E-commerce3 min read
Best LLC for wholesale and B2B e-commerce: resale certificates and terms
Selling to businesses removes the consumer sales-tax problem and replaces it with a filing cabinet. Every untaxed sale needs a valid exemption certificate on file, and in an audit a missing certificate means you owe the tax.
The short answer
An LLC, a disciplined exemption-certificate process, and written credit terms before the first invoice. The tax risk here is documentation, and the business risk is receivables.
Published
Wholesale looks simpler than direct-to-consumer: bigger orders, fewer customers, no returns from people who did not read the size chart. What replaces that complexity is paperwork and credit — and both are the kind of problem that is invisible until it is expensive.
The short answer
A single-member LLC, disregarded, in your home state. Elect S-corp status when net profit is durable and past roughly $80,000. The structure is ordinary; the operations are where this differs.
Exemption certificates are the whole tax position
A sale for resale is generally not subject to sales tax — but the exemption belongs to the transaction only if you can prove it. The proof is a valid exemption or resale certificate from the buyer, and the burden is on the seller.
| What auditors look for | Why it fails |
|---|---|
| A certificate for every untaxed sale | The most common failure is simply not having one. |
| Certificates valid in the right state | Some states accept multi-state forms; others require their own. |
| Certificates that have not expired | Several states time-limit them, and nobody notices. |
| Details that match the customer | A certificate in a different trading name is not evidence about this buyer. |
| A certificate accepted in good faith | Selling a product the buyer obviously will not resell undermines the exemption. |
Practically: collect the certificate before you ship the first order, not after. Store them somewhere retrievable by customer and state. Diarise expiries. This is a fifteen-minute process per customer that prevents a five-figure assessment.
Credit terms are a lending decision
Net 30 means you have shipped the goods and lent the customer their value for a month. Net 60 means two. At any scale, wholesale is a financing business wearing a distribution business's clothes.
- Run credit checks on new accounts above a threshold you set in advance.
- Start new customers on prepayment or a small limit, and extend it on payment history rather than on order size.
- Put terms in writing — payment period, late interest, and who pays collection costs. Enforceable terms are the ones agreed before the dispute.
- Watch concentration. One customer at 40% of revenue is a business with a single point of failure, and their payment terms become yours.
- A personal guarantee from a small buyer is normal and worth asking for.
The contract replaces consumer protection
Business-to-business sales are not covered by the consumer rules that govern your DTC channel. That cuts both ways: you have fewer statutory obligations, and you have fewer statutory protections. What governs the relationship is the contract, and if there is no contract, it is your invoice terms and a body of commercial law neither party has read.
- Warranties, and their limits. Say what you warrant and for how long.
- Limitation of liability, particularly for consequential loss — a retailer's lost sales can dwarf the invoice value.
- Title and risk. When ownership passes, and who carries the risk in transit.
- Minimum advertised price, if you care about how your product is discounted downstream.
If you are not a US person
- No S-corp election — Section 1361 bars non-resident alien shareholders.
- Form 5472 with a pro-forma Form 1120 annually, $25,000 penalty for failure to file.
- Selling to US businesses from abroad with US inventory is a materially stronger US connection than shipping direct from your own country.
- Collect a W-9 or W-8 as appropriate and understand which of your payments carry withholding obligations.
When to revisit
| Trigger | What to reconsider |
|---|---|
| First wholesale customer | Exemption certificate on file before shipping. |
| Extending credit beyond prepayment | Credit checks, written terms, and a limit. |
| Crossing $100,000 of sales into a state | Nexus, even where most sales are exempt — the obligation to register is separate. |
| A customer above 30% of revenue | Concentration risk, and what happens if they pay late. |
| Adding a DTC channel | Consumer rules, and channel conflict with your wholesale accounts. |
Paperwork that holds up years later
Founders 8 keeps the entity, the filings and the deadlines in one place — the same discipline your certificate file needs.
Build your workspaceFounders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.