LLC vs. Sole Proprietorship

One of the first critical elements when starting a business is to consider the different structures for business formation and then choosing one that will be most beneficial. Many aspiring entrepreneurs tend to favor sole proprietorship for its convenience and simplicity and that it is a more cost-effective option. Other entrepreneurs may decide they want more flexibility, protection, and tax breaks and therefore are drawn toward a limited liability company (LLC). Author Belle Wong highlights some of the key advantages and disadvantages to both business structures, highlighting major differences between the two. Sole proprietors are considered self-employed individuals and are taxed accordingly. The major benefit of forming a sole proprietorship is the less stringent formation process. LLC formation requires a more rigorous set of tasks such as filing documents, state regulations, and higher startup costs, to name a few. One potential threatening factor for sole proprietors is their lack of protection on their personal assets. In the event of legal disputes, a sole proprietor can face a devasting blow to their own finances. As an LLC, the business is identified as its own entity separate from the owner(s) and treated as such. Belle Wong further explains that “LLC members are protected from the creditors of the LLC and also from any lawsuits which may arise against the LLC” (Wong, 2020).

References:

Wong, J.D., B. (Jan 2020). LLC vs. Sole Proprietorship. Retrieved from https://www.legalzoom.com/articles/llc-vs-sole-proprietorship