To wrap up our business week, I thought it would be a good option to talk about Sole Proprietorships versus Limited Liability Companies (also known as LLC). They’re both popular options, but not everyone knows about those options before they get into them. It’s important to know about these forms before you get started into either form.

What is the difference between a Sole Proprietorship and a LLC?

A sole proprietorship is how many businesses start out. One owner, under the name of the person rather than having an official business name. On the other hand a LLC protects the owner(s) behind a business screen. Taxation under an LLC is much easier than it would be under any other form of business. As a sole proprietor, you do not get protection from any debt. It will affect you personally, where as an LLC takes on debt and it doesn’t come back to you as a person.

The Sole Proprietorship Basics: Advantages

Each form has it’s own advantages, and here are the advantages of a sole proprietorship:

• Tax preparation isn’t as hard as you’d think. Just as you usually would, you will be using a 1040 to do your taxes as a sole proprietor. Their is no difference between you and your business under a sole proprietorship.
• Your start-up costs can vary for what you can afford. In the real world, their is no endless amount of money that can be used to start a business. As a sole proprietor you won’t need a lot of money to get started. That’s a benefit many people don’t have when it comes to the other forms of business.

The LLC Basics: Advantages

• I have two words for you: Limited Liability. That is what makes an LLC so popular, the limited liability. The partners in the business will not be affected personally if the LLC was to go bankrupt. The affect doesn’t go back to the personal money in the pockets of the people behind that business.
• Sharing profits doesn’t have to go 50/50. The profits can be split up amongst the partners in different ways. Whether you’re looking at a 70/30 or 90/10. You have the flexibility to decide. That’s not something you generally have in the other forms of business.
• You don’t have to worry about double taxation. You won’t have to pay twice for your earnings through your business. A benefit that other business forms don’t see.

The Sole Proprietorship Basics: Disadvantages

• You are personally liable for whatever happens. Unlike the LLC, if you go bankrupt it is all you. Not just your business because you are your business. That can be very harsh on you and your own personal credit.
• Raising capital may not be that simple. You may find it a lot harder to raise cash as a sole proprietor than you would as a company. If you find yourself needing to go about raising cash for your business, you might want to consider getting listed as a company that way you will be taken more seriously and your chances of receiving the help you need is more likely to happen.

The LLC Basics: Disadvantages

• The life of an LLC isn’t forever. If someone dies, so will the LLC. The same goes for if the LLC undergoes bankruptcy. Either way, it would mean you’d need to start over.
• By becoming an LLC, it can make things more complex. There is less paperwork and tax headache with a sole proprietorship. With an LLC you don’t get that benefit. The tax listing an LLC is placed under can vary and it can affect the amount paid in taxes.

With all that said and done, below are some resources you should consider visiting for more information.

Sole Proprietorship Resources

• Sole Proprietorship at Wikipedia
• Sole Proprietorship at Reference.com
• “Sole proprietorship startup costs” at About.com
• “Sole Proprietorship: The Right Business Structure?” at About.com

LLC Resources

• LLC at Wikipedia
• LLC at Reference.com
• “Consider the Tax Implications of an LLC Before You Create One” at About.com
• “Limited Liability Company 101″ at About.com