LLCs provide the best protection for assets
LLCs provide the best protection for your assets and are considered very helpful for most entrepreneurs. You do not have to worry about liability. If you are hesitant about what to choose between an LLC, a Sole proprietorship, and a Corporation, the following comparison will help you to make your decisions easier.
LLC
An LLC is a legal business entity that protects its owners’ personal assets by filing paperwork with their state. An LLC can have single, or many owners (called ‘members’). As LLC has a separate identity from you, so in case your business is sued, your personal assets are safe. Single member LLC is treated the same way as a sole proprietorship. This means that the owners attach their business income to their personal tax returns.
The requirements for forming an LLC vary from state to state, so it is better to check the details beforehand. The fee for filing the paperwork may range from a few hundred dollars to a thousand dollars.
Sole Proprietorship
A sole proprietorship is for those who have not set up an LLC and operate their business as themselves. It can only have one owner. Your personal and business assets are one, not separated. It can be very risky because if your business is sued, your assets will be at risk to be used to cover the debts and liabilities, there is no protective shield. This might seem like a cheaper option for you to choose but it does not protects you and your assets like an LLC do. It may require minimal paperwork also but LLC provides your business with long-term benefits.
Corporation
A corporation is a legal entity owned by one or more stockholders and investors. It is managed by directors, elected by these stockholders. The owners of a corporation are known as “shareholders”. Corporations are required to hold annual meetings and record the meeting notes. A corporation is usually not considered a good choice for most entrepreneurs as it can be too costly and complex to handle. The steps and requirements for a corporation may also vary from state to state but there is a need to create corporate bylaws and file articles of incorporation.
Advantages
An LLC is a blend of a Corporation and a Sole Proprietorship. It includes the pros of them both and leaves out their cons. Let’s compare them all:
A Corporation has to pay ‘double taxes’. One at the federal level and the other that the owners need to pay on their personal income tax returns. They are too costly to set up. There is no such thing in LLC.
A Corporation is liability protection. It protects its owners from their business debts and liabilities. This is something that an LLC also does.
A sole proprietorship has unlimited liability which makes its owner completely responsible for all the business debts. LLC protects its owner from such responsibility.
A sole proprietorship income ‘passes through’ to its owner’s tax return. There will be no corporate tax and no double taxes need to be paid. Similar is the case in an LLC.
A sole proprietorship is easy to setup and is flexible in management. LLC also gives this same advantage.
LLC should be considered The Best
LLCs are the most popular and the most flexible business entities for entrepreneurs, business owners, and real estate owners. LLC was adopted in all 50 states nearly 3 decades ago to attract more small businesses. LLC provides the best liability protection for your assets and it also provides the ‘pass through’ double taxation.