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A sole proprietorship is a business with one owner. An LLC is a separate legal entity that can have a single owner or multiple ones. A sole proprietorship is easier to start, but you will be held personally liable for the business.
The right choice boils down to your risk tolerance and ability to stomach paperwork. If you don’t mind paperwork and want to protect your personal assets, an LLC is the better option. But if you want to get started right away (especially if you are tipping your toe into gig work or a side hustle with low risk), then a sole proprietorship allows you to start immediately.
What Is a Sole Proprietorship?
A sole proprietorship involves one owner for an unincorporated business. It’s the most basic business structure that will apply to anyone conducting business activities unless you form another business structure.
- A sole proprietorship doesn’t require any specialized filing to form.
- This makes it the easiest and most affordable business structure.
- Legally, there is no separation between the business and the business owner.
- As a sole proprietor, you are personally responsible for debts and lawsuits against the business. That means your personal assets might be at risk.
What Is an LLC?
A limited liability company (LLC) is a separate legal business entity that can involve more than one owner. You’ll need to file specialized paperwork to create this new business entity.
- An LLC requires filing at the state level. Remember there is a cost for this in time and money.
- You can choose to form a single-member LLC or multi-member LLC.
- Legally, an LLC creates separation between the business and the business owner.
- As an LLC owner, you generally aren’t personally responsible for debts and lawsuits.