If you are a sole proprietor who is wondering if becoming a sole proprietor or single-member LLC may be right for you, you will want to learn more about the pros and cons of being an individual sole proprietor or single-member LLC. Read the following information to get more insight into these two legal business entities.
After you read the information, book a call to speak to us here: https://mollaeilaw.com/start to either register your sole proprietor as a (doing business as) DBA business, or establish a limited liability company (LLC).
Which is Better – an Individual Sole Proprietor or Single Member LLC?
To get a better idea of how an individual sole proprietor or single-member LLC works, you need to define each entity. A sole proprietorship features only one person who owns all the debts and assets of his or her business.
This business does not have to claim assets inside the corporate structure, as it is deemed the owner’s property. If you are a sole proprietor, you report and pay taxes on your individual tax return.
You do not record them for your business. As a result, you can establish a business as a sole proprietorship without the need to file any legal paperwork.
If you don’t plan to use your first and last name for your business, you will have to register a DBA (doing business as) name. You need to check with the secretary of state’s office where you do business before you register the name. Book a call or speak to us here: https://mollaeilaw.com/start to find out more about DBA registrations.
A Sole Proprietorship – The Main Benefits
Below are the main advantages associated with sole proprietorships:
- A sole proprietorship is considered simple to set up and very affordable. You do not have to pay state filing fees nor draft any formal legal agreements.
- If you want to work as your own boss, a sole proprietorship permits you to do so.
The Main Drawbacks Associated with Working as an Independent Contractor
Drawbacks to this type of business set-up include the following:
- A sole proprietorship can have issues with liability. For example, the biggest drawback is a sole proprietor’s exposure to a lawsuit. Because you are personally liable for your business debts and obligations, a claimant or creditor can go after your personal property, such as your home or car.
- You also will need to dissolve the entity if you plan to add another owner. In this case, you would dissolve the business and turn the start-up into a general partnership. Also, unlike an LLC, a sole proprietorship ceases when the owner retires or dies.
The Advantages of Drawbacks of Single-Member LLCs
If you set up an LLC, or single-member LLC, it usually is to protect yourself from getting sued. A short way to say, single-member LLC is SMLLC, which officially stands for single-member liability company.
This type of company is designed for one business owner, or a sole proprietor or independent contractor who wishes to assume a business identity as one owner.
Benefits of SMLLCs
Some of the benefits begin accruing immediately, and include the following:
- An SMLLC allows the owner to keep his or her business and personal funds separate. He or she can also protect their personal assets if they get sued.
- The income taxes can be filed with Schedule C of your individual personal return.
While an SMLLC will not make you invincible as a business owner, it will certainly limit your personal liability – something to seriously consider if you have children, own a house, and a couple of vehicles.
Book a call or speak to us here: https://mollaeilaw.com/start to form your SMLLC today.
How to Set Up Your SMLLC
If you want to enjoy more protection from liability but still want to work on your own, you will need to set up your SMLLC as soon as you contact a skilled and competent business lawyer. Again, book a call or speak to us here: https://mollaeilaw.com to get your business launched.
To create the SMLLC, you will need to register the company with the state where you primarily do business. A document, called an Articles of Organization, or a similar rendition, must be submitted, along with annual fees.
You will need to get a registered agent to accept your formation paperwork and to officially receive documents after you have established your LLC company. While a sole proprietorship involves less documentation and hassle, it can turn into a nightmare business if you end up getting sued.
Becoming a Sole Proprietor or Single Member LLC – What It Means for Your Taxes
When becoming a sole proprietor or single-member LLC, you usually report taxes on your individual tax return. However, you can, as an LLC, to be taxed as a C Corporation. If you choose this method, you will file a tax return and pay state and federal taxes at a corporate tax rate.
Naturally, if you talk to your accountant and attorney, you will find a method that works out best for you.
What Happens Next?
If you are still unsure about the differences and advantages associated with a sole proprietor or single-member LLC, don’t despair. You can get your questions answered by contacting an expert in the field. We know that you want to make the best choices for your small business start-up.
That is why we make it easy to book a call or speak to us here: https://mollaeilaw.com. We understand all the steps you need to take to establish your small business, and do so successfully.
Whether you want to set up a sole proprietorship and operate under a doing business as (d/b/a) name or find that an SMLLC is a better choice, you will be better able to comply with the law and promote your brand more successfully.
We can help you decide on an approach that works out best for you professionally and financially.
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