Forming a business is no mean deal. You need to do so many things at once — get funding, hire employees, find office space, and establish your business too.
The legal processes that you need to go through while starting your business can be quite lengthy and complicated too.
Additionally, they depend a lot on the business structure that you’ve chosen.
Sole Proprietorships and Limited Liability Companies (LLCs) are two of the most popular business structures that you can choose from.
But which one is the best for you?
Let’s find out.
Ownership Structure
Sole Proprietorships can’t be owned by more than one person. However, LLCs can have multiple owners who are called members.
These members don’t necessarily have to be individuals too. They could be other foreign entities and LLCs too.
Starting the Business
The way you can establish the business also depends on the business structure that you choose. While the process of starting a Sole Proprietorship is relatively simple, you can’t say the same about LLCs.
You can seamlessly start a Sole Proprietorship under your name. On the other hand, an LLC would require you to file the Articles of Organization with the Secretary of State.
You’ll also have to create an Operating Agreement and pay the state filing fees. These fees would also have to be paid annually to your state.
Business Taxation
Your business structure also dictates your organization’s tax implications. Both Sole Proprietorships and LLCs offer a pass-through taxation feature. This would mean that your business income would pass through to you. As a result, you’d be saved from double taxation.
However, you will be required to pay a self-employment tax in this case. While there’s no way of avoiding this tax in Sole Proprietorships, you can do so in LLCs.
You can choose to get your LLC taxed as an S-Corporation. You’d then be treated as an employee of the business and would be saved from self-employment tax. However, you would have to pay corporate taxes for the S-Corporation.
There’s a lot more to LLCs and Sole Proprietorships than this. To learn more about them, check out this detailed infographic developed by GovDocFiling.com.
About the Guest Author : Brett Shapiro
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
