Should i start a sole proprietorship or llc

Subscribe to Entrepreneur. Magazine Subscriptions. By Lori Hoberman January 7, Opinions expressed by Entrepreneur contributors are their own. More About Ask the Expert. Andres Lares Aug 4, Ask the Expert. Edmondson Aug 6, Matthew Reeves Oct 12, Latest on Entrepreneur. LLCs also have to file annual or periodic reports and pay a required filing fee in most states.

Unlike an LLC, no formal action is required to form your sole proprietorship if you are operating under your own name. If you want to use a different name, you will need to file for a DBA. You may also need to acquire any mandatory licenses or permits, and these requirements vary by region, state, and industry. Whether you're looking for the liability protection and flexibility of an LLC or the less formal, unlimited control of a sole proprietorship, now you have the tools to make a more informed decision for your business and your future.

LegalZoom can help you start an LLC quickly and easily. Get started by answering a few simple questions. We'll assemble your documents and file them directly with the Secretary of State. You'll receive your completed LLC package by mail. Contents 4 min read. Boni Peluso is an award-winning Creative Director and Content Strategist who has written extensively for the legal, heal… Read more.

Forming a Sole Proprietorship. Sole proprietorships are inexpensive to form and give you more freedom and control, but they come with some significant drawbacks. Starting a Business. As a business owner, you have many options for paying yourself, but each comes with tax implications.

LLCs and S corporations are different aspects of business operations, but are not mutually exclusive. Use this guide to learn more about the difference between an LLC vs. Thinking about running your LLC from home? There are advantages and disadvantages to bringing the office home with you.

Personal Taxes. Self-employment taxes can take a big bite out of your income—but you can take steps to minimize the impact. If an LLC, or Limited Liability Company, seems like the ideal vehicle for your side business, you may be wondering if you can form an LLC while employed at another job. They can either stick with the default—pass-through taxation—or elect for the LLC to be taxed as an S-corporation or C-corporation. An S-corporation is a pass-through entity.

LLCs can sometimes save money by electing corporate tax status. When a company is taxed as a corporation, dividends from the business are usually taxed at a lower rate than ordinary business income. A corporation is also eligible for more tax deductions and credits. If the business goes bankrupt, the sole proprietor has to file for personal bankruptcy, and both personal and business debts will be included in the bankruptcy proceedings.

In addition, someone who sues a sole proprietorship can name the owner personally in the lawsuit and come after their personal assets. One of the best ways to protect your personal assets is to form an LLC. Of course, owners in an LLC can be held personally liable for fraud, negligence, or personally guaranteed debts.

The final difference between an LLC vs. As we mentioned earlier, a sole proprietorship requires the least amount of paperwork prior to launch. After launch, a sole proprietor only needs to keep up with federal, state, and local taxes. In addition, a sole proprietor might need to renew business permits. An LLC has more compliance responsibilities. After filing initial articles of organization, LLCs have to file an annual report in many states.

An LLC with multiple members has even more responsibilities, such as drafting an operating agreement, issuing membership units, recording transfers of ownership, and holding member meetings. None of these steps are legally required, but are highly recommended for LLCs to preserve liability protection for members. Single-member LLC owners are automatically treated like self-employed sole proprietors for tax purposes. But an LLC can also elect to be taxed as a corporation.

With corporate taxation, an LLC owner can be an employee of the company rather than being self-employed. Some business owners find that taxation as an S corp saves on self-employment taxes and enables them to put away more for retirement. If your solo business is starting to make a significant profit, talk to an experienced accountant about the best tax status for your company.

Finally, some people choose to open up an LLC because it gives their business a sense of legitimacy. Whether an LLC is better for taxes depends on multiple factors, including your profit, expenses, and the type of work you do. Because a person operates their business as a sole proprietor by default, you can decide to open up an LLC in the future. You do not necessarily need an LLC to run an online store or business. However, some people may choose this business structure for the limited liability.

You may decide to hire a lawyer or online LLC filing service to prepare and file the paperwork for you. The fee for this varies and is separate from your state filing fee. You create an LLC by filing paperwork with your state and paying a filing fee.

You can also form an LLC with the assistance of an accountant, lawyer or online business formation company. Leeron is a New York-based writer with experience covering technology and politics. Jane Haskins practiced law for 20 years, representing small businesses in startup, dissolution, business transactions and litigation.

She has written hundreds of articles on legal, intellectual property and tax issues affecting small businesses. In that role, he was responsible for writing, editing, and strategizing content geared toward small business owners. Before that, he worked at PCMag as a business analyst. Select Region.