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Published On: Wed, Jul 6th, 2022

3 Reasons Why LLCs are Usually Better than Sole Proprietorships

Suppose you are a one-person operation or only work with a handful of employees and subcontractors. In that case, you may be asking yourself why you should switch from a sole proprietorship to an LLC. While running a sole proprietorship seems more straightforward at first glance, you are also exposing yourself to all sorts of risks without realizing it. There are also inherent business benefits to LLCs that you should know about. Let’s take a look at why it’s usually a better idea to run a business as an LLC rather than as a sole proprietor.

 

  • Protection for Your Assets

 

The most significant benefit of LLCs over sole proprietorships is separating your business from your personal assets. If your business ends up going bankrupt, for instance, then creditors and the state won’t be able to get to your property. The only time people will have access to your assets is if you’re deemed personally responsible for something that happened while conducting business.

For example, suppose it was found that you were personally responsible for injuring someone in your business. In that case, they could both sue your business and you as a person for damages.

However, you should know that you can get LLC insurance for small business to reduce the chances of you getting sued personally. LLC insurance for small businesses will also put additional protection over your assets and cover most legal costs.

photo/ OpenClipart-Vectors

 

  • Easier to Divide

 

If you want to bring partners in at some point in time, this will be easier to do if you have an LLC set up. An LLC can be broken down into multiple units representing equal parts of the company. You can then decide to give away these units to anyone you wish and bring as many partners as you want. Again, this is not something you can do with a sole proprietorship.

 

  • More Professional

 

Another benefit of LLCs is that they look and feel much more formal and professional. People will be more inclined to trust someone who has an LLC. Things like applying for copyrights and protecting intellectual property are much easier when you have an LLC too.

Cases Where Sole Proprietorships Make Sense

However, you should know that there are certain cases where getting a sole proprietorship could make sense. For example, suppose you have humble ambitions and don’t want to go through the trouble of formally starting an LLC. In that case, you can always start as a sole proprietorship and consider moving to a better business structure later. 

A sole proprietorship can also work if you’re on a limited budget and don’t want to deal with the cost of registering or dealing with everything that comes with managing an LLC’s tax obligations.

These are all reasons why you should privilege an LLC over a sole proprietorship in most cases. If you still have reservations or questions about LLCs, don’t hesitate to contact the SBA or look for resources in your area.

Author: Zoe Price

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