Business owners have a big choice to make in structuring their companies.
The options for ownership structure for entrepreneurs usually come down to two choices – sole proprietorship or limited liability companies (LLCs).
Each structure has its upsides and its downsides, and no new business owner should sign any legal agreement on his or her new company until proper due diligence has been done on sole proprietorships versus LLCs.
What Is a Sole Proprietorship?
A sole proprietorship is likely the easiest business structure to implement, but it is not considered to be a legally binding entity.A sole proprietorship can be created with any name the business owner wants. In legal terms, the company name in a sole proprietorship is just a name – it doesn’t split the business owner away from his or her company, like an LLC does.
On the downside, if there are any legal financial liabilities, lawsuits, fines, debts and other obligations, they are now at the expense of the business owner’s personal assets. A sole proprietorship is essentially the business owner operating under a different name.
What Is a Limited Liability Company?
A limited liability company offers new business owners something of a win-win from a tax and legal standpoint – the pass-through taxation benefits of a business partnership or sole proprietorship along with the limited liability protection that comes with being a corporation. By structuring a new business as a limited liability company, that business starts out as its own separate and legal entity, with separate debts and assets that remain apart from the owner’s personal financial picture, with the exception of the owner’s personal taxes.
Think of an LLC as a blend of a business partnership and a corporation.
The term “limited liability” means exactly that – unlike a sole proprietor, a limited liability business owner is protected against lawsuits, debts, and other financial obligations related to the operation of the LLC.
By and large, a limited liability company owner has largely protected himself or herself from creditors and legal trouble.
We at NestEggg recommend that you have the highest form of protection for your personal assets when conducting business.
If you would like for us to help you incorporate your business as an LLC or other entity, we would be honored to help you.
We are now offering specials to all businesses looking to incorporate and to have with Accounting & Tax. You can reach us at 760-322-4622