“What is LLC?”, “What is Sole Proprietorship?”, Differences Between Sole Proprietorship and LLC

When starting a new firm, choosing the correct business structure is crucial. Limited Liability Company (LLCs) and Sole Proprietorships are two prominent business structures that many small business owners prefer for flexibility and simplicity. In this article there is a detailed information on what is LLC, What is Sole Proprietorship, difference between Sole Proprietorship and LLC, and Benefits of Sole Proprietorship over LLC is mentioned.

What is LLC?

A Limited Liability Company (LLC) is a type of business in which the owners are referred to as members. The corporate entity is distinct from the members, therefore if the company is sued or fails to pay its debts, only the entity can be held culpable. A Limited Liability Company (LLC) combines the characteristics of a Sole Proprietorship, a partnership, and a corporation.

What is a Sole Proprietorship?

A sole proprietor is an individual who owns and operates an unincorporated business. However, if you want to treat your domestic LLC (Limited Liability Corporation) as a corporation, you are not considered a sole proprietor.

About LLC Vs Sole Proprietorship 

Limited Liability Company is a separate legal entity run by its members with limited liability, and it is required to register an LLC, whereas a Sole Proprietorship is a business arm of an individual that is not separate from its owner, and thus its liabilities are not limited, and there is no requirement to register a Sole Proprietorship.

The owner of a Sole Proprietorship manages the business individually. However, in the case of an LLC, the members (if there are fewer of them) may run the firm or appoint a few managers to handle it.

The most significant benefit of an LLC is that a member’s responsibility is restricted to the investments an individual has made. In the case of a Sole Proprietorship, however, the whole liability rests with the firm owner.

A Sole Proprietorship firm owner does not have to be concerned about money. It is considered business money if he has his own funds and invests them in his firm (since business funds and personal funds are the same). However, in the case of an LLC, the members must preserve records to ensure that personal cash and corporate funds are not mixed together.

Benefits of Sole Proprietorship over LLC (Limited Liability Corporation)

It’s far easier to form a Sole Proprietorship than it is to start an LLC. There is no additional paperwork or taxes to deal with. What All the proprietors need to do is to come up with a suitable name and pay a registration fee only.

The LLC formation process, on the other hand, includes several more steps. It necessitates a partnership agreement, the appointment of a registered agent, and adherence to other tax and regulatory requirements.

Simply said, if you are the sole owner, you will not need to file separate tax returns for your business; instead, any money you earn from your business will be reported on your personal taxes. You will also have to pay annual state filing fees if you opt to file as a Limited Liability Company (LLC).

Difference Between LLC and Sole Proprietorship 

Conclusion

A Sole Proprietorship is the most common way for people to start a business. Later, when they wish to expand their business, they form an LLC and enlist the support of others. Individuals form LLCs to protect their own assets from liabilities. Liability protection is available in an Limited Liability Corporation that is not accessible in a Sole Proprietorship.