Sole Proprietorship vs LLC
Compare sole proprietorships and LLCs — when paying for an LLC actually buys you something.
Overview
A sole proprietorship is what you have by default when you start a business as one person — no filing, no separate entity. An LLC requires a state filing and an annual fee but provides personal liability protection separating your business from your personal assets.
Choose Sole Proprietorship when...
Stick with sole prop only if your "business" is hobby-scale with no real customers, employees, or liability exposure.
Choose LLC when...
Form an LLC any time you have real business activity — customers, contracts, employees, premises, or anything that could give rise to a lawsuit.
Our Verdict
For any business with real customers, employees, contracts, or physical premises, the LLC's liability protection is worth the modest cost. Sole proprietorships make sense for hobbies, very small side gigs, or solo creative work where you have no realistic liability exposure. The protection isn't bulletproof — pierce-the-veil claims happen if you commingle funds — but it's a meaningful shield.
Frequently Asked Questions
What is the difference between Sole Proprietorship and LLC?
A sole proprietorship is what you have by default when you start a business as one person — no filing, no separate entity. An LLC requires a state filing and an annual fee but provides personal liability protection separating your business from your personal assets.
When should I choose Sole Proprietorship over LLC?
Stick with sole prop only if your "business" is hobby-scale with no real customers, employees, or liability exposure.
When should I choose LLC over Sole Proprietorship?
Form an LLC any time you have real business activity — customers, contracts, employees, premises, or anything that could give rise to a lawsuit.
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