When starting a small business you may be deliberating if a sole proprietorship or a limited liability corporation (LLC) is the right option. You will have to weigh in on the benefits and drawbacks of each to ensure that the paperwork is worth signing.
Self-Proprietorship
A sole or self proprietorship considers you the owner as the business. There is no paperwork to be done; you simply claim your business income on your tax return. The income you generate is considered self-employment income. You will want to clarify this with your local government because you may need to register as a sole proprietor, but there should not be any extra paperwork. This is by far the easiest of all business entities because you do not have to do anything. Although there are some draw backs. Since you are the business, any liabilities to your company now become your personal liabilities. If you happen to end up in court defending your business, the plaintiff can pursue your personal assets to cover business debts.
Limited Liability Corporation
A limited liability corporation is a business entity that exempts you from business related liabilities. This business entity requires that profits and losses be passed directly to the owners through 1040 Schedule C forms. You must be sure to keep LLC and personal business separate. You should have a business banking account, a federal tax ID, and must ensure that all business files are kept separate and secure. You will have to file a “Certificate of Organization” with your local government, so be sure to check with them about everything you may need to register as a LLC. This option is great because it takes the owner out of the liability uncertainties. The disadvantage is that it costs money to register as a LLC and as a result they are more expensive to maintain than a sole-proprietorship. Be sure to contact your local government to find out the specific details related to your area.The information party rocks on: Legal Entities – When and What Kind?
