Pros and Cons of Choosing an LLC over a Sole Proprietorship
Sole proprietorships and LLCs are two of the most common business structures for new, small businesses. It is understandable if you are struggling with the decision of which of these to use for your new business.
Most advice that you will get from different sources will suggest that LLCs are the safer option. Well, LLCs definitely offer certain advantages over sole proprietorships, which is why most people choose them.
If you are inclined towards starting an LLC but still have some doubts, this post is for you.
Want to learn more about the advantages and disadvantages of LLCs?
Let’s get started.
Advantages of LLCs
The first point in favor of LLCs is that they provide personal liability protection, which is the main reason why many entrepreneurs opt for LLCs over a sole proprietorship.
This means that if your business suffers losses or has debt, then you are not personally liable to pay it off by putting your personal assets at risk. In the case of LLCs, personal assets and business assets remain separate.
The second advantage that LLCs provide is flexibility in taxation. An LLC can choose to be taxed as a sole proprietorship, corporation, or partnership.
The third advantage of starting an LLC is that it is easier to obtain funding to start an LLC than a sole proprietorship.
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Disadvantages of LLCs
Talking about the cons of LLCs, the biggest one is that you do not have complete authority over the business as all members share administrative control.
You also need to pay annual filing fees for an LLC, which is not the case with sole proprietorships.
What’s the Final Verdict?
Overall, LLCs do offer certain advantages over sole proprietorships and do not have any major disadvantages. If you are considering forming an LLC, do so without any doubts.
Want to learn more about LLCs and sole proprietorships?
Check out this infographic by GovDocFiling on Sole Proprietorships vs. LLCs and see which one is better for you.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.