How Are an LLC and a Sole Proprietorship Different?
Determining the right entity structure for your business is critical from many perspectives. One, it has a bearing on your day-to-day operations. Two, it impacts your tax liability. Three, it governs how your business will be formed and run in the long run.
That’s why it’s advisable to gather information about the different business structures available to you.
In this post, we will discuss key differences between two of the most popular entity structures—Sole Proprietorship and Limited Liability Company (LLC).
Let’s get started.
Formation Process and Cost
Setting up a Sole Proprietorship is fairly simple, especially if you intend to run the business in your own name. You need not undergo any additional steps or processes in that case.
You can also assume a fictitious name for your Sole Proprietorship business. In that case, you will need to file with the Secretary of State for a DBA or Doing Business As.
LLCs are comparatively harder to set up. You need to decide on a suitable business name and file for registration with the Articles of Organization and an LLC Operating Agreement.
Regarding setting-up costs, Sole Proprietorships incur none but LLCs incur a one-time filing fee and a yearly filing fee.
Ownership and Liability
A Sole Proprietorship can be owned and run by an individual. An LLC, on the other hand, can be owned and managed by a group of individuals, business entities, and even other LLCs—called members of LLC. Only banks and insurance companies cannot be members.
In a Sole Proprietorship, all the business debts and liabilities are to be shouldered by the owner. In an LLC, members are not individually responsible for their business debts or financial liabilities.
In a Sole Proprietorship, all the business profits belong to the business owner. LLC members have to divide the business profit either in the proportion of their ownership stake or according to terms mentioned in their LLC Operating Agreement.
Need More Information?
There are many more differences, both big and small, between the two structures that may impact your business in a big way. To learn about them, check out this infographic created by GovDocFiling.
To learn about them, check out this infographic created by GovDocFiling.
Author Bio –
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.