Define Sole Proprietorship
Pros/Cons of Both Entities
Making a Decision
So, you’ve started a small business. You know what you’re going to do and how to do it. But have you determined your business entity structure? Not sure what to register?
New business owners are often confused about the difference between a limited liability company (LLC) and a sole proprietorship. Both have advantages and disadvantages. Let’s explore the differences.
A sole proprietorship is an unincorporated business with one owner, and it’s the simplest and least expensive type of business to form.
As a sole proprietorship, the owner’s name is the business’s name, though sole proprietorships can also operate under a brand name or trade name. The main characteristic of a sole proprietorship is that there’s no legal separation between the business and business owner, so the owner is personally responsible for the business’s debts.
An LLC (limited liability company) is a legally separate business entity that’s created under state law. It combines elements of a sole proprietorship, partnership, and corporation, and offers a lot of flexibility for owners. This structure is popular with many business owners due to the ease of setting it up, its cost-effectiveness, it’s also easier to maintain than other business structures such as S corps or C corps, and it can provide asset protection. One person can form a single-member LLC, or multiple people can form a multi-member LLC.
Many business owners, particularly freelancers or consultants, start as sole proprietors because it’s easy and it’s attractive for new entrepreneurs, particularly those testing a business idea.
The best business structure for you will depend on many factors, and it’s best to consult a business lawyer and tax advisors before making this important decision. Make sure you take the right steps to establish your business.