Sole proprietorship vs llc vs s-corp
One of the first and most important decisions you’ll make as a business owner is choosing the right legal structure. Each type offers unique benefits and considerations. Below explains the differences between the three common business structures: sole proprietorship, LLC, and S-Corp.
Sole - Proprietorship
The simplest and most common form of business ownership, ideal for solo entrepreneurs and small businesses.
The business and the owner are considered one and the same for legal and tax purposes. The owner has full control but is personally liable for business debts and obligations.
From a tax perspective, income and expenses of the business are reported on the owner’s personal tax return and are subject to self employment tax.
Owner’s must pay themselves through an owner’s draw.
Limited Liability Company (LLC)
Combines the simplicity of a sole proprietorship with the liability of protection of a corporation, making it a popular choice for small businesses.
Offers limited liability protection of the owner’s assets from business debts and lawsuits. This means that if the business is sued or goes bankrupt, the owners’ personal assets are generally protected.
From a tax perspective, LLCs have flexibility in how they are taxed. They can be elected to be taxed similarly to sole proprietorships or corporations for potential tax advantages.
Owner’s can choose to pay themselves through an owner’s draw or upgrade to an S-Corp and pay themself a salary.
S-Corporation (S-Corp)
Provides liability protection of a corporation while offering potential tax benefits.
A business must meet certain eligibility criteria to qualify.
From a tax perspective, business profits and losses are passed through the owner and reported on their individual tax returns.
Owner’s pay themselves through a salary.
The right structure in place is crucial for your business. Consider consulting with a professional about which type is best for you.
