LLC Vs. Sole Proprietorship: What You Need To Know?

What You Need To Know: LLC Vs. SP
What You Need To Know: LLC Vs. SP

The distinction between a limited liability company (LLC) and a sole proprietorship sometimes confounds new business owners. In this article, we’ll compare and contrast LLC vs. sole proprietorship in-depth and explain how they differ in terms of legal protection, creation, taxation, and more.

What Is An LLC?

LLC, or Limited Liability Company, is one of two main business designations in the United States. The other is called a Sole Proprietorship. Many first-time business owners are confused about which designation is suitable for their business, and as this is one of the most important decisions a business owner can make, we’re breaking it down for you. 

An LLC is a business entity structure that creates a separate business entity under your state’s specific laws. LLCs combine elements of sole proprietorship, partnership, and corporation, but also offer a lot of flexibility for the owners. In an LLC the owners determine the management structure, operational processes, and even tax treatments. LLCs can have only one member or can involve additional business owners – like CEOs, presidents, officers, etc. 

In an LLC, the “LLC” becomes part of the business name. Rather than John Doe Consulting, for example, an LLC would be named “John Doe Consulting, LLC”. By doing this, the business offers the members certain liability protections. For instance, if the company fails and goes into bankruptcy, its principals’ personal wealth or holdings are protected from bankruptcy or any liens against it. 

What Is A Sole Proprietorship

A Sole Proprietorship is a simpler form of business structure. In this form, a single person acts as the main business entity or owner. There is no management structure other than the owner. As an unincorporated business, there is no distinction between the owner and the business, so the owner can be held liable for debts incurred by the business. Many small business owners run a sole proprietorship by default, for example, freelancers and contract workers. These business owners may not see the need for full incorporation because they do all of the work for the business with no additional employees needed to perform their basic services. 

In a Sole Proprietorship, many times, the business name is or remains the name of the business owner, simply with the addition of what the business is: “John Doe – Consulting”, for example, or “Jane Smith – Writer”. In some cases, the business name may simply be the name of the owner, with no additional information added.

How To Set Up Your LLC Or Sole Proprietorship?

In cases of both LLC and Sole Proprietorship set-ups, there are state forms and fees that must be filled out and submitted. To find the specific fees and forms, first visit the IRS website to determine which wage and tax return forms you will need. Next, visit the website of your state’s Secretary of State. Here, you’ll be able to search existing business names to determine if the name of your LLC or Sole Proprietorship is available. Once chosen, you can then fill out the proper business forms, fees, and resource paperwork, also available on your Secretary of State’s website, and send it in. 



Kristina Knight-1
Kristina Knight, Journalist , BA
Content Writer & Editor
Kristina Knight is a freelance writer with more than 15 years of experience writing on varied topics. Kristina’s focus for the past 10 years has been the small business, online marketing, and banking sectors, however, she keeps things interesting by writing about her experiences as an adoptive mom, parenting, and education issues. Kristina’s work has appeared with, NBC News,, DisasterNewsNetwork, and many more publications.