual Seller](https://www.businessinsider.com/guides/tech/how-to-sell-on-amazon)
[Best Amazon Seller Business Type: 4 Options for Your Venture](https://www.doola.com/blog/amazon-seller-business-type/)
[Choosing an Amazon Seller Business Type: LLC vs. Sole … – Incfile]Sell on Rexcer.com
