The Ultimate Guide to Choosing Your Business Structure

Choosing the right legal structure for your business is one of the most critical decisions you'll make as an entrepreneur. It impacts everything from your personal liability and tax obligations to your ability to raise capital. For Amazon sellers, this choice is even more crucial as it affects your account setup and international scalability.

Let's break down the most common options: Sole Proprietorship, LLC, and Corporation.

Sole Proprietorship

This is the simplest business structure. If you start selling products without forming a legal entity, you are automatically a sole proprietor. While it's easy to start, it offers no legal separation between you and your business.

• Pros: Easy and inexpensive to set up, simple tax filing (reported on your personal tax return).
• Cons: Unlimited personal liability (your personal assets are at risk), harder to raise capital, can seem less professional.

Limited Liability Company (LLC)

The LLC is the most popular choice for Amazon sellers, and for good reason. It provides a crucial layer of protection by legally separating your personal assets from your business debts and lawsuits.

• Pros: Limited liability protection, pass-through taxation (avoids double taxation), flexible management structure.
• Cons: More complex and costly to set up than a sole proprietorship, requires annual filings and fees.

Corporation (C-Corp)

A C-Corporation is a completely separate legal entity from its owners. It's the most complex structure but offers the highest level of liability protection and is ideal for businesses planning to seek venture capital investment.

• Pros: Strongest liability protection, easiest to raise capital and issue stock, potential tax benefits for retaining earnings.
• Cons: More expensive and complex to set up and maintain, subject to "double taxation" (profits are taxed at the corporate level and again when distributed to shareholders).

Which is Right for You?

For most new and growing Amazon sellers, the LLC is the sweet spot. It provides the liability protection of a corporation with the simplicity and tax advantages of a partnership. If you are just starting and have a very low budget, a sole proprietorship might be a temporary option, but we strongly recommend upgrading to an LLC as soon as possible.