Choosing the Right Business Type for Your Amazon Selling Venture

Setting up an Amazon selling venture can be a profitable side hustle or full-time job for business owners. There are already nearly 1.9 million active sellers on Amazon, from Fortune 500 organizations to artisan vendors, with varying business types. Choosing an Amazon seller business type is vital for setting the direction of your business and protecting yourself from liability. Below is an overview of common business structures to help you decide which will work best for your business when you want to start selling on Amazon

Why Is It Important to Choose the Best Business Entity for Your Amazon Business?

Choosing the best business structure for your Amazon business can protect your business in case of liability. An Amazon seller business type is simply the legal structure of the business. You can be a sole proprietor or sole trader, but you may also choose a partnership, limited liability company (LLC), or a corporation. Each structure has pros and cons, and deciding which works best for you will depend on your business model and goals. 

For example, a corporation has a board and additional filing responsibilities with the IRS. In a sole proprietorship, your private funds could be at risk if someone decides to sue for damages. In an LLC, your personal funds are protected from liability; it also has a more flexible structure than a corporation. For more on this, see the ultimate guide to selling on Amazon.

Different Types of Amazon Seller Business Structures

Amazon FBA (fulfillment by Amazon) makes it easy to start selling even a few products on the online marketplace. Wondering which type of Amazon seller business is best for your company? Below are the details, including the pros and cons of each option. 

Sole Proprietorship or Sole Trader

Many Amazon sellers work as sole proprietors. A sole proprietor is any individual who runs a business without creating a formal legal structure for the company. Instead, you run the business as an individual. 

Pros of a sole proprietorship include no registration fees, no paperwork, and no additional tax filings (you’ll file earnings on your individual tax return). 

The major disadvantage of a sole proprietorship is the lack of legal protection. While you can certainly start as a sole trader, if you plan to continue doing business, a simple business structure like an LLC can offer significant protection. If a buyer or a seller chooses to sue you as a sole proprietor, your personal assets could be at stake. For that reason, forming a legal business entity is better in the long term.  


Like a sole proprietorship, a partnership is formed when two or more individuals work together on a business without creating a legal entity. In a partnership, all the debts and losses are the responsibility of the partners. They can be sued and are personally liable. 

General Partnership

A general partnership is the more common term for a partnership. In a general partnership, the partners are liable for the business. Either or both partners could be sued for the business’s debts. A general partnership is a pass-through entity, which means that any profits are reported on the partners’ individual tax returns. 


  • Ease of setup
  • No paperwork
  • No additional filing
  • No registration fees


  • No legal protection for the partners

Limited Liability Company (LLC)

A limited liability company (LLC), as the name implies, limits the liability of the members. Many sellers choose an LLC for selling on Amazon. While LLCs require more time to set up than a sole proprietorship or a partnership, they are relatively simple to manage. Several online services can help you set up an LLC and prepare for registration in under an hour. 

An LLC still functions as a pass-through entity, meaning you can report any profits on your tax return. An LLC also allows you the flexibility to elect to be an S Corporation, which offers potential savings on self-employment tax. Also, consider the best states to start an LLC and Form SS-4 for an LLC


  • Legal protection
  • Your personal assets won’t be liable for the business
  • Pass-through taxation structure makes filing simpler
  • Flexibility to elect to be an S corp
  • Better business branding
  • Ease of setup


  • More effort to set up and maintain than a sole proprietorship


Your business could also elect to be either an S corporation or a C corporation. While these business structures offer significant advantages, they are also more complicated to maintain. Below are the differences between the two with their pros and cons. 

S Corporation

S Corps offer pass-through taxation like LLCs, making it a good choice as an Amazon seller business type. In fact, when you create an LLC, you can elect to make it an S corp by filing form 2553 Election by a Small Business Corporation with the IRS. An S corp can offer significant tax savings, especially in self-employment tax. However, you must meet limitations and additional requirements, including limiting the shareholders to a maximum of 100. All shareholders must be US citizens. An S corp offers many significant benefits like raising capital.


  • Asset protection for shareholders
  • Tax benefits including pass-through taxation and reduced taxes
  • Clear options for the transfer of ownership
  • Cash accounting method
  • Increased credibility


  • Additional cost of formation
  • Additional filing to maintain the structure
  • Stock ownership restrictions (if you wish to expand)
  • Less flexibility than an LLC or sole proprietorship

C Corporation

A C corp usually has more legal structural requirements than Amazon sellers need. However, if you plan to create a company that could be scaled, grow rapidly, or be publicly traded in the future, a C corp may be the correct business structure. A C corp must meet more specific rules and criteria, but it also offers flexibility to raise large amounts of capital. 

C corps can be subject to double taxation, and the setup and maintenance efforts and costs are also the highest. 


  • Limited liability for everyone involved: shareholders, employees, directors, and officers
  • Unlimited shareholders
  • No restrictions on shareholders’ citizenship
  • Ability to raise capital
  • Functions as an independent entity
  • Could be publicly traded
  • Lower maximum tax rate


  • More expensive to start and maintain
  • Stricter rules, with additional filing to maintain the structure 
  • Stock ownership restrictions (if you wish to expand)
  • Possible double taxation
  • No personal write-offs of business losses
  • Less flexibility than an LLC or sole proprietorship

5 Factors to Consider Before Choosing a Business Entity

If you’re ready to choose a business entity, consider fees, obligations, taxation, and liability. Each of these factors is explained in detail below.

Registration Process

A simple registration process can be a significant advantage when you’re just starting and have many other things to do to launch your business. Consider how much time you can spend on registration and weigh that against the benefits of registration, including limited liability, tax advantages, and possible future growth. 

Fees and Obligations

Approximately 20% of new businesses fail during the first two years of launching and 45% during the first five years, according to data from the Bureau of Labor Statistics. While fees and obligations are minimal for certain Amazon seller business types, corporations require additional filings. If you need to hire a lawyer for filing or creation, that can add to total costs when you’re working to become profitable. 

While some fees are worth the cost of liability protection (and an LLC is inexpensive to create), whether you need to create a legal structure immediately will depend on your business, risk appetite, and finances. 


Different legal structures have different tax benefits. An LLC or S corp offers pass-through taxation, making filing taxes easier and accounting simple. 

Beyond that, an S corp can offer significant tax benefits as business income, tax deductions, credits, and losses are passed through to the owners rather than being taxed at the corporate level. If your business grows, a corporation can offer the greatest long-term tax benefits with fixed tax rates.

Level of Ownership Involvement

Business structures can vary in ownership involvement. A corporation can have a single owner but also allows for multiple owners, called shareholders. Shareholders may or may not be involved in the operations of the corporation. Instead, a corporation is run by directors. 

An LLC allows for any number of owners but can also be owned by a single individual. LLC members are usually more involved in company operations. For most Amazon seller businesses, it makes sense to maintain a structure that allows owner control. 

Protected Liability

For most businesses, legal protection from all forms of liability for the owners is a priority. All legal structures, including an LLC or corporation, protect the individual owners or members from liability. A sole proprietorship or partnership doesn’t offer the same legal protection. 

Choose the Amazon Seller Business Type With Confidence

For selling on Amazon, you could start a business with $50,000 or $300. Choosing the best Amazon seller business type will balance ease of use, costs, and maintenance with legal protection. For many, an LLC or an S Corporation balances legal protection with a fast application process. 

However, you can change business types whenever you want, so you can start with what you have and change (if necessary) as your business grows. Whichever structure you choose, be sure to understand the tax filing requirements for your business!


What business type should I choose as an Amazon seller?

While you can choose any structure to become an Amazon seller, however, to protect yourself from liabilities, the simplest structure is an LLC. This will protect your assets from liability if the business is sued or takes on debt. 

Can I change my business type as an Amazon seller?

Yes, you can change the business type of your seller account in your Amazon Seller Central Account. 

How to set up an Amazon seller business? 

You can sell on Amazon by first creating a product listing. You can then choose from two levels of plans offered by Amazon for sellers: individual plans to sell fewer than 40 items a month or a professional account with detailed tracking, selling reports, and more. 

How much does it cost to sell on Amazon?

If you choose the professional seller’s plan on Amazon, there’s a flat monthly fee of $39.99. If you use the individual plan, you’ll pay a fee of $0.99 for each item sold. 

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