Sole Proprietorship vs. LLC
A sole proprietorship has one owner. It’s the simplest structure and doesn’t offer liability protection so business and personal assets aren’t separated.
An LLC is an independent legal entity. It costs more to set up but provides liability protection. In an LLC, liability is limited to the owner’s investment.
Both LLCs and sole proprietorships require state filing to be formally recognized.
Tax Considerations
LLCs allow flexible taxation. Owners can choose pass-through taxes or corporation taxes. Sole proprietors only have pass-through taxes.
Setting Up and Operating
An LLC requires more paperwork, money, and effort to establish than a sole proprietorship, which is extremely popular as it’s the easiest to create and operate.
Liability and Protection
For liability protection or control, an LLC may be more suitable. A sole proprietor is personally liable and doesn’t have legal distinctions like an LLC.
Costs and Benefits
Forming and filing taxes for an LLC costs more than a sole proprietorship, although an LLC offers liability protection which a sole proprietorship does not.
Choosing the Right Structure for 2023
Is an LLC or sole proprietorship better for 2023? LLCs offer liability protection but require more paperwork and fees. Sole proprietorships are simpler and cheaper but lack liability protection.