Who qualifies as a sole proprietor?
A sole proprietor is anyone who is conducting business activities without setting up a specific business structure. A few examples of sole proprietors include freelance writers, bookkeepers, graphic designers, fitness instructors, and more.
How does sole proprietorship liability differ from an LLC’s liability?
A sole proprietorship is not a separate entity. So, the owner of a sole proprietorship is financially responsible for any debts or lawsuits against the business.

On the other hand, an LLC is a separate legal entity from its owner. With that, the owner is not personally responsible for debts or lawsuits against the business.
Why is there such a difference between a sole proprietorship and LLC liability?
The difference between the liability associated with a sole proprietorship and an LLC stems from the legal structure. A sole proprietorship doesn’t create a legal distinction between the business owner and the business.

But an LLC does create a legal distinction between the business owner and the business. The legal separation allows LLC owners to protect their personal assets.

Final Word

It’s undeniable that a sole proprietorship comes with extensive liability for business owners. As a sole proprietor, you’ll need to carefully consider the risk of your business operations to your personal assets. Take action now to protect your personal assets. It’s better to act now before it becomes an issue!

About the Authors

Sarah Sharkey

Written by: Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing.

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Somer G. Anderson Ph.D., CPA

Reviewed by: Somer G. Anderson Ph.D., CPA

Accounting and Finance Professor

Somer G. Anderson has been working in the Accounting and Finance industries for over 20 years as a financial statement auditor, a finance manager in a large healthcare organization, and a Finance and Accounting professor at Maryville University.

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Kal Salem

Fact checked by: Kal Salem

MA Accounting - Arizona State University

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

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