Sole Proprietorship vs. LLC,
Which Is Right For You?

A sole proprietorship doesn’t have a formal formation process other than getting a DBA (if you want one), business licenses (if needed), or permits (if your business needs them).

An LLC is a separate legal entity from its owner(s). That means the liabilities and debts of the business are usually separate from those of the business owner, which will protect your personal assets if the business experiences any litigation.

Some of the benefits of an LLC include personal liability protection and tax flexibility. Entities are easy to set up, if you use a formation service provided by a company like ZenBusiness. Forming your business as an LLC can also provide added credibility.

LLC benefits:

1. Limited personal liability
2. Pass-through federal taxation on profits
3. Management flexibility
4. Flexible profit distributions
5. Easy startup and upkeep

Legally, you and your sole proprietorship are considered the same entity. Someone who sues your business is also suing you. That means everything you own – your bank account, home, car, etc. – can be impacted by litigation.

The core basics for starting a business are your business name, business structure, business registration certificate and all your other licenses. You must take the proper legal and regulatory steps in each of these four areas before you launch your business. Obtaining external funding and putting together a business plan are also smart moves, but they aren’t legal prerequisites.

10 steps to start your business:

1. Conduct market research
2. Write your business plan
3. Fund your business
4. Pick your business location
5. Choose a business structure
6. Choose your business name
7. Register your business
8. Get federal and state tax IDs
9. Apply for licenses and permits
10. Open a business bank account