Main Benefits of an LLC
- Easy and cheap to set up
- Not taxed as an entity. In other words, profit or losses are passed directly to the members of the company, which are typically correlated by their ownership percentages. This is in stark contrast to C Corps where the company income is taxed at the corporate tax rate and shareholders also pay tax on the profits that are distributed (aka double taxation).
- Not subject to all the regulatory stuff like disclosures, costly accounting, etc. Therefore, it’s ideal for small businesses with a few people. Annual state reports are required to be filed with a certain fee and you have to lay out who your “members” are and what percentage each one owns in the company. Some states like NY require you create an operating agreement which delineates the rules/responsibilities of the members (even if you’re just a single member LLC).
- You’re able to avoid personal liability from the debts and liabilities incurred by the business. However, an LLC is not perfect and depending on the state you may be held liable for non-fiscal obligations.
Main Benefits of Sole Proprietorship
- Costs nothing to maintain
- No formalities to fulfil
Drawbacks of Sole Proprietorship
- No protection for your personal assets
- Less legitimate in the eyes of the public
- May run into problems securing credit / financing
Starting a business is a very exciting, but crucial, time period. If you’re looking for a quick and cost-effective way to set up your LLC feel free to check out. We’re a legal platform that offers free consultations & no obligation price quotes. Hope this helps!