LLC vs. Sole Proprietorship
When owning a business, it is important to take the necessary precautions to protect yourself as well as your assets. Registering your business and making it a recognized entity with the state is one of the easiest methods of protection.
It can be overwhelming to determine which entity is best for you. Though there are many types of entities, the best two for small and new businesses are LLC and Sole Proprietorship. Both are inexpensive and relatively easy to obtain. Read the guide below as you decide which entity is best for your business structure.
An LLC, or Limited Liability Corporation, is the most common. This structure could be a partnership or just one owner.
Some benefits of an LLC include:
Protects personal assets from being seized for business debt
Can be taxed as a sole proprietorship, partnership, or corporation
If taxed as a sole entity, losses can be claimed on personal tax returns
A Sole Proprietorship is a business owned by one person with no legal separation between that person and the business. This type of structure is often ideal for those who are self-employed.
Some benefits of a Sole Proprietorship include:
Taxed as a self-employed individual (passthrough tax/ No business tax)
Fewer regulations regarding structure or shareholders
Can be converted to LLC over time
Now the question is, which entity is best for your business? An LLC is generally the safest option. Even for small businesses, it has benefits for growth. If your business requires you to register yourself by name as an LLC, this could also lead to further tax deductions. Learn more here.
As your business grows, you may be forced to change the structure, which can sometimes be costly, but you don’t have to do it alone. For more advice on registering your business, ask MATS at info@madisonstax.com.
https://www.score.org/blog/sole-proprietor-vs-single-member-llc
https://www.sba.gov/business-guide/launch-your-business/register-your-business
https://bfscapital.com/insights/llc-vs-sole-proprietorship/
