Sole Proprietorship vs. LLC

Sole Proprietorship vs. LLC

One important decision that you will have to make regarding your business is whether to function as a sole proprietorship or as a limited liability corporation (LLC).

While there is some cost involved in setting up an LLC, doing so removes personal financial risk should any type of legal action be brought against your small business.

Limit Your Liability

When you operate as a sole proprietorship, the liability for the business is entwined with your personal finances. This means that any assets you have, including your home and personal savings accounts, can be attached should your business get into legal trouble.

Such a situation could devastate you financially.

If, however, your business operates as an LLC, your personal assets cannot be considered in the event of a lawsuit. For example, if your business were to be sued, only assets listed under the business would be considered in any resulting judgment.

Your personal accounts and other assets would not be taken into consideration.

Cost Considerations

The cost to set up an LLC varies. There are companies that do nothing but help small business form an LLC. These companies charge anywhere from $75-$350 for their services.

Another route is to enlist the help of a lawyer. While this will cost a bit more, you will have the peace of mind that everything was done correctly.

It is a wise decision to spend the money to form an LLC before you begin full operation of your small business. The small investment you make now will provide you with important protections should anything go wrong in the future.