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Sole Proprietorships and LLCs Compared

Posted by Chris Peterson | Jan 13, 2014 | 0 Comments

Sole Proprietorships and LLCs Compared

Sole Proprietorships and LLCs ComparedAmong the most fundamental questions facing a person who is starting a small business is what form it should take. Sole proprietorships and limited liability companies are by far more common than corporations for the small business, and each has both advantages and disadvantages. To determine which is best for your needs and circumstances, you should strongly consider working with a LLC attorney in College Station.

Main Differences between Sole Proprietorships and LLCS

The most common small business entity is the sole proprietorship. In fact, one may have created one without really knowing it. If you work out of your home as an independent contractor, yours is by definition a sole proprietorship. There are matters that you need to attend to in order to avoid tax issues and be in compliance with local and state ordinances/laws, however. Your lawyer can review all that you need to do to ensure that your sole proprietorship is set up properly.

A limited liability company is, in a sense, a hybrid between the corporation and sole proprietorship entities. While the business owner of a sole proprietorship is the owner, with a limited liability company this is not wholly the case. Rather, the entity, itself, is to some extent separate from those who operate it. This allows for certain distinct advantages.

Sole Proprietorships and LLCs Compared

The following are some of the ways sole proprietorships and limited liability companies differ:

  • Start-up Fees and Costs. Starting a sole proprietorship is generally as simple and inexpensive as paying for a business license. The LLC, however, requires up-front costs.
  • Annual Compliance Reports. An LLC must file an annual report, as well as pay yearly fees. Such is not the case with sole proprietorships.
  • Keeping Records. Record keeping for a sole proprietorship is relatively simple compared to an LLC. Tax-related records, and those pertaining to the operation of the business, are all that are required.
  • Assets. Given that the individual is the owner in a sole proprietorship, he can keep assets of a personal nature in the same account as business assets, though this is not recommended. An LLC requires assets to be kept separate.
  • Taxes. Both entities are considered similarly by the IRS. In a sole proprietorship, so-called “flow through” taxation exists, meaning that the tax liability of the company is comingled with the owner's personal taxes. The owner of an LLC has the choice of taxation similar to a C, or regular corporation, or an S corporation.
  • Personal Liability. Perhaps the biggest advantage of an LLC is that, unlike the sole proprietorship, personal liability for indebtedness is limited. To a great extent the assets of the LLC's owner are safe from being pursued by creditors.

Contact a LLC Attorney in College Station for Legal Assistance

If you are considering starting a small business, call a LLC attorney in College Station to discuss what your options are. Peterson Law Group can help you determine the optimal entity for your business needs. Call 979-703-7014 today.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.


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