LLC vs Sole Proprietorship – Is 1 Better Than the Other?
In today’s post, we’re going to talk about the difference between an LLC vs Sole Proprietorship.
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Before we start I would like to mention that this is in no way legal or tax advice.
Let’s start by defining the two business terms: an LLC is the shortened version of the term Limited Liability Company which is a business entity commonly used in the U.S. and often thought of as a hybrid structure that has features of a corporation and those of a partnership or sole proprietorship.
Limited Liability Company – LLC
According to Investopedia, an LLC is “a corporate structure that protects its owners from being personally pursued for repayment of the company’s debts or liabilities”. This offers you the business owner great protection.
Sole Proprietorship
Now let’s look at Sole Proprietorships: According to the U.S. Small Business Administration, a Sole Proprietorship “is the simplest and most common structure chosen to start a business.
It is an unincorporated business owned and run by one individual with no distinction between the business and the business owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities”. This offers NO protection.
LLC vs Sole Proprietorship
So, you can see just by the definitions, that there are some major differences in an LLC vs Sole Proprietorship. Choosing the correct business entity is a very important business decision and there are several major aspects to consider when determining between an LLC vs sole proprietorship.
In our opinion, the protection offered by the LLC makes running a sole proprietorship seem foolish.
Now let’s discuss an LLC vs a sole proprietorship in a little more practical detail.
If minimal paperwork is your main concern, then a sole proprietorship may sound appealing but here at YourLLCGuru, we encourage you to go a little deeper than just having a concern for paperwork minimization.
As a sole proprietor, there’s no separation between your personal and business assets and expenses. What we mean here is you, as the sole proprietor, are personally responsible for all your business’s debts and obligations. In other words, if your business gets sued, you get sued.
Certain businesses do lend themselves well to the sole proprietorship set up which primarily includes individuals who do a lot of contractual work, such as freelancers, consultants, and personal trainers. However, it is important to note that even for these folks, a sole proprietorship is still very risky.
LLCs on the other hand offer protection for personal assets from potential business liabilities. You see, an LLC has its own legal identity and therefore a business creditor cannot legally go after your personal assets to pay business debt if you have an LLC in place.
An LLC is quite simple and easy to set up and run and provides such incredible liability protection, it’s honestly crazy to be in business as a sole proprietor when you could get an LLC in around 10 minutes time and enjoy the incredible advantages and protection it offers.
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YourLLCGuru Philosophy
We believe that everyone in business deserves the protection an LLC can provide. We are making the business world a better place one LLC at a time!
In my next post, we will unpack more details around LLCs.
Check out some of our other posts or watch our videos are YouTube so you can learn more helpful information about LLCs and how to use them to protect yourself in business.
This is your LLC Guru thanks for reading!