LLC vs. Sole Proprietorship: Which one is right for your business?

LLC vs. Sole Proprietorship: Which one is right for your business?

One of the first and most important decisions you make as a business owner is deciding what type of business you will have. Sole proprietorships and LLCs are two of the most common business structures for small businesses, as well as freelancers.

Many businesses operate as sole proprietorships, a formal business structure such as an LLC can provide significant benefits including asset protection and greater access to small business financing.

Starting a Sole Proprietorship

A sole proprietorship is an informal unincorporated business where there is no legal separation between the owner and the business. Forming one could be as simple as getting to work, depending on what kind of work you do. 

Sole proprietorships are best for small businesses that are low risk, have a small customer base and don’t own large assets. Doing business in this structure is very inexpensive as no start-up fees are required, besides the appropriate licenses or permits depending on your industry and state.

Liability wise, the business owner is completely responsible for all debt and risk. In the event of a lawsuit or debt claim, the owner’s personal assets are not protected.

Starting an LLC

One of the more popular choices, especially for freelancers, is the limited liability company (LLC). It’s very easy to set up and easier to maintain than many other types of business structures. The real advantage of forming an LLC instead of a sole proprietorship is it can provide asset protection, unlike with a sole proprietorship. 

To form an LLC, you would file formal documents with the secretary of state’s office as well as pay a filing fee. Cost wise, you should expect a filing fee, depending on the state you live in that can range from $150 to $350. You will also have to pay annual state filings, as well as any associated fees. Each state has its own requirements. 

Once you file articles of organization with your Secretary of State’s office, you will then need to visit the IRS website to obtain an EIN for your new LLC business! 

Forming an LLC is ideal for businesses that are higher risk, have a large customer base, and own large personal assets. The cost is low for the protection that it provides. In the event of a lawsuit or debt claim against your business, the owner’s personal assets are protected. 

If you are interested in seeing how we can help you start your own business today, schedule a free call with us today. We would love to chat with you and show you how our new Business Formation Service can help you and your business today!

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