Business Structure

Amazon asks how your business is structured during registration, so this has to be decided before you open the account. This lesson explains the choice and what usually drives it.

Nothing here is legal or tax advice. The course author is not accredited to give it, and the right answer depends on your country, your other income and your circumstances. Treat this as a description of the decision, and check the specifics with an accountant in your own jurisdiction.

The two options

Almost everywhere, the choice comes down to two shapes:

• Trading as an individual. A sole trader in the UK, a sole proprietorship in the US. There is no separate legal entity. You and the business are the same thing.
• Trading through a company. A limited company in the UK, an LLC or corporation in the US. The business is a separate legal person that you own.

What actually changes between them

Two things, and they matter to different people at different times.

Liability. As an individual, you are personally responsible for the debts and the legal problems of the business. If someone brings a claim, it is against you and your own assets. With a company, the claim is against the company. This is the reason the separation exists, and it is worth more as the amount of stock you handle grows.

Tax. As an individual, business profit is added to your other income and taxed at your personal rate. If you already have a well-paid job, that can mean the Amazon profit is taxed at a high marginal rate from the first pound or dollar. A company is taxed separately, usually at a corporate rate, and you then decide how and when to take money out of it.

Rates change, and they differ by country and by profit level. Do not plan around a specific percentage you heard in a video, including this one. Get the current figures for your own situation before deciding.

Starting simple, and changing later

You can begin as an individual and incorporate later. Amazon supports the change and it is not a difficult process, so this is not a decision that locks you in permanently.

The argument for starting simple is that registering as an individual is immediate and free, while a company brings filing obligations, accounting requirements and usually an accountant's fee, all of which arrive whether or not you have made any money.

The argument for going straight to a company, which is the choice made in the video, is that the change is administrative work you will have to do eventually, and doing it once at the start avoids repeating account details, bank arrangements and tax registrations later.

Both are defensible. The scale you expect to reach and your existing income are what usually decide it.

What Amazon will ask for

Have these ready before you begin registration, because being asked halfway through is where people stall:

• The business type: individual or business.
• The legal business name, exactly as registered.
• The registered business address.
• A company registration number, if you have registered one.
• Details of the beneficial owners of the business.

Amazon verifies this information against documents, so it has to match what is on the register and on your identification. A mismatch between the name on the account and the name on the paperwork is one of the more common causes of a stalled verification.

Two things people forget

• A separate bank account. Whichever structure you choose, keep business money apart from personal money from day one. It costs nothing to do at the start and is painful to untangle a year later. If you form a company, a separate account is generally required rather than optional.
• Sales tax and VAT registration. This is separate from your business structure and follows its own rules and thresholds. It is not part of this decision, but it is on the same list of things to ask an accountant about.

What to do next

Decide which structure you are opening the account under, and gather the documents Amazon will ask for. The next lesson walks through the registration itself.