Sole Proprietorship vs. LLCs: What’s the Best Option for You?

Did you know that there are over 31.7 million small businesses in the United States alone? These businesses comprise over 99% of all the businesses in the country. 

As an entrepreneur, it’s important to know how to legally establish your business in the country. You need to get funding, find partners, etc. But the most important aspect is that of choosing your business structure. 

But why?

This is important because each legal entity has its own set of requirements, pros, and cons. It impacts your management structure, tax, and more. 

Among the various business structures, sole proprietorships and LLCs are widely popular. So, let’s take a look at them to understand their various advantages and disadvantages.

Formation Process

The process of starting a sole proprietorship is quite simple. You can operate the business under your name. Alternatively, you can choose to do business under a fictitious name by applying for a DBA or “doing business as” in your state and pay a filing fee for the same.

What about LLCs?

The process of forming LLCs is slightly different. You need to file your Articles of Organization with the Secretary of State. Additionally, you need to create an Operating Agreement that defines the roles and responsibilities of all the owners or “members”.


When it comes to ownership, sole proprietorships can be owned by one person only. However, this isn’t the case with LLCs. Individuals can own LLCs but they can have multiple members as well. These members needn’t be individuals and they could be other LLCs or foreign entities as well.


Sole proprietorships offer the pass-through taxation feature which means that the income of the company passes through to the owner. You’d have to report this in your personal income tax return. 

Just like sole proprietorships, LLCs offer pass-through taxation as well. However, LLCs can also choose to get taxed as an S-Corporation, unlike sole proprietorships.

Regardless of the type of structure you choose, you need to do the filing process well to establish your business successfully. To understand how to go about it, check out this infographic created by GovDocFiling that explains the way ahead to form your company the right way.

Author Bio-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. 

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