Starting a small business takes a lot of planning and thought. If you are unsure whether to start a sole proprietorship or a limited liability company (LLC), it would be wise to consult an attorney and/or an accountant to gain the full benefits of each business type.
- Sole proprietors have little starting costs, and there are no formal requirements to doing business. Creating an LLC takes some initial costs, such as filing fees and attorney fees.
- Sole proprietors collect income personally, and file taxes accordingly. An LLC gains profit that isn't considered part of your personal income.
- There is no need to set up a payroll for a sole proprietorship, since it implies that there is only one person profiting. An LLC needs a payroll because there may be more than one employee.
- Starting an LLC instead of a sole proprietorship protects you personally from liabilities. If someone sues you as a sole proprietor, you could lose everything you have. An LLC can be sued, but your personal assets will not be bothered.
- It can be hard to raise capital as a sole proprietor. If your business grows considerably as a sole proprietor, it may be time to make the transition to an LLC and enjoy the benefits of doing business as a legal entity separate from you individually.
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