An LLC has several advantages in the areas of legal protection and liability. While there are filing fees for setting up an LLC, that cost can be worth it compared to the thousands of dollars you could be responsible for as a sole proprietor. On the other hand, starting a sole proprietorship doesn't cost money. However, a single-member LLC creates a gap between the business owner and the company itself, both when it comes to tax and legal matters, while a sole proprietorship it doesn't.
If you are a sole proprietorship owner, you will be taxed on your personal income regardless of the amount of income you generate from your business. This can be unnecessarily costly if your household earns a significant amount, but your business doesn't. Since an owner is legally treated as a separate entity from the LLC, their personal assets are not at risk if the company fails to meet its obligations. It's more formal than a sole proprietorship, but it also offers more flexibility than a corporation when it comes to tax and legal requirements.
Simply put, if you own an LLC, your personal assets are not at risk if someone decides to sue you; just as important, if your company goes bankrupt, your personal assets are not at risk of being confiscated by creditors. Many small business owners prefer two popular business structures because of their flexibility and simplicity: limited liability companies (LLC) and sole proprietorships. This is the easiest way to do it if you're just starting out or if you're not yet making enough profits to justify the costs of an LLC. It's also important to note that if you operate under a sole proprietorship, you can still create a DBA (Doing Business As), which will allow you to obtain a federal tax identification number (EIN) and open a separate business account. The state regulation of LLCs includes mandatory words that must be included in the name of an LLC; for example, an LLC or limited liability company may be required at the end of an LLC's name.
An LLC requires paperwork and initial costs, but it can provide your company with long-term benefits that make the investment worthwhile. The final steps include transferring all of the assets you own to the sole proprietorship, publishing the dissolution, for example, in the local newspaper or on your social media sites, and transferring all of your LLC's business licenses to your sole proprietorship. Whether you're looking for the liability protection and flexibility of an LLC or the less formal and unlimited control of a sole proprietorship, you now have the tools to make a more informed decision for your business and your future. Most small business owners choose a sole proprietorship by default, simply to avoid the paperwork and payments needed to become an LLC. One person or several people can own an LLC, and the government will consider the LLC to be an entity independent of its own.
Its members usually manage an LLC, but they can also appoint a manager to be in charge of daily operations.
