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Choosing the right business structure: LLC vs. Sole Proprietorship

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One of the most important initial decisions made when starting a Business is deciding between two of the most common business structures: sole proprietorships and limited liability companies (LLCs). While each option has its own benefits, whether it be through a more simplistic, cost-effective model or more flexibility when it comes to liability, it’s important to consider both options and their individual pros and cons when deciding the right path to start your business venture.

First, an initial overview will provide some of the primary distinctions made between both structural approaches. LLCs are one of the most popular forms of business for a variety of reasons. In terms of the larger picture, they are often considered the middle ground between corporations and partnerships. This is because they often incorporate some of the best elements of each approach. For example, Limited Liability Companies, like partnerships, allow owners the option of pass-through income taxation. This means that LLCs are taxed at an individual owner level rather than a corporate level. LLCs owners are also protected, like a corporation, from personal liability when it comes to business operations. This is one of the most significant advantages LLCs have in comparison to sole proprietorships who are often solely responsible for all debts and legal liabilities. When it comes to disadvantages, starting and continuing operations for an LLC is more time-consuming compared to a sole proprietorship. Most states also require some form of annual filing to keep the business in good standing.

Sole proprietorship are the starting business model for individuals looking to operate business alone and are the most popular form of business. Because there is a lack of real paperwork or formal organizing procedures needed, many people are operating their own sole proprietorships without knowing. Also, due to the single concentration of power, a sole proprietorship can easily make business decisions without prior approval, allowing for faster processing of changes or new developments. It is also quite simple and inexpensive to change the business name through the filing of a DBA (doing business as). In terms of disadvantages, sole proprietorships are often viewed as less credible than other business models due to the lack of a formal business entity.  They are also more difficult to sell than LLCs because each asset must be individually transferred to the person who purchases the business.

Of course, there are a number of other options to consider when starting a business venture such as partnerships or LLPs. The important thing to take away, however, is the significant of prior research when it comes to making impactful business decisions. Once informed of the options available from a business dispute lawyer in Arlington, TX, it will be easier to make the right choice when it comes to modeling your desired business journey.

Thanks to Brandy Austin Law Firm, PLLC for their insight into business law and LLC vs. sole proprietorship. 



This post first appeared on | Free Legal Advice, please read the originial post: here

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