Every business owner has to make an important decision about the business structure they want for their company. This decision is crucial because it will shape how the business operates, its legal standing, and its tax obligations.

Sole proprietorship and LLCs (limited liability companies) are two of the most common options, and either choice can be a good one. However, there are some differences to understand before making a final decision.

Unless you’re a lawyer or a tax accountant, you may not be familiar with all the nuances of sole proprietorships vs. LLCs, so let’s break down some of the main differences between these two business structures.

What Is a Sole Proprietorship?

A sole proprietorship is a business structure where the owner is the only person responsible for the company’s operation. The owner is also fully liable for the company’s debts, meaning their assets are on the line.

Anyone who runs a business alone operates a sole proprietorship by default. This is why sole proprietorships are the most common form of business, especially for small businesses and solo entrepreneurs.

What Is a Limited Liability Company?

An LLC, or limited liability company, is a business structure that combines elements of a corporation and sole proprietorship. It gives the business owners limited personal liability for their company’s debts but with fewer requirements than a corporation.

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