Sun. Oct 17th, 2021

Should You Choose LLC than Sole Proprietorship?

New entrepreneurs must prioritize the legal structure of their company. If one person only manages the company, a sole proprietorship or a single-member limited liability company (LLC) are the best options.

This article will go over the differences between an LLC and a sole proprietorship in depth. Hopefully, by the end of this brief explanation, business owners in Texas, United States, can better understand the two structures and make a decision afterward.

What is a sole proprietorship?

The company and its owner are treated as one. There is no difference between the two. In short, the owner will handle everything, including the payment of debts and other financial obligations.

What is a Limited Liability Company (LLC)?

This particular structure allows for a distinct identity for the owner and the business. The SMLLC grants the member the right to asset protection from creditors’ lawsuits. In short, external parties cannot go beyond the member’s contribution because the LLC is a separate entity from the owner.

How much will it cost to register as a sole proprietor in Texas?

Using the sole proprietorship does not require any payment to register. The owner must pay for future liabilities and other operating expenses to keep the business running. It also involves paying taxes.

How much does an LLC cost in Texas?

If you are wondering how much does an LLC cost in Texas, it can range from $300 to $900. Breakdown of fees is presented below:

  • The filing fee for the Certificate of Formation is $300 by mail or online.
  • Hiring a registered agent can have a price range of $0 to $125 per year.
  • Charge for operating can range from $0 to 200.
  • Payment for taxes in Texas varies based on the types of taxes, such as for income, state, and payroll. The cost for this ranges from $400 to $300.

Other requirements do not require payment. The list below is free from cost in Texas:

  • Name reservation
  • Public Information Report (PIR)
  • Franchise Tax report
  • Employer Identification Number (EIN)
  • Operating Agreement

Advantages of a sole proprietorship

  • Simple to form
  • Easy to maintain
  • Less paperwork because the formation can be done immediately

Disadvantages of a sole proprietorship

  • Do not support asset protection.
  • There are no available tax benefits.
  • Growth potential is limited.
  • Offer lesser opportunities for credibility and branding.

Advantages of Limited Liability Company

  • Enable protection of the assets owned by the entity.
  • Promote tax benefits.
  • Have excellent growth potential in the industry.
  • Credible and trusted by customers.

Disadvantages of Limited Liability Company

  • Require more time to form the business
  • Have more paperwork during the formation
  • There is a need for additional funds for establishing the company.

To summarize, a sole proprietorship and a Limited Liability Company (LLC) are both excellent choices for a business person. It is simply a matter of weighing the benefits and drawbacks of various legal structures and the potential outcomes. As a key takeaway, business owners should not forget to ask questions while seeking professional assistance to obtain a more detailed explanation.

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