Difference between Sole Proprietorship and LLC

Updated on February 23, 2018

Being a newbie in the business world, you may be flummoxed over making a choice between a limited liability Company (LLC) and sole proprietorship. Thus, before you make an absolute decision, which is without doubt a critical one, you should take into account the various pros and cons of both types of business. It is likely to depend on the nature of your business and your personal situation which business form you choose.

However, a sole proprietorship is primarily the easiest and most lucrative business form. An LLC is that which may have a limited liability protection similar to a corporation with its operational flexibility equivalent to a partnership.


Sole Proprietorship

A sole proprietorship can be referred to as an independent business run by a single person. A sole proprietor can also be called self-employed or a freelancer or maybe an independent contractor. This type of business does not involve any legal difference between the business and its owner. The sole proprietor remains completely liable for all the parts and finances of the business including any loans or debts. Even all the profits are received by the proprietor.

On the contrary, a private limited firm’s United States-specific type is termed as a Limited Liability Company or LLC. It is an amalgamation of a sole proprietorship and a corporation’s limited liability. LLC is a company’s legal form that offers its managers or owners limited liability in many jurisdictions.

Sole Proprietorship vs LLC

The concern of limited liability protection is probably what defines the major difference between sole proprietorship and LLC. Sole proprietors are solely accountable for all business lawsuits, processes, debts, and commitments. In comparison, an LLC provides limited liability protection to the company owners against any debts. The party filing a court case against an LLC is not meant to claim any personal assets of the company owners in the name of compensation for the debts.

In the case of a sole proprietorship, the owner has the whole business under his individual control. He is the only one to decide how the company will use the proceeds. But an LLC is run by more than one person who can all provide their inputs related to the business operations.

A sole proprietorship may sometimes be considered as partly reliable, which may make it a big deal for the owner to get loans. However, ownership interest may be provided in LLCs for money which may let the company expand further.

Comparison Chart

Sole ProprietorshipLLC
If the business owner retires or dies or even sells his business, the sole proprietorship may not exist anymore.An LLC continues to exist regardless of any case of the owner’s death or retirement.
The owner is responsible for any debts the business incurs in a sole proprietorship.No single member is individually held liable for any debts.
Start-up costs are low.It costs more to start an LLC.
The business owner solely runs the business.More than one member may manage the business.
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