Small Business: Sole Proprietor or LLC?

If you're thinking of starting a small business, then you're probably wondering:
Should I operate as a Sole Proprietor, or form an LLC (limited liability corporation)?

Well, it depends.

First, there are various business structures you can consider such as sole proprietorship, LLC, partnership, corporation, and S corporation. But sole proprietorship and LLC are the more simple and common structures.

​Second, which state do you plan to run your business? In some states, it is especially  more expensive to operate an LLC.

​Third, is your business vulnerable to lawsuits? The more likely a client or merchant will sue, then the more likely you may need to invest in forming an LLC. If you do need legal advice, then it's best to seek a business law attorney. 

Below are some comparisons between the two structures:

​Sole Proprietor
As a sole proprietor, there is no separate business entity. This means that the sole owner is one in the same with her business because the owner is personally liable for the company's debt.

There is no formal registration for a sole proprietorship because the owner automatically becomes a sole proprietor as soon as she performs business activities.
However, you may still need to obtain necessary licenses and permits depending on your industry. 

LLC
Forming an LLC creates a separate business entity from the owner. This means that the owner is shielded from most personal liabilities.

Formal registration is required in order to form an LLC, but the forms and filing fee depend on the state in which you conduct business activities. 
Below are some of the state websites:

• Hawai'i: Business
• California: Secretary of State
• Utah: Division of Corporations and Commercial Code
• Washington: Secretary of State
• Texas: Secretary of State
• Nevada: Secretary of State
• Alaska: Department of Commerce, Community, and Economic Development

To see a bigger list or research a different state, visit: U.S. Small Business Administration.

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​Consultation: If you'd like additional help in determining whether to operate as a sole proprietor or form an LLC, then contact me today.

​Ruby

Fanaika Fa'agau Consulting, LLC
(775) 237-8667
[email protected]