A limited liability company (LLC) offers liability protection, where liability is limited to the owner’s investment. In contrast, a sole proprietor is personally liable for business debts and obligations.
A sole proprietorship is extremely popular as it’s the easiest and cheapest to create. It is owned by one person and doesn’t provide liability protection, blending business and personal assets.
An LLC requires more paperwork, money, and effort to establish but provides significant benefits, including asset protection and flexible taxation options, unlike a sole proprietorship.
An LLC can choose to file taxes like a sole proprietorship or as a corporation, selecting the option that provides the most benefit to the owner. Forming an LLC costs more than a sole proprietorship, which is simpler but doesn’t offer liability protection.
- An LLC offers liability protection but involves more complexity, paperwork, and fees.
- A sole proprietorship is the default for individuals running a business without forming a separate legal entity and is simpler and less costly to operate but lacks liability protection.