LLC vs. Sole Proprietorship
If you are currently going through the decision-making process of an Orlando new business setup of any kind, most likely you’re contemplating what type of business entity is right for you. If you’re opening a small business, the two popular choices are LLC (Limited Liability Company) and SP (Sole Proprietorship). Alternatively, you may already be operating under the SP designation, and you’re thinking about switching to an LLC. CPA Solutions explains the difference between the two.
Creating a Sole Proprietorship
Branching out on your own as a new business owner is exhilarating and daunting. Regardless of other challenges, choosing a business entity for a sole proprietorship is simple to do. This legal designation is for individuals who intend to be the sole owner of the business.
The steps include registering a business name with your local county clerk’s office which takes the form of a DBA (doing business as). Typically, sole proprietor’s must put a DBA notice in the local paper. Besides the required state licenses and permits, there are no further legal requirements for you to start operating your business as a sole proprietorship.
Taxes and the Sole Proprietorship
While setting up an SP is relatively easy, understand that under current federal and state tax rules, you are 100% liable for paying all business taxes. In addition to filing form 1040, you’ll need to file additional forms such as the Schedule C income and expenses report. It’s imperative to keep your personal and business expenses separate for tax reporting purposes. There are deductions available, but be careful to only claim what you can prove.
A Limited Liability Corporation
An LLC business entity is suitable for two or more people operating a business together. Basically, your LLC is a legal business partnership that enjoys some corporate structure protection.
Each partner is considered a member and is an investor in the business. Members submit LLC articles of organization along with the designated fee to the proper state authorities. LLC’s must also have an operating agreement for members, and it may be required to file a public notice of intent.
Taxes and the LLC
An LLC structure gives its members immediate protection from potentially punitive tax liabilities. LLC members are only liable for their portion of the investment. You are free from personal responsibility for business debt but must still report income and expenses on Schedule C.
Need Help Choosing a Business Entity?
Whether you’re in the process of an Orlando new business setup or considering an LLC switch, CPA Solutions can help. Our team of accountants can advise you about the best business entity for your situation. Call us today at (407) 650-9088 or contact us online to set up a chat.