⚠️ Disclaimer: This guide provides general information only. It is not legal advice. Consult a licensed attorney for your specific situation.
Understanding legal fundamentals protects your business and personal assets. Here's what every reseller should know.
Business Structure Options
| Structure | Liability | Tax | Best For |
|---|---|---|---|
| Sole Proprietor | Personal | Schedule C | Starting out, testing |
| Single-Member LLC | Limited | Schedule C (default) | Most resellers |
| S-Corp (or LLC taxed as S-Corp) | Limited | Salary + Distributions | $50K+ profit |
| Partnership | Varies | Pass-through | Two+ owners |
💡 Recommendation: Most resellers should form a single-member LLC once they're making consistent profit. It provides liability protection with minimal paperwork.
Why LLC Matters
An LLC separates your personal assets from business liabilities:
- If someone sues your business, your home/savings are protected
- Business debts don't become personal debts
- More professional image
- Easier to get business accounts
Forming an LLC
- Choose your state (usually where you live)
- Pick a unique business name
- File Articles of Organization ($50-500 depending on state)
- Get an EIN from IRS (free)
- Open business bank account
- Consider Operating Agreement
Sales Tax Obligations
Online marketplace facilitators (eBay, Amazon, Poshmark) collect and remit sales tax in most states. But you may still need:
- Resale certificate: To buy inventory tax-free
- Sales tax permit: Required in some states
- Local sales: You may owe on FB Marketplace, in-person sales
Contracts & Agreements
Written agreements protect you. Consider contracts for:
- Consignment arrangements
- Business partnerships
- Hiring employees or contractors
- Large purchases from individuals
- Commercial leases (storage, workspace)
Insurance Considerations
- Homeowner's/Renter's: May not cover business inventory
- Business Property: Covers inventory, equipment
- General Liability: Covers if someone is injured
- Product Liability: If item causes harm
- Shipping Insurance: Per-package or blanket policy
Intellectual Property
- First Sale Doctrine: You can resell authentic items you legally purchased
- Trademark: Cannot misrepresent brand or origin
- Copyright: Photos you take are yours; don't steal others'
- Counterfeits: Selling fakes is illegal, even unknowingly
Restricted Items
Some items have legal restrictions:
- Recalled products: Illegal to sell
- Certain electronics: FCC restrictions
- Food/supplements: FDA regulations
- Cosmetics: Age, authenticity requirements
- Car seats: Age and condition limits
- Weapons: State and federal laws
Record Keeping Requirements
Keep records for at least 3 years (7 is safer):
- Purchase receipts
- Sales records
- Expense receipts
- Mileage logs
- Bank statements
- Platform payout reports
When to Hire a Lawyer
- Forming partnership or complex structure
- Drafting contracts
- Being sued or threatening lawsuit
- Major liability questions
- Trademark issues
- Significant tax problems
When to Hire an Accountant
- First year of business (set up properly)
- Making over $30-50K profit
- Considering S-Corp election
- Facing audit or tax issues
- Multi-state tax obligations
Scam Awareness
- Don't buy from sources that seem illegitimate
- Verify luxury items before purchasing for resale
- Document provenance when possible
- If you discover fakes in your inventory, don't sell them
Resources
- SBA.gov: Small Business Administration
- IRS.gov: Tax guidance and forms
- State Secretary of State: LLC filing
- State Department of Revenue: Sales tax
- SCORE: Free business mentoring