LLC vs. Sole Proprietorship: What’s the Difference?
If you want to start a business, choosing a sole proprietorship is the easiest way to do that.
It gives you the independence to form a business as a single entity or by yourself. But what about an LLC, which is known as a Limited Liability Company?
How do you distinguish between a sole proprietorship and an LLC? How do you know which one is better for your business? What’s the difference between LLC vs sole proprietorship?
These are questions you might be asking before you start a business.
Before jumping into the difference between LLC and a sole proprietorship, you should know why it matters. You need to know why distinguishing them is important if you want to stay out of legal trouble.
For example, with an LLC, you’re not personally liable for your debts. With an LLC you have more protection in case legal action is taken against you.
Keep reading to learn more about both options.
What Is the Difference Between LLC vs Sole Proprietorship and Why Does It Matter?
A sole proprietorship means you don’t have to make state filings. When it comes to taxes, you’re only responsible for the federal and state.
In addition, sole proprietorship also means you don’t have liability protection. If you’re sued, you could have your personal assets taken away.
Another difficulty with a sole proprietorship is that it’s tough to build business credit and it’s difficult to obtain funding because you are operating as an independent.
When it comes to LLC, you have some more protection. One of the advantages of an LLC is that you have more market credibility.
With an LLC, you have an established business entity outside of yourself. You have a business that operates independently of yourself without putting yourself at risk.
In addition, since you have an LLC, you can have business credit options. You can have business credit cards. You can also apply for business loans.
However, there are some costs that come with an LLC. For example, you have to pay an annual fee to maintain your LLC license.
You may also be required to pay business taxes along with unemployment taxes. Finally, when you file a tax return, you will have to do a lot more paperwork than you would if you just had a sole proprietorship.
LLC vs Sole Proprietorship: Now You Know the Difference
When it comes to LLC vs sole proprietorship, there’s a lot that goes into it. There’s a lot to know about the advantages of why you might need one.
For example, if you’re a freelance or work by yourself as a consultant, you may not need an LLC. There’s little risk in the work you do.
However, if you have a major business entity and there is more risk involved, you should consider an LLC.
If you want step-by-step help with building a company, then you can apply to be a part of our school for startups.
