Sole Proprietor, LLC or Corporation- Which is the best for your business?


 Sole Proprietor, LLC or Corporation

Which is the best for your business?

As a business owner, you should be aware of what each type of business entity offers in terms of taxes, liability protection, and control over the business.

The easiest and most common business type is the Sole Proprietorship. As a sole proprietor, you automatically get the new (and misunderstood) responsibility of "self employment" taxes.

Sole Proprietorship

  • You have NO LIABLITY protection for your personal assets in case of a lawsuit
  • You have COMPLETE CONTROL over how to run and manage your business
  • There are not usually any start up fees required
Most new businesses start out this way until they get a better education about the other options.

LLC business type

The LLC is also very popular choice among new business owners, but it is not always chosen for the right reason. 

Some people claim that there are more tax advantages than a sole proprietorship. However, the truth is, an LLC does not differ (by itself) in any way regarding taxes than from a sole proprietorship. The only difference between a Sole Proprietorship and an LLC, is that the LLC offers you liability protection for your personal assets in case of a lawsuit. 

In order to get the liability protection, you have to organize your business as an LLC and pay a fee to the state where your business headquarters is located. But, in terms of taxes, an LLC is not any different from the sole proprietor. However, the LLC is the first step toward tax savings for your business.

LLC Summary:

  • Popular among new business owners
  • Does not different from Sole Proprietor in any way regarding taxes
  • Offers liability protection for personal assets in case of lawsuit
  • Have to organize the business as an LLC and pay a fee to the state
  • First step toward tax savings for your business

If you organize your business as an LLC, the tax benefits become more available by converting LLC into a CORPORATION, which is much easier to do than from a sole proprietorship. Plus, depending on whether your become an S corporation or a C corporation, you may also qualify for additional benefits as well. BUT, when you are organized as a CORPORATION, whether it be an S corporation or a C corporation, you could lose some CONTROL over the business and these types must be managed very carefully.

Corporation Summary

  • Easier to change from LLC to a Corporation
  • May qualify for additional benefits
  • Could lose some control over the business

Be sure to research and clearly understand each option carefully. It can be very expensive if you have to change the type and organization of your business once you begin to grow.

I offer step-by-step guidance with helping you make the right decision based on your current needs and the direction that your are expecting your business to take you in the future. 

Contact me if you would benefit from guidance as to the best business type to set up for your small business.

Bonnie Dorsey

972-672-8850

www.Dorseytaxplace.com



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