{"id":5886,"date":"2022-10-05T04:53:19","date_gmt":"2022-10-05T08:53:19","guid":{"rendered":"https:\/\/falconexpenses.com\/blog\/?p=5886"},"modified":"2022-10-05T06:06:34","modified_gmt":"2022-10-05T10:06:34","slug":"differences-between-llc-and-sole-proprietorship","status":"publish","type":"post","link":"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/","title":{"rendered":"The Main Differences Between an LLC and Sole Proprietorship\ufffc"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_74 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69f7b7efefa4c\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69f7b7efefa4c\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/#Business_Structure_Basics\" >Business Structure Basics<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/#Whats_an_LLC\" >What\u2019s an LLC?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/#Whats_Sole_Proprietorship\" >What\u2019s Sole Proprietorship?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/#What_Are_Their_Differences\" >What Are Their Differences?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/falconexpenses.com\/blog\/differences-between-llc-and-sole-proprietorship\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Reading Time: <\/span> <span class=\"rt-time\"> 3<\/span> <span class=\"rt-label rt-postfix\">minutes<\/span><\/span>\n<figure class=\"wp-block-image alignwide size-full\"><a href=\"https:\/\/falconexpenses.com\/blog\/wp-content\/uploads\/2022\/10\/differences-between-llc-and-sole-proprietorship.png\"><img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"450\" src=\"https:\/\/falconexpenses.com\/blog\/wp-content\/uploads\/2022\/10\/differences-between-llc-and-sole-proprietorship.png\" alt=\"differences between and LLC and sole proprietorship\" class=\"wp-image-5887\" srcset=\"https:\/\/falconexpenses.com\/blog\/wp-content\/uploads\/2022\/10\/differences-between-llc-and-sole-proprietorship.png 800w, https:\/\/falconexpenses.com\/blog\/wp-content\/uploads\/2022\/10\/differences-between-llc-and-sole-proprietorship-300x169.png 300w, https:\/\/falconexpenses.com\/blog\/wp-content\/uploads\/2022\/10\/differences-between-llc-and-sole-proprietorship-768x432.png 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/a><figcaption>Read this article to learn about the differences between an LLC and a Sole Proprietorship<\/figcaption><\/figure>\n\n\n\n<p>America\u2019s economy is brimming with small businesses. According to 2021 statistics from <a href=\"https:\/\/www.uschamber.com\/small-business\/state-of-small-business-now\" target=\"_blank\" rel=\"noreferrer noopener\">USChamber.com<\/a>, there are around 31.7 million in total, which make up 99.9% of all US businesses. Plenty of companies exist in the form of limited liability companies (LLCs) and sole proprietorships (SPs), as both provide certain benefits. If you\u2019re a new business owner, you might be wondering whether it would be better to be taxed as an LLC or a sole proprietorship.&nbsp;<\/p>\n\n\n\n<p>Keep reading to learn about the main differences between the two.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Business_Structure_Basics\"><\/span>Business Structure Basics<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_an_LLC\"><\/span>What\u2019s an LLC?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company or organization\u2019s business structure refers to the legal structure recognized in a given jurisdiction. Legal structure determines the activities a business take. For example, raising capital, obligations, as well as the taxes the company owes. The four main forms of US business structures consist of partnership, corporation, sole proprietorship, and limited liability company. That said, many small businesses favor the latter half for their flexibility and simplicity.<\/p>\n\n\n\n<p>An LLC provides personal liability protection to business owners by separating their business assets from their personal assets. The <a href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/limited-liability-company-llc\" target=\"_blank\" rel=\"noreferrer noopener\">IRS<\/a> calls owners of an LLC, members. There is no limit to how many members an LLC can have. Plus, most states also permit single-member LLCs with only one business owner. An LLC can be treated either as a corporation or a partnership depending on the decision of the members. We will discuss this further on in the article.<\/p>\n\n\n\n<p>Applying for an LLC is a simple and inexpensive process. After deciding on a company name and submitting the relevant registration papers, select a registered agent and create your LLC\u2019s operating agreement. <a href=\"https:\/\/www.llc.org\/ein\" target=\"_blank\" rel=\"noreferrer noopener\">LLC.org<\/a> highlights another important benefit you get from an LLC is an employee identification number or EIN. An EIN is useful for tax reporting, opening business bank accounts, hiring employees, and building your business credit. Applying for an LLC will cost you around $1000.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_Sole_Proprietorship\"><\/span>What\u2019s Sole Proprietorship?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A sole proprietorship on the other hand is a unified identity between a business and its owners. <a href=\"https:\/\/www.businessnewsdaily.com\/15802-start-a-sole-proprietorship.html\" target=\"_blank\" rel=\"noreferrer noopener\">BusinessNewsDaily.com<\/a> explains that the Internal Revenue Service automatically classifies any business started by an individual into this structure, which will then require you to take all legal responsibility in the event of financial troubles or charges. Some professionals such as chefs, accountants, writers, editors, personal trainers, and others, also form sole proprietorships to offer their services to clients.<\/p>\n\n\n\n<p>It\u2019s also quite easy to get a sole proprietor business up and running. After deciding on a business name, you then file for a doing-business-as-application in your respective state. Similar to applying for an LLC, you\u2019ll also be needing an EIN to open a business bank account and secure the proper paperwork. Applying for sole proprietorship will cost you anywhere from $5 to $100 \u2013 again, this depends on your state.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Are_Their_Differences\"><\/span>What Are Their Differences?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An LLC exists separate from its members. LLC members, or rather owners, are not personally responsible for business debts and liabilities. On the other hand, a sole proprietorship is an unincorporated business owned and run by one person who is entitled to all the profits of the business. However, they will also be responsible for all the liability. Both LLCs and sole proprietorships are entitled to pass-through taxation \u2013 but for SPs, you won\u2019t have to file as a corporation to benefit from this.<\/p>\n\n\n\n<p>In that sense, an LLC is a hybrid structure that combines the characteristics of a partnership and a corporation. In our post on <a href=\"https:\/\/falconexpenses.com\/blog\/delaware-llc-benefits\/\">\u2018Delware LLC Benefits\u2019<\/a> blog post, we also highlight that you would have to be careful about keeping bank records and funds separate from your personal assets to fully utilize your liability protection. As for SPs, you won\u2019t have to worry about mixing them, because they\u2019re regarded as a united entity.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>So, are LLCs or SPs better? It really is a case-to-case basis, because it also depends on the life stage your business is in. For instance, many business owners, freelancers, and consultants start out as sole proprietorships. Once your business grows, you might need to start looking into registering as an LLC to obtain legal protection, and tax flexibility and improve your business structure. That said, both are great fits for small businesses. But if you see yourself expanding your business long-term, then prepare your LLC paperwork ASAP.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Reading Time: <\/span> <span class=\"rt-time\"> 3<\/span> <span class=\"rt-label rt-postfix\">minutes<\/span><\/span>America\u2019s economy is brimming with small businesses. According to 2021 statistics from USChamber.com, there are around 31.7 million in total,&#46;&#46;&#46;<!-- AddThis Advanced Settings generic via filter on wp_trim_excerpt --><!-- AddThis Share Buttons generic via filter on wp_trim_excerpt --><\/p>\n","protected":false},"author":1,"featured_media":5887,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,1974],"tags":[35,2646,29,2096,2648,67,1832,1830],"class_list":["post-5886","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-taxes","category-self-employed","tag-irs","tag-llc","tag-self-employed","tag-self-employed-tax-deductions","tag-single-member-llc","tag-small-business","tag-sole-proprietor","tag-sole-proprietorship"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/posts\/5886","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/comments?post=5886"}],"version-history":[{"count":3,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/posts\/5886\/revisions"}],"predecessor-version":[{"id":5890,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/posts\/5886\/revisions\/5890"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/media\/5887"}],"wp:attachment":[{"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/media?parent=5886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/categories?post=5886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/falconexpenses.com\/blog\/wp-json\/wp\/v2\/tags?post=5886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}