An LLC Vs. Sole Proprietorship

By Chris Blank

Sole proprietorships are the most common form chosen for new businesses, according to This is especially true for consultants, freelance journalists and other independent workers, states. Another option for a solo professional is to form a limited liability company, or LLC. The up-front organization is more complex than for a sole proprietorship; however, an LLC offers advantages that are not available with a sole proprietorship.

LLC Definition

Although many people mistakenly use the term "limited liability corporation" to refer to LLCs, they do not have the status of a separate legal entity. Unlike a corporation, an LLC is not liable for corporate income tax; its earnings pass through the company directly to individual members, who pay federal income tax along with self-employment taxes. Owners of an LLC are called members -- corporations, resident aliens and even other LLCs may claim membership in an LLC. Individuals may also structure their companies as LLCs to gain legal protection for their personal assets, according to

Sole Proprietorship Definition

A sole proprietorship consists of anyone who is in business for herself or is self-employed, according to Sole proprietorships are not required to register with the state; however, if you operate under a fictitious name, you must register that name with the proper authority. Sole proprietors must also obtain any licenses required by the city, state or federal government to legally operate their particular businesses. Like LLCs and unlike corporations, sole proprietorships are not considered separate legal entities -- income is declared on individual federal and state tax returns. Sole proprietors must also pay self-employment tax, according to the IRS.

Ready to start your LLC? Start an LLC Online Now

Advantages of a Sole Proprietorship

Setting up a sole proprietorship is often as simple as opening a bank account for the business.You are not required to obtain an Employer Identification Number, or EIN, for a sole proprietorship unless you employ other workers. If you work from home and use your own name for your business, you may incur no start-up costs at all. Unlike a corporation, sole proprietorships are not subject to double taxation -- that is, corporate income tax plus tax on stockholders' dividends, according to

Advantages of an LLC

Unlike a sole proprietorship, an LLC provides legal and financial protection for the personal assets of its members against liability that results from transactions involving the business. In this respect, an LLC is more like a corporation. However, LLCs are not subject to corporate income tax or double taxation. In this respect, an LLC functions more like a sole proprietorship, according to

Ready to start your LLC? Start an LLC Online Now
What Makes an LLC Different Than a PLLC?



Related articles


A PA, or professional association, is a business entity that is limited to specific professions. In contrast, an LLC, or limited liability company, is a hybrid between a corporation and a partnership. Each state has specific regulations for each type of business entity. Understanding the difference between these two entities will help you to determine the best way to register and organize your company.

LLC Vs. PC Solo Practice

Limited liability companies and professional corporations are two forms of business structure available in most states to individuals starting a solo practice in professions such as law or medicine. Differences in how LLCs and PCs are taxed and the different liability protections they provide mean that either an LLC or a PC may be more advantageous to a particular individual depending on her business goals and needs.

How Much Should I Pay Myself From My Corporation?

An owner's decision regarding how much salary to take from a business is generally a private management decision for closely held corporations — corporations where half of the shares are held by five or fewer shareholders — that are not publicly traded. However, the decision is affected by potential tax consequences.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Common Sole Proprietorship Industries

Sole proprietorships are a popular business structure because they are simple to set up and have few state filing and ...

Sole Proprietorship in the U.S.

A sole proprietor is an individual who owns an unincorporated business. There are nearly 23 million sole ...

The Requirements of a Sole Proprietor in Pennsylvania

Sole proprietorships are common business entities because they are simple to set up, and have relatively few filing ...

Different Types of Nonprofit Organizations

In the United States, federal tax-exempt status is available for many different types of nonprofit organizations. The ...

Browse by category
Ready to Begin? GET STARTED