Sole Proprietorship vs LLC – Which Business Form Is Right For You? (Differences, Pros, And Cons) [Video]

Sole Proprietorship vs LLC – Which Business Form Is Right For You? (Differences, Pros, And Cons). In this comparison video I will talk about Sole Proprietorship vs LLC.

So, the main difference between them is liability protection
Sole Proprietorship is a basic type of business where there is no legal separation between the owner and the entity. Being a sole proprietor makes you lose out on particular liability protections. As the owner, you are responsible for your business debts.
On the other hand, an LLC is a limited liability company that has a separation between the owner and the business. As an LLC, you get liability protection from any lawsuits or debts that your business may incur.
An LLC, therefore, wins in this category since it helps you enjoy liability protection.

Formation
Becoming a sole proprietor is easy since all you need is zoning permits or a business license to start running one. It is less expensive to establish a sole proprietorship. An LLC, on the other hand, is not that straightforward to form since it involves some paperwork. Apart from filing for business permits, you may also need to file articles of organizations, which adds to the cost.
A sole proprietorship is, therefore, easy and less expensive to form.

Obtaining financing
Most investors do not like investing in sole proprietorships. This can make it hard for you to secure equity financing as a sole proprietor. Your options are more limited to family and friends, and it may make it hard for the business to grow.
Getting debt and equity financing as an LLC is easier since you have a separate business entity. Investors may choose to invest in this due to your established business credit score. Therefore, an LLC has more potential for growth.
An LLC, therefore, has a higher chance of obtaining financing than a sole proprietorship.

But do they have any similarities?
Yes. They are similar in that they are both pass-through entities. This means that the business does not pay income taxes. Additionally, if you choose either of them and hire employees, you have to obtain an employer identification number.

To sum up, how do they compare- Sole Proprietorship or LLC?
I started off as a sole proprietor when I established my business since it was easy to form, less expensive, and it did not involve a lot of paperwork. However, I like the liability protection and tax benefits that come with an LLC. An LLC is also more attractive since it helps me obtain finances easily. Therefore, an LLC is the overall winner.

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