How Should I Structure My Business? (Sole Proprietorship vs LLC)
One of the first - and most stressful - questions entrepreneurs puzzle through is “Should my business be a sole proprietorship or limited liability company (LLC)?”
Are you scratching your head over this too?
Don’t worry! It’s not as complicated to figure out as you may think. Let’s break it down.
Watch the Reel!
Liability
Sole proprietors are completely liable for business debts, whereas LLC owners are not (in most circumstances). If you opt for an LLC, your personal assets are more protected.
Registration
Sole proprietors do not have to register with their state, unless they are doing business as (“DBA”) a trade name.
LLCs must register with their state and complete an annual report yearly. (This is pretty much verifying that your information is still correct and paying a fee.)
In terms of cost, registration for each in my home state of New Hampshire is:
Trade Name: $10/year (NH charges $50 for 5 years, so this is the apples-to-apples number.)
LLC: $100/year
Bank Account
Both can open a business bank account, and both can apply for an employer identification number (EIN), which is required to hire employees.
I do not have employees, but I opted to apply for an EIN to protect my social security number. My EIN is used in place of my social security number on my bank account and business tax forms.
Apply for your EIN for free at irs.gov/ein
Employees
Both can hire employees, but it is highly recommended to form/“upgrade” to an LLC before taking on that liability.
Tax Filing
Both file taxes under your personal tax return on a Schedule C.
*Note that there are additional nuances if you are starting a multi member LLC.
That’s it! If you’re unsure which structure is best for you, I recommend reaching out to your state’s Small Business Development Center (SBDC). Talking to an advisor is free!
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