Do You Need A Business License To Sell On Amazon?

Amazon has become the number one marketplace for buying and selling items online. The convenience, reach, and existing customer base make Amazon an attractive platform for entrepreneurs and small business owners looking to expand their operations online.

However, navigating the platform and ensuring compliance with all legal and tax requirements can be daunting, especially for first-time sellers. One of the most common questions asked is, do you need a business license to sell on Amazon?

About Amazon

Amazon started as an online bookstore but has since grown into one of the biggest e-commerce companies in the world. According to Statista, Amazon holds a market share of 37.8% of all US online retail sales. Over 1.9 million small and medium businesses worldwide sell their products on Amazon to reach millions of customers.

Amazon provides the marketplace and fulfillment infrastructure enabling third-party sellers to focus on sourcing great products and building their brand. Sellers can access Amazon’s global logistics network, website traffic, and customer service resources by paying referral fees on each sale; this allows small businesses to scale and access markets that would otherwise be out of reach.

How Amazon Works

As the world’s largest online retailer, Amazon has a scale that allows it to provide low prices to consumers. It often prices products below manufacturers’ suggested retail prices to attract customers. Amazon also generates revenue primarily from selling products and services on its platforms; this includes commissions from third-party sellers and fees for services like Prime subscriptions.

There are two ways of selling on Amazon:

Selling as an individual: This option allows you to sell items as yourself without registering a business. You can easily list a few used personal items for sale. Amazon calls this an individual seller.
Selling as a professional: This option is for those running a full-fledged business selling products on Amazon. Depending on the business needs, you can register as an Amazon seller or vendor account. Most sellers opt for the Amazon seller account.

What is a Business License?

A business license is an official authorization granted by government authorities allowing an entrepreneur to operate and run commercial activities within their jurisdiction legally. It certifies that the business complies with regulatory requirements and is permitted to engage in commercial transactions.

Without a business license, the business may be operating illegally and thus subjected to governmental sanctions. These consequences can include business closure, fines, and legal penalties. Specifically, business licenses serve three main purposes:

Ensure compliance: Authorities issue business licenses to confirm a business adheres to local, state, and federal regulations related to operations, employees, products, and services.
Collect revenue: Governments use business licenses to generate income through fees and taxes that fund services.
Protect consumers: Requiring businesses to obtain licenses helps authorities monitor and regulate entities providing goods and services to the public; this aims to detect and prevent illegal, unethical, and unsafe business practices that may harm consumers.

Do You Need a Business License to Sell on Amazon?

No, you do not need a formal business license or entity to register as an Amazon seller; this is because most everyday consumer products sold through Amazon are not federally licensed goods that require formal government approval to distribute.

It applies whether you sell as an individual or a professional third-party seller. Even if a seller has already formed a business entity like an LLC or Corporation, they can still personally apply and manage their seller account.

This distinction is important because obtaining a business license can be expensive and timely, depending on the state. For example, forming an LLC can cost anywhere from $500 to $2,000, including state filing fees. It creates an extra barrier to entry which prevents many casual sellers from listing on Amazon.

As long as sellers comply with tax reporting requirements, they can start selling without business registration. This regulatory ease makes Amazon more accessible for first-time entrepreneurs testing an idea.

Do You Need a Tax ID to Sell on Amazon?

While a business license is not mandatory, you do need to provide valid tax information; this ensures Amazon complies with reporting standards for both IRS and state tax authorities. If you are selling at low volumes as an individual, you can provide your Social Security Number (SSN), which also serves as your tax ID.

However, obtaining an Employer Identification Number (EIN) from the IRS is recommended if you intend to run a proper business with significant sales. It serves as your business tax ID and keeps your SSN private.

An EIN is free to obtain and can be instantly acquired online. Unlike a business license, there are no paperwork filing requirements. Sole proprietors, LLCs, Corporations, and Partnerships can all get an EIN regardless of formal registration. Setting up an EIN ensures you have a tax ID to report self-employment income. It also eases the transition to a formally registered business in the future.

What Documents Do I Need to Sell on Amazon?

To set up an Amazon Seller account, prospective sellers need to provide the following:

Contact Information – Name, address, phone number, and email.
Bank Account Details – Account information.
Tax Information – SSN if selling as an individual or EIN if registered business.
Government ID – Driver’s license, passport, etc.
Charge and Cost Information – Credit card, shipping rates, referral fees.
Tax Exemption Documents – If selling tax-exempt products.

A prospective seller needs to register as an Amazon Seller and officially start listing products. Ensure to save digital copies of your ID and any tax documents submitted. Follow Amazon’s policies, deliver great customer service, and the business can scale without needing licenses.

Listing Items on Amazon

Once the seller account is approved, sellers can begin creating product listings. Here are some tips for your first item listings:

Research profitable niche: When preparing your first product listings, do extensive research to choose items likely to sell and be profitable. Check Amazon’s bestseller rankings in the desired category and look for subcategories with high demand but low competition.
Source good suppliers: Source the inventory from reliable suppliers offering wholesale pricing and bulk purchase discounts; this maximizes profit margins. Try negotiating lower per-unit costs for large orders. Register with vendor portals to get approved for volume discounts.
Write detailed listings: Craft descriptive titles using relevant keywords. Write detailed bullet points highlighting features and specifications. Add useful information like dimensions, materials, and compliance certifications. Upload high-quality images showing multiple angles and close-ups. If selling bundled products, showcase the full bundle.
Price competitively: Check competitor pricing but aim for the lowest cost. Amazon’s algorithm favors lower prices. Offer promotions like bulk purchase incentives to gain an advantage. Prominently display free or fast shipping if available.
Ship promptly with tracking: Quick shipping and tracking updates enhance the seller rating, improving search ranking over time.

If eligible, take advantage of Fulfillment By Amazon (FBA) for your products. Amazon handles storage, packing, and shipping giving you more time to focus on sourcing and marketing.

The Advantages of Amazon

Selling on Amazon provides several advantages for small businesses:

Massive customer base: An existing base of millions of customers provides instant access to a target market. Products can be quickly validated by gauging initial response. The sheer customer volume increases the chances of finding the ideal audience for niche products.
Trusted brand name: Amazon’s brand recognition and trust make customers more likely to purchase. Past purchasing experiences and reviews reassure buyers about product quality and reliability. This particularly helps new sellers lacking an established reputation.
Increased discoverability: Enhanced discoverability via search helps interested buyers easily find products. Customers actively look for items on Amazon. Descriptive titles, images, and keywords also boost search ranking.
Fulfillment and logistics: Fulfillment by Amazon handles the entire order process. Products are stored at Amazon’s warehouses until sold. Amazon packs and ships orders and provides tracking information; this simplifies logistics.
Payment processing: Amazon collects customer payments and remits earnings every two weeks into your bank account. Hence, there is no need to handle individual order payments. The process is streamlined and secure.
Reduced marketing costs: No website or extensive marketing is required to find customers. Product testing and validation can be done quickly at a low cost.
Access to data: Use Amazon reports to gain insight into product demand, conversions, reviews, and more to improve listings.
Customer support: Amazon handles all post-sales customer support, like returns and refunds.

How to Promote Your Amazon Store?

To have a successful Amazon store, sellers will need to promote it to drive traffic properly. Here are some of the best amazon selling strategies to promote your store:

Create an email list: Collect customer emails on product pages and send promotional and new product announcements; this is a direct line of communication with potential buyers.
Use Amazon Advertising: Create Amazon Sponsored Product Ads and Product Display Ads to promote listings and get in front of relevant searchers. It helps improve visibility and rankings.
Write helpful product reviews: Ask satisfied customers to leave positive reviews. The more helpful reviews, the more trustworthy Amazon finds listings.
Cross-promote from website or social media: Drive traffic from owned channels to your Amazon storefront. Link to relevant Amazon product pages from your blog, newsletters, social profiles, and other owned channels.
Participate in Amazon programs: Enroll in programs like Amazon Vine (early product reviews) and Amazon Associates (affiliate program) to gain exposure through reviewer endorsements and partner referrals.
Have a merchant-fulfilled inventory: Keep an inventory of physical products to sell alongside FBA listings. This allows more flexibility and control over your Amazon store.

Amazon Policies

Before listing your first product on Amazon, it is important to familiarize yourself with all of Amazon’s detailed seller policies and guidelines. Here are some key ones:

Seller Code of Conduct: Follow Amazon’s Code of Business Conduct and Ethics, prohibiting the manipulation of reviews, falsifying information, inaccurate advertising, and infringement of intellectual property rights. Violations lead to suspension, so adhering to seller ethics policies is critical.
Product authenticity: Only sell authentic products, not counterfeit or pirated goods. Be diligent when sourcing inventory to obtain items from authorized distributors. Check for certification paperwork if required.
Product quality: Ensure no defective or damaged items are sold—test products upon receiving inventory. Honor any warranties or guarantees offered in listings. Refund customers promptly for any items received not as described.
Customer service: Provide helpful responses to buyer inquiries. Invest in excellent customer service. This increases positive reviews and boosts seller ratings. Unresolved issues lead to low ratings.
Shipping policies: Ship orders within the promised shipping timeframe. Avoid unreasonably long processing times. Keep delivery time estimates accurate. Provide tracking updates. Late shipments negatively impact performance.
Returns and refunds: Understand Amazon’s return policies and why customers can request refunds. Accept justifiable returns gracefully. Rejecting valid returns leads to complaints.
Fees: Stay updated on referrals, variable closing, and other fee changes. Factor these costs into pricing strategies. Seek to balance maximizing profit margins with remaining price competitive.
Payment cycles: Amazon remits earnings every two weeks. Hence, it is important to note payment disbursement cycles and transfer timeframes. Request early payouts sparingly to avoid fees. Budget working capital needs accordingly.

Prohibited Items on Amazon

Amazon has a strict policy against selling illegal, unsafe, or offensive products. They want to provide a safe, trusted, and positive customer experience. Their prohibited items policy helps achieve this goal.

If a seller lists a prohibited product, Amazon may take action against the seller’s account, including warnings, suspensions, or permanent removals from their marketplace. Restricted categories include:

Prescription drugs and medical devices without proper authorization
Alcohol without a license in applicable states
E-cigarettes and other regulated tobacco products
Firearms, ammunition, and weapons
Copyrighted or trademarked material without permission
Any products illegal to sell under federal, state, or local laws

Conclusion

The simple registration process, expansive reach, fulfillment services, and existing trust makes Amazon an appealing platform for entrepreneurs to validate and grow a business. Sellers can scale their brand on Amazon without formal business registration by obtaining any necessary tax IDs, providing valid documentation, adhering to policies, and delivering an excellent customer experience. Just focus on identifying profitable niches, sourcing distinctive products, writing compelling listings, and providing good customer service.

Photo by Remy Gieling on Unsplash