The business structure is one of the first things that you’ll have to decide as a new entrepreneur. For most people, the decision comes down to a sole proprietorship and a limited liability company (LLC).
While both of these options are suitable for small businesses, there is an important difference between them that you should consider as you make your decision.
Protection for your personal assets
The primary difference between a sole proprietorship and an LLC is that the LLC provides protection for your personal assets. When you establish an LLC, there is a dividing line between your own assets and the business. That line isn’t present when you set your company up as a sole proprietorship.
If your business has debts or has a legal judgment against it, your personal assets are safe from being seized to pay those. Your personal assets are also in the clear if you have to file bankruptcy for the business. This protection doesn’t apply if there’s fraud associated with the situation.
Some new entrepreneurs assume that they can get by with a sole proprietorship because they don’t consider their company as one that comes with risks. The fact is that the LLC provides protection that even medium-risk companies can benefit from.
There are a lot of factors besides business structure to consider when you’re starting a new company. Having someone to review the legal documents that are present may be beneficial to ensure that the entrepreneur and business are both protected.