A limited liability corporation (LLC) can be established by a single businessperson or by a number of businesspeople, as opposed to a sole proprietorship, which is a company owned and run by only one person.
Each has special advantages that make it a successful business structure and also the negative side.
Solo Entrepreneurship
As a sole proprietor, starting a firm is the simplest option available; you essentially just get to work. The business IS YOU.
In fact, you must submit a “Doing Business As,” or DBA, name in the country where you are conducting business if you want to give the company a name other than your legal one.
But truly, it’s actually that easy and cheap. Even paying taxes is simply because you aren’t required to submit a different return for your company and may include all of its income and losses on your personal tax return. That’s the positive side of a sole proprietorship.
A sole proprietor has no liability coverage, which is a drawback. So, if someone becomes ill as a result of one of your items or products, they can directly take you to court.
They will also have rights to all of your possessions, including your cash, house, and vehicles if they prevail.
A sole proprietorship might be appropriate for you if you were offering items that aren’t edible as opposed to meals.
But a sole proprietorship should not be used for any business that may incur liabilities that cannot be protected by insurance.
LLC (Limited Liability Company)
Being protected from liability is one advantage the LLC has over a sole proprietorship. A potential plaintiff would have to file a lawsuit against the LLC, and if successful, would typically be restricted to the LLC’s assets rather than your personal assets.
Profits and losses from a single-member LLC are taxed in the same way as they would from a sole proprietorship: on your personal tax return.
But you can include one or more partners, unlike a sole proprietorship. The LLC still offers you the benefit of pass-through taxes, even though you give up the ease of reporting your business’ earnings and losses on your personal tax return at that point.
The drawback of an LLC is that it must be registered as a statutory entity, which necessitates filing a certificate of formation (known by different names in different states) and paying registration fees.
This is an easy procedure: On a state website, you can typically find the filing instructions and an example form. Alternately, you could engage with a filing service that will bill you for handling the paperwork.
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