So you’re thinking about starting a business. Congratulations! You’re on the verge of doing what many people can only dream of. But now what? Those closest to you say to go the easy route and organize as a sole proprietorship. It’s fast; there’s not a lot of paperwork, and the start-up costs are negligible. However, you can’t help but wonder if this is the best decision for you and your new venture. You’ve heard a limited liability company might be a better long-term option — but what’s the difference between sole proprietorships and LLCs?
The reality is that there is no one-size-fits-all solution. However, as your company grows and needs change, you may desire the added protection that a more formal business structure provides.
Examples of different formal business structures include the following:
- Limited Liability Company
- S Corporation
For the purposes of this article, let’s discuss the differences between sole proprietorships and LLCs.
What Is a Sole Proprietorship?
A sole proprietorship is the simplest form of business organization. You are the sole owner and pay personal income tax on profits earned from the business. You are also considered unincorporated, meaning that you aren’t required to register with the state — though you may need to complete an assumed name certificate (DBA) to conduct business in a specific county under a specific trade name.
If you are doing business under your name as a sole prop, there is minimal paperwork.
The advantages of having a sole proprietorship include the following:
- Easy to establish or dismantle
- Less paperwork to get started
- Not required to file with the state
- You have complete control as the owner (simplified ownership)
What Is a Limited Liability Company (LLC)?
The biggest difference between sole proprietorships and LLCs is liability protection. Instead of having your car, house, bank accounts, etc., on the line if your sole prop ever faced bankruptcy or lawsuits, the formal corporate structure (a hybrid of a corporation, partnership, and sole prop) protects its owners from company debts and liabilities. In other words, if you’re running your business in compliance with applicable laws, you can’t be personally pursued for repayment if the company were to suffer legal issues.
An LLC can only be created by filing a certificate of formation with the Texas Secretary of State. Owners of the LLC are called members and can be individuals, other corporations, partners, or any other commercial entity. LLCs are run by either members or managers.
To summarize, the advantages of having an LLC include the following:
- The business is its own legal entity
- Liability of the member can be limited to their investment
- You decide how you’re taxed — as an LLC or corporation
- Perpetual existence
- Flexible management structure
Christman Attorneys, PLLC has helped hundreds of companies meet their business goals. When we sit down to talk about business formation, we will discuss your short-term and long-term goals. Every successful business venture comes down to asking one important question: What do you want to accomplish? We work to protect you and your interests every step of the way. We truly understand that there is no one-size-fits-all solution to forming a business. That’s why we will customize solutions to meet your exact needs.
Please call Christman Attorneys, PLLC, for your legal needs today!
Please consult an attorney for advice about your individual situation. The material on this website and in this or any blog article we publish are for informational purposes only and do not constitute legal advice. The attorneys at Christman Attorneys PLLC believe in tailoring legal advice and solutions to your own personal circumstances.
We have an unwavering commitment to helping our clients at each stage of their legal situation.