Benefits Of LLC vs. Sole Proprietorship

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Benefits of LLC vs. Sole Proprietorship

Any person who is looking to begin a business is supposed to consider the kind of business organization that best suits their situation. A Limited Liability Company or LLC refers to a flexible enterprise form that blends beneficial elements of corporate and partnership structures. However, a sole proprietorship is a setup where the whole business is run and owned by one person. Below are advantages of LLC vs. sole proprietorship.

1. Capital
Starting a new business normally requires some form of capital. Since a sole trader or proprietorship is under the person who runs and owns the business, any debt or credit is the lone accountability of that individual. If loans are not paid in time, the owner is totally liable for all bad debts. However, with the LLC, the company is considered to be separate from the person who owns it. The debt is therefore not the sole accountability of an owner if an LLC business fails.

2. Loans
How a firm applies for loans differs with the two business structures. Since the LLC is unconnected to the owner, getting loans is simpler. This is particularly true if the company has been functioning well for several months. Nevertheless, in the sole proprietorship it might be difficult to get financing, particularly if the sole owner does not have a good credit history. This might cause delays in important business functions.

3. Protection
LLC offers legal protection to its owners against any lawsuits. The business is separate from the owners and if an individual sues the firm, only the firm assets are going to be used for paying any compensation. Nonetheless, in the sole proprietorship, the company and the owner are the same. This basically means that the owner’s assets including the home, car among others may be claimed in any negative judgment against the business.
The only downside linked to the LLC structure is that it requires special fees so as to be fully established. In the sole proprietorship, there are no fees required for setting up the business.

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