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LLC vs. Sole Proprietorship: Which Option is Best for Your Business?

January 17, 2022

It’s easy to start a business these days. And if you have a great idea that you want to begin building a new business around, you might feel like jumping in and hanging out your shingle immediately. But there’s one important decision a new business owner should make before starting their business, and that’s the type of business entity they want to run their business under.

Sole Proprietorship

A sole proprietorship is the simplest form of business you can start. As a sole proprietor, there’s no separation between you and your business. This means you remain liable for all of your business’s debts and obligations. Your business also isn’t recognized as a separate legal entity, and for tax purposes, the income from your business is taxed as your own personal income. 

In most cases, you won’t have to register or file anything with the state in order to start your business as a sole proprietorship. However, if you decide to do business under a name that’s not your own, you’ll have to file a fictitious name registration with the Secretary of State. This registration must be renewed every five years, but you can make the filing online, by mail, or in person.

Because there are so few costs associated with running a business as a sole proprietorship, becoming a sole proprietor will be the least costly option for starting up a business. However, there’s another form of business that might be a better option for your business, because it offers a number of advantages you won’t get with a sole proprietorship.

Limited Liability Company (LLC)

The limited liability company, or LLC, is one of the most popular forms of business for business owners across the country. The LLC is a relatively new form of business in Missouri, which recognized it as a business entity back in 1993, but its newness hasn’t detracted from its popularity here.

This popularity is due in part to both the limited liability it offers its owners and the tax treatment it receives as a “pass-through” entity. An LLC’s limited liability feature means that, unlike with a sole proprietorship, the owners aren’t personally liable for the business’s debts and obligations. 

And as a pass-through entity from a tax perspective, an LLC isn’t subject to double taxation like a corporation is. This aspect often makes the LLC more appealing for a new business owner who’s choosing between an LLC and a corporation as their business’s form of entity. 

While there are more costs associated with starting your business as an LLC than you would encounter as a sole proprietor, the costs are typically less than running your business as a corporation and maybe a small price to pay for the limited liability offered by an LLC.

Speak to a Springfield Business Lawyer Today

Starting a business is an exciting endeavor, but proper planning can save you from a major headache as your new business grows and matures. If you’ve got an idea in mind for a new business, talk with a Springfield business lawyer at LifeGen Law Group to see what the best options are for your business startup.