It’s an exciting time when freelancing transforms from a side gig into a full-time career. However, with that adjustment comes the need for some decisions about business formation. Typically, your choice will be between the most common classifications, either an LLC or a Sole Proprietorship. While either can be a useful formation for an independent business, there are slight differences that may make one a better decision for your business.
Understanding a Single Owner LLC
A Single Owner LLC offers the same protections as any Limited Liability Company but with only a single individual controlling all ownership interests in the company. LLC’s are considered the sweet spot between sole proprietorship and corporations, allowing you to establish the presence of your business and separate yourself from the liability, debts and obligations of your company. You should also consider:
- There are more fees and regulations associated with filing an LLC than a Sole proprietorship
- LLC offers pass-through taxation
LLC is a great option for business formation, but you should make sure that you put in the extra effort understanding the number of fees you are looking at as well as how the lack of formalities could impact how you operate your business.
Understanding a Sole Proprietorship
Sometimes, freelancers opt for a sole proprietorship because of its simplicity. There are no required forms, and it’s the default formation for anyone who is operating a business in the US. It sounds pretty simple, right? Here are the finer details you should know:
- A sole proprietorship is a one-person business that allows you to file a DBA (Doing Business As)
- There is no requirement for government filing
- There is no legal separation between owner and business
In a nutshell, a sole proprietorship may not have much hassle up front, but it opens you up to greater liability should your business get into trouble. Unlike a Single Owner LLC, as a sole proprietor you’ll be personally responsible for all debts and liabilities your business accrues.
Business Formation Attorney
Is it time to choose a business formation for your independent business? Allow LawTrades to help. Contact a business formation attorney today to learn more about your options and get the ball rolling toward making your business completely official. Because businesses may need legal help throughout the year, you may also be interested in learning more about our subscription-based legal plans. This option allows you to have on-demand legal consultations and other terrific perks like $0 service fees and drastically discounted hourly rates. Contact us today to set up a consultation and choose the plan that’s right for you.