Sole Proprietorship vs LLC
A detailed comparison to help you choose the right option.
Sole Proprietorship
The simplest business structure where one person owns and operates the business with no legal separation.
Advantages
- No formation costs
- Simplest tax filing
- Complete control
- No annual compliance fees
Disadvantages
- Unlimited personal liability
- No asset protection
- Harder to raise capital
- Business dies with owner
LLC
A separate legal entity that provides personal asset protection while maintaining simple management and tax structure.
Advantages
- Personal asset protection
- Pass-through taxation
- Professional credibility
- Perpetual existence possible
Disadvantages
- Formation and annual fees
- More paperwork
- Self-employment taxes
- State-specific rules vary
Key Differences
- 1Liability: Sole proprietors have unlimited personal liability; LLC members are protected
- 2Formation: Sole proprietorships require nothing; LLCs require state filing
- 3Taxes: Both use pass-through taxation by default
- 4Credibility: LLCs appear more professional to clients and banks
Which Should You Choose?
Start as a sole proprietorship for very low-risk ventures or hobbies. Convert to an LLC once your business generates meaningful revenue, involves contracts with clients, or carries any liability risk. The asset protection alone is worth the small formation cost.
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