Sole proprietorships and limited liability companies (LLC) are similar in the fact that they are both examples of the many different types of businesses that an individual can create. However, a sole proprietorship is very different from an LLC and there are a number of advantages and disadvantages that the potential owner(s) of a sole proprietorship or an LLC should be aware of before choosing to form a company.
A sole proprietorship must have a single owner. An LLC, on the other hand, may have any number of owners as long as it has at least one owner (in most states.)
A sole proprietor may be held personally liable for all of his company’s debts while the owners of an LLC are only responsible for debts up to the amount that they invested (in most cases.)
The owner of a sole proprietorship owns all of the company’s assets. However, the assets of an LLC are the property of the company itself and not the property of the LLC’s owners.
An individual can form a sole proprietorship simply by acquiring the permits that she needs to start the business (if any are required) while an LLC must file with the state.
A sole proprietorship must report its income on its owner’s personal tax return while an LLC may choose to file taxes as a sole proprietorship (if it has a single owner), a partnership, or a corporation.