What is the difference between Sole Proprietorship and LLC?

Sole Proprietorship and LLC are two types of business settings with some differences in terms of organization, benefits, management, etc. As the name implies, a sole proprietorship is a type of business setting in which an individual controls all the operations of the business without any other business partners. The decision of what to do with the business is solely made by the owner of the business. LLC, on the other hand, means Limited Liability Company.

This is a business structure which is owned by two or more individuals in which the business taxes are paid individually from their incomes. For sole proprietorship, you don't need a huge amount of money before you can start the business, but for LLC, it requires a lot of money before it can be set up, and you will first need to register the company with the state, and this is not going to be for free. Another difference is that any debt incurred in sole proprietorship will be paid solely by the owner of the business, while debts are equally shared by all the owners in LLC

Small business startup owners have important decisions to make in structuring their companies. The following are the significant differences between a Sole Proprietorship and a Limited Liability Company (LLC): a. OWNER CONTROL: A sole proprietor is responsible for making all the decisions regarding how to operate the company and use the company's resources; hence, has full control over the business. In contrast, the owners of an LLC hire individuals as managers to manage the company concerning the day-to-day running of the business. b. LIFESPAN: A sole proprietorship business ceases to exist when the sole proprietor dies, retires, or sells the business.

On the other hand, an LLC may live forever because it has an operating agreement that indicates provisions for continuing the company in the event of a member's death, withdrawal, or retirement. c. LIABILITY PROTECTION: Sole proprietors have unlimited liability for business debts, lawsuits, and other business-related obligations; hence, they are held personally liable for all debts incurred while operating the business. In contrast, operating as an LLC provides the owners of the company with limited liability protection against company debts and obligations. Creditors and parties that initiate a lawsuit against an LLC cannot go after an owner's assets as compensation for business-related debts.