Sole Proprietorship vs LLC
A sole proprietorship is the simplest business structure — you start by default when you do business without forming an entity. An LLC adds liability protection. Here's when each makes sense.
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| Feature | Sole Proprietorship | LLC |
|---|---|---|
| Formation | Automatic — no filing needed | File Articles of Organization ($50–$500) |
| Liability protection | None — personal assets at risk | Yes — personal assets protected |
| Taxes | Schedule C on personal return | Same (single-member) or partnership return |
| Annual cost | $0 | $0–$800/yr (state dependent) |
| Credibility | Lower — seen as informal | Higher — looks more established |
| Best for | Very low-risk side hustles, testing an idea | Any business with real revenue, clients, or risk |
When to Upgrade to an LLC
- •You have clients, customers, or contracts
- •You have assets worth protecting (home, savings, etc.)
- •Your business involves any physical risk (e.g., services at client locations)
- •You want to build business credit separately from personal credit
- •You're earning consistent revenue (>$1,000/month)
Related Resources on This Site
Helpful guides
- Employment Lawat-will employment — what it means
- Required Benefitsrequired employee benefits by state
- Benefitssmall business health insurance options
- ToolSOC 2 readiness self-assessment