So, you’ve finally decided the time has come to pursue your dreams of being your own boss. You’ve chosen a name, had a logo designed, scouted out office space, and all that really cool, fun stuff. With all of that out of the way, now comes the time to answer one of the most important questions you as a business owner will face.
How are you going to legally structure your business? This is a crucial step in your journey and one that you shouldn’t make until you’ve given it serious thought. What are the tax ramifications of the choices you make, both now and in the coming years as your business continues to grow? What about liabilities? What type of legal structure will offer you the most protection should there ever come a day when you find yourself (and your business), in a court of law?
There are many different open routes when it comes to answering this all-important question including structuring as an LLC or a Sole Proprietorship. Many similarities exist between the two so let’s take a moment to explore the differences and help you find out which one is best suited for your needs!
What is a Sole Proprietorship?
A Sole Proprietorship is defined as an unincorporated business that is owned and operated by a single person. There is no distinction between the business owner and the individual and as such, the owner has access to all of the profits and is the party responsible for any debts, losses, or liabilities that may be incurred.
What is an LLC?
A limited liability company or LLC is a more flexible business structure than the aforementioned Sole Proprietorship. Under an LLC, officers of the company cannot be held personally liable for business debts. This structure also protects personal assets. Although business assets including capital may be lost, one of the more attractive components of an LLC is that personal items are kept out of harm’s way.
Now that we’ve defined them, let’s take a deeper look at the difference between a sole proprietorship and an LLC and their benefits.
Top Benefits of a Sole Proprietorship
Establishing your business as a Sole Proprietorship comes with a number of key benefits including the following.
• Easy to establish:
A Sole Proprietorship is easy to establish. There aren’t any long, drawn-out processes or forms to complete and send away. The only thing you’ll need to do is register your business name and attain any permits or licenses needed to operate.
• Personal Name is Your Business Name:
No need to go searching for a unique name or running into disappointment after disappointment because the name you wanted is taken. Your personal name is your business name. If at some point you choose to change the structure of your business, you can change the name too so no need to be concerned.
• You Have Total Control:
Total control is what a lot of Sole Proprietors want and under this structure, that’s exactly what they get. You’re the boss in this scenario, reporting to no one, making all of the key operating decisions. This dynamic is popular for first-time business owners as they look to get their feet wet while also establishing their name.
• Proving Ground for Future Business Growth:
In some cases, a small business owner goes in as a Sole Proprietor knowing one day they’ll change as they grow. When you’re structured in this way, changing can be done relatively quickly and without losing any of the momentum your business has already established.
Top Benefits of an LLC
A Sole Proprietorship has a number of benefits, but so too does an LLC. Benefits of an LLC include:
• Limited responsibility:
As the name implies, structuring your business as an LLC means your liability is limited to only those assets owned by the business. Your personal assets cannot be touched in the event of a lawsuit, bankruptcy, or other damaging occurrences.
• Flexibility in management:
Even if you’re structured as an LLC, you can still be a one-man (or woman!) show while enjoying the protections and limited liability of your personal assets.
• Tax benefits:
There are myriad tax benefits that come with an LLC. LLC owners can deduct up to 20% of their business income which makes this an attractive option for many when they’re making plans to enter the market.
• Flexible profit sharing:
Profits in an LLC are typically distributed based on ownership percentages. This is an option or, an organization can simply choose to divide profits amongst the stakeholders equally. This type of flexibility is part of what makes structuring as an LLC a prime option for small businesses and startups.
Can they receive funding through a business loan?
The answer to whether or not an LLC or a Sole Proprietorship can receive funding from a lender is yes. A business that is formed under either of these structures can approach an SBA lender and submit credentials for funding.
Trust The Coley Group to Help You Define Your Business Entity with a Professional Business Plan
As you can see, Sole Proprietorships and LLCs both come with a number of different benefits. Before you decide which route to take, do your homework and decide what works best for you. Regardless of the route, you choose to take, you’re going to need a solid business plan that can outline your ideas, where you see your business going, the use of proceeds, and a solid financial model that will allow you to service the debt.
The Coley Group is experienced in this area. We’ve helped new and established businesses secure funding with professionally written plans, developed by our in-house staff of MBA writers.
If you’re in need of a business plan for your LLC, Sole Proprietorship, or anything business entity, feel free to contact us for a free quote. A representative will be happy to help and guide you through the process and help jumpstart your small business journey!