Sole proprietorship vs. LLCs: Which one should you choose?
LLC or sole proprietorship — which entity type is better?
That is a common dilemma for entrepreneurs who are looking to set up their own businesses. Both entity types are popular because they offer many advantages.
To decide on the best option for your business, you need to factor in the ownership arrangement, personal liability, tax implications, and more.
Once you have a thorough understanding of these details, you can make an informed decision based on your requirements.
To help you make the right choice, let’s talk about the advantages of both entity types.
What Are the Advantages of LLCs?
When it comes to ownership, one or more members can own an LLC. In fact, other LLCs, foreign entities, and individuals can become LLC members.
Because of such an arrangement in LLCs, the financial liability of each owner is limited.
In an LLC, business finances are also kept separate from personal expenses. Also, the owners are not personally liable to pay the LLC debt.
This personal liability protection makes it easier to secure funding for LLC owners.
Another major benefit of LLCs is related to the flexible taxation arrangement. Such entities can choose to be taxed as a Corporation if they want.
What Are the Advantages of Sole Proprietorships?
Sole Proprietorships have only one owner. Such an arrangement ensures that the owner has complete control over the business and can make decisions single-handedly.
Another major advantage of a sole proprietorship is that it is easy to set it up. You don’t need to worry about any additional formation requirements if you plan to use your name for your business.
In case you decide to use a different business name, then you just need to provide a DBA certificate.
Which One Should You Choose?
As you can see from the discussion above, both types of entities offer different benefits to business owners.
If you are looking for a structure that gives you personal liability protection, then an LLC should be your pick. On the other hand, if retaining complete control over your business is more important, you should opt for forming a Sole Proprietorship.
Whichever entity type you choose to form, make sure you invest time into completing the required paperwork correctly.
Want more information about forming LLCs and Sole Proprietorships?
Here is a detailed infographic from GovDocFiling that will make it easier for you to choose the right entity type for your business.
Check it out.
Image Courtesy: GovDocFiling.
About the author
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
