An LLC is a separate legal entity with limited liability, whereas a sole proprietorship is owned and operated by one individual with unlimited liability. Sole proprietorship does not require registration, while an LLC must be registered.
Forming an LLC: Process and Considerations
- Making an LLC involves filing state paperwork and considering aspects such as name, finances, agreements, licenses, and permits.
- LLCs offer flexibility in management structure and longevity through ownership transfers, but they require more time and money to establish compared to sole proprietorships.
Understanding Differences: Liability and Taxation
- An LLC provides liability protection and various tax options, while a sole proprietorship lacks personal asset protection and has simple taxation as personal income.
- Sole proprietors benefit from simple tax reporting but face personal liability for business debts, unlike LLC owners who enjoy limited liability protection.