Benefits of Having an LLC vs Sole Proprietor as a Small Business!
As I’m always trying to find the topics that would help small business owners and flourish their businesses, I recently came across a social media debate on the benefits of LLC vs Sole Proprietor, which one of these is better for small business owners?
Going through people’s opinions on this, I concluded it’s super important that someone finally addresses every aspect of this debate and pretty obviously, that someone is gonna be me! So, this is what we are gonna talk about today: the benefits of LLC vs Sole Proprietor!
First off, let’s just get to know about both of these terms separately:
What is LLC?
The acronym LLC stands for Limited Liability Company. It is a business structure designed for small business owners to offer them protection and prevent them from being held personally responsible for debts or liabilities.
Business owners choose LLC as it offers them several advantages, such as:
1. Limited Amount of Paperwork
For businesses that are running on small-scale, excessive paperwork and never-ending formalities are a nightmare! LLC offers less paperwork as well as fewer formalities. For instance, if you have started an LLC, you do not have to attend annual shareholder meetings.
2. Flexible Management
With LLC, owners are entitled to make all their decisions by themselves unlike in a corporate structure where a board of directors is needed to supervise all the important decisions and company policies.
3. Offers Owner Protection
One of the major advantages of LLC is that it offers the separation of business assets from the personal assets of the owner. In the case of debts and liabilities, the personal assets of the owners are always out of risk. If you own cars, houses, etc, this is important!
There are some more advantages of LLC, all concluding to the fact that LLC is one of the simplest business structures. Therefore, it is highly suitable for small businesses.
Coming onto the next one:
What is a Sole Proprietor?
One of the simplest structures followed for a business is the sole proprietorship. As it is the easiest business structure, it is the most common choice for small business owners. In a sole proprietorship, the business is owned by a single individual and there is no distinction between the personal and business debts and liabilities. People go for sole proprietorship because of certain advantages that it offers such as:
1. Low Cost
Setting up a business is expensive enough already. Sole proprietorship is preferred by small business owners as it is inexpensive and the easiest as well as the quickest method to get your business running.
2. More Freedom
Since you are the only owner of your business, you are free to make all of your decisions. You don’t need to consult anyone or take anyone else’s opinions, you may do whatever you believe is in the best interest of your business.
3. Reduced Formalities
As the owner and the business are not viewed as distinct from each other, the formalities of running the business are greatly reduced.
Looking at the advantages of both LLC and Sole Proprietor surely makes sole proprietorship look more appealing due to its informality. But let’s compare both of them in detail to know more!
Is LLC better than Sole Proprietorship?
Some of the major differences between LLC and Sole Proprietorship are as follows:
- LLC is a formal legal process whereas sole proprietorship does not require any formalities and is easier to form.
- In an LLC, the ownership of your business is shared with the members of the LLC whereas you are the only owner of your business in a sole proprietorship.
- In case of the business being sued, your personal assets are always safe with an LLC. However, if you are the sole proprietor, your personal assets are just as much at risk as your company.
- The taxation process in LLC is kind of flexible which is not the case in a sole proprietorship. If you go with an LLC, you may end up with some tax savings.
All things considered, I personally feel that if you compare the benefits of llc vs sole proprietor, LLC is a better option than sole proprietorship for small-scale businesses. Even though it involves comparatively more formalities, it also has greater advantages and fewer drawbacks. That is why I applied for my LLC when I first started my business back in 2018 (yes – AMCX Studio is an LLC!). All in all, it was a fairly easy process and the yearly fees are minimal when it comes to the protection that I am afforded each year.
For more information, I would highly recommend that you check with your state requirements for your business. You can oftentimes find state funded business resource centers in your area with a quick google search. I hope this was enough to clear any doubts in your minds and get you thinking about setting your business in stone! Let me know what you prefer, LLC or Sole Proprietorship? You can also check out my other post on Starting a Crafts Business!